使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
Ladies and gentlemen, thank you for standing by for CIGNA's first quarter 2005 results review.
At this time, all callers are in a listen-only mode.
We will conduct a question-and-answer session later during the conference and review procedures on how to enter queue to ask questions at that time. [OPERATOR INSTRUCTIONS] As a reminder ladies and gentlemen this conference including the question-and-answer session is being recorded.
We will now begin by turning the conference over to Mr. Ted Detrick, please go ahead, sir.
Ted Detrick - VP, IR
Good morning, everyone and thank you for joining today's call.
I am Ted Detrick, Vice President of Investor Relations.
First I must say that it feels great to be back in this role again.
With me this morning are Ed Hanway, CIGNA's Chairman and CEO, Mike Bell, CIGNA's Chief Financial Officer, David Cordani, Senior Vice President of our HealthCare business, and Jon Rubin, CIGNA HealthCare's Financial Officer.
In our remarks today, Ed Hanway will begin by discussing highlights for the quarter.
Mike Bell will then discuss CIGNA's first quarter financial results and provide the financial outlook for the full year and second quarter of 2005.
David Cordani will discuss our medical membership results and CIGNA's approach to consumerism.
Ed will then conclude our remarks with a brief discussion of CIGNA's strategy.
We will then open the lines for your questions.
As noted in our earnings release, CIGNA uses certain financial measures which are not determined in accordance with Generally Accepted Accounting Principles, or GAAP, when describing its financial results.
Specifically we now use a term labeled, Adjusted Income from Operations, which is income before cumulative effect of accounting change, realized investment results, and special items, with special items being unusual charges or gains, as the principal measure of performance for CIGNA and our operating segments.
This measure is most directly comparable to the GAAP measure, income before cumulative effect of accounting change.
Please see Note 3 of today's press release which is posted in the Investor Relations section of CIGNA.com for a discussion of these matters.
Now, before turning the call over to Ed, there are a few items that I would like to cover pertaining to our first quarter results.
I would note that CIGNA's earnings release details three special items which are excluded from adjusted income from operations.
The first item is an after-tax gain of $169 million related to the accelerated recognition of a portion of the deferred gain on the sale of CIGNA's retirement benefits business.
The second item is an after-tax charge of $33 million, primarily related to initiatives to further streamline operations in the HealthCare business and in supporting areas.
The third item is an after tax charge of $8 million related to the modified co-insurance arrangements, related from the sale of CIGNA's retirement benefits business as well.
These items will be discussed in further detail in CIGNA's report on form 10-Q which we plan to file with the Securities and Exchange Commission later today.
Now, in our remarks today we will be making some forward-looking comments.
We would remind you that this there are risk factors that could cause actual results to differ materially from our current expectations.
Those risk factors are discussed in the form 8-K filed this morning with the Securities and Exchange Commission.
And with, that I will turn it over to Ed.
Ed Hanway - Chairman & CEO
Thanks, Ted.
Good morning, everyone.
I will start today's call with some brief headlines about our results, and I will also make some comments about our current progress and expectations regarding our HealthCare business.
Building on our accomplishments in 2004, this quarter we continued to make significant progress on our strategic imperatives to strengthen our HealthCare capabilities, including increased investment in our distribution, service, and product development areas.
Our progress has established a strong foundation for future growth.
We also continue to profitably grow our disability and life, and international businesses.
And we expect these two businesses to continue to contribute to our overall earnings growth.
First quarter adjusted income from operations was $297 million, or $2.24 per share, which is a 25% per share increase over a year ago.
A strong earnings performance is continued evidence that we are effectively executing on the fundamentals of our business.
Regarding HealthCare, our top priority for 2005 is to stabilize our medical membership.
Our first quarter membership result was better than expected, due to improving sales and persistency results in the regional segment, which we expect to continue throughout the year.
For our national accounts business, the combination of improving fundamentals and recent infusion of top caliber sales talent has positioned us for stronger 1/1/06 results.
While still early, the feedback from both brokers and customers about our products and services has been positive.
With regard to strengthening our HealthCare capabilities, we have made investments in several areas.
For instance, in sales and distribution, we hired a number of highly talented professionals, several of whom have specific expertise with consumer directed products.
We have also entered into strategic alliances with Health Alliance plan in Michigan and Tufts in Massachusetts, to strengthen our presence in key markets.
Our investment in product has been substantial, and is yielding a number of new capabilities such as new disease management models for obesity and depression, and leading-edge customer support tools to compliment our consumer directed product offerings.
In addition, we continue to be recognized in the market for our superior clinical quality and medical management capabilities, which enable us to provide cost effective care for our members.
Our investments in service have resulted in high customer satisfaction rates, and we plan to continue investing to keep these capabilities leading-edge in the industry.
Now, in a moment, David will provide further examples of how our value proposition is being received in the marketplace, and how we are differentiating ourselves from other competitors in promoting consumerism through product innovation.
In my closing remarks, I will discuss our strategy for 2005 and beyond, which is to further differentiate CIGNA as a company with a leadership position in product innovation and superior clinical quality, and leading-edge consumer oriented products that provide real value through better health outcome.
In the meantime, let me now turn it over to Mike for details on the first quarter and our 2005 outlook.
Mike?
Mike Bell - EVP & CFO
Thanks, Ed.
Good morning, everyone.
In my remarks today I will review CIGNA's first quarter results and discuss our outlook for full year and for second quarter of 2005.
As Ted noted our first quarter results include several special items, and these matters are discussed in our earnings release, and will also be addressed in our 10-Q which we expect to file later today.
In my review of consolidated and segment results, I will comment on adjusted income from operations.
As Ted noted, this is income before the cumulative effect of accounting change, realized investment results, and special items.
This is also the basis on which I will provide our earnings outlook.
Overall, our consolidated results for the quarter were stronger than we had previously estimated, reflecting higher earnings in our HealthCare, disability and life, and international businesses.
Our first quarter earnings were $297 million, or $2.24 a share, compared to $253 million, or $1.79 a share in the first quarter of last year.
I will now review each of the segment results beginning with HealthCare.
HealthCare earnings in the first quarter of 2005 were 205 million, compared to 180 million in the first quarter of last year.
This result included favorable prior year claim development of $67 million after tax, of which $21 million was in commercial HMO.
This favorable development reflected continued strong medical management and underwriting results.
Excluding prior year development, HealthCare earnings were in line with our expectations, and were below 2004 mainly due to lower membership.
Membership at the end of the quarter was approximately 7% below year-end 2004 levels, and this result is modestly better than the estimated range we discussed in February.
Premiums and fees for the segment declined 10% relative to last year, reflecting the impact of lower membership, partly offset by price increases.
I will now provide an update on medical cost trends and premium yields.
Consistent with last quarter, I will provide trend information for our total book of business.
First quarter medical cost trend was approximately 8%.
We continue to expect medical cost trend for our total book of business to be in the 7.5 to 8.5% range for the full year.
In our commercial HMO business which now represents 9% of our total membership, our first quarter medical loss ratio excluding prior year claim development was 84.3%.
We expect the full-year medical loss ratio for this business on an operating basis to be in the 84 to 85% range.
This is modestly better than our prior estimates, reflecting the more favorable 2004 jump-off point.
Our commercial HMO book continues to experience changes in business mix, particularly as we continue to implement targeted underwriting actions.
The mix change in the first quarter 2005 reflected two primary factors.
First, we wrote more new cases with leaner benefit plans and better demographics, relative to the mix we had previously estimated.
And second, several cases with richer benefits and demographics were not renewed in the quarter.
All in, we expect the full year commercial medical loss ratio to be in the range of 84 to 85%, excluding prior year claim development.
Overall, our first quarter HealthCare results were in-line with our previous estimate, excluding the favorable prior year development.
Now, I will review the results for our other segments.
First quarter earnings for the disability and life segment were $59 million, compared with 40 million in the first quarter of last year.
This result reflected higher disability earnings, due to strong underwriting and disability management results, as well as favorable emerging claim experience.
The quarter also reflected favorable mortality in the group life business.
I would note that our profit margins and revenue growth in this segment continue to be strong competitively.
Based on the favorable claim experience in the quarter, first quarter earnings for this segment were higher than the run rate we expect to see in the balance of the year.
Turning to our international segment, first quarter 2005 earnings were 30 million, compared to 15 million in 2004.
Results reflected strong revenue growth in our expatriate benefits, and life accident and health businesses.
In addition, the results benefited from better-than-expected claim experience in both of our major product lines.
We do not expect this level of favorable experience to continue in the balance of the year.
In aggregate, the remaining operations, including runoff retirement, runoff reinsurance, other operations and corporate, generated 3 million of earnings in the first quarter.
This result was below first quarter 2004, reflecting the sale of the retirement business.
Before providing our outlook for 2005, I will comment briefly on our capital position.
Our parent company capital position continues to be strong, and our subsidiaries remain well capitalized.
At the end of first quarter, cash at the parent company was approximately $1.5 billion.
We ended the quarter with a leverage ratio of approximately 20%, which is at the low end of our target range.
During first quarter, we continued our share repurchase program, and repurchased 2.8 million shares of of our stock for approximately $240 million.
In April of 2005, we repurchased an additional 800,000 shares for $73 million.
We have 568 million of remaining repurchase authority at this time.
As we discussed last quarter, we expect to generate substantial net cash flow in 2005, and we expect to maintain a strong and flexible capital position throughout the year.
I will now review the earnings outlook for the full year and for second quarter of 2005.
And consistent with our normal practice, the estimates I provide will be for adjusted income from operations.
Our first quarter earnings were approximately 100 million higher than the midpoint of our previous previous estimates, mainly reflecting the favorable prior year development in HealthCare and favorable claim experience in disability and life and international.
We are increasing our full-year estimates by 100 million to reflect the strong first quarter results.
Our balance of the year expectations for HealthCare and for the aggregate of our other businesses are essentially unchanged.
Specifically our updated estimate is our full-year 2005 consolidated earnings will be in the range of 845 to $915 million.
Our estimate for full-year HealthCare earnings is in the range of 585 to $645 million.
Our view has not changed relative to the underlying expectations for our health care business.
The increase in our estimate reflects the impact of prior year claim development in the first quarter.
As a reminder, relative to 2004, our full-year outlook primarily reflects the impact of lower membership.
Relative to membership, we expect that year-end membership to be approximately 8% below year-end 2004 levels.
This is at the favorable end of the range that we had previously communicated.
Now, with respect to operating expenses, we recorded a $33 million after-tax charge in the quarter, related to actions we are taking to further streamline our health care and support areas.
We expect these actions to result in the elimination of approximately 1700 positions.
We continue to evaluate our options, relative to expense levels in the balance of the year.
Based on our current thinking and taking into account our investments in market-facing capabilities which support our initiatives to improve membership, we expect full-year operating expenses in 2005 to be approximately 3% lower than full-year 2004.
I would also note that we are evaluating our options for possible participation in the Medicare Part D prescription drug program.
At this point our outlook does not reflect the potential initial costs that would be associated with our pursuing Part D related opportunities.
With respect to the balance of our operating segments, we expect our other businesses to contribute approximately 260 to $270 million of earnings for the full year.
This reflects our expectations of continued strong earnings from our disability and life of continued strong earnings from our disability and life and international businesses.
So putting together all the pieces, we are raising our consolidated outlook for full-year 2005 to a range of 845 to $915 million to reflect our strong first quarter results.
Our full-year earnings per share will be affected by the amount and pace of share repurchase during the year.
As we've stated in the past, we do not predict the amount or pace of repurchase, and our EPS estimates do not reflect the impact of any further repurchase activity.
On this basis, our estimate of full-year 2005 earnings per share is a range of $6.40 to $6.90 per share.
Turning to the second quarter 2005 outlook, we currently expect consolidated adjusted income from operations of 180 to $210 million.
Second quarter 2005 health care earnings are estimated to be in the range of 125 to $145 million.
The midpoint of this range is in line with our first quarter results, excluding the prior year development.
We expect the balance of our reporting segments to contribute approximately 55 to $65 million of earnings.
So putting together all of the pieces, we estimate that our consolidated second quarter adjusted income from operations, will be in the range of 180 to $210 million, with EPS in the range of $1.35 to $1.55 per share.
So to recap, our first quarter results were strong.
Our year-over-year earnings increase was driven by strong execution in HealthCare, particularly in medical management.
And by continued strong results in our other businesses.
With that, I will turn it to David who is going to discuss the membership outlook.
David?
David Cordani - President, Health Segments, CIGNA HealthCare
Thanks, Mike.
And good morning, everyone.
As you've heard from Ed and Mike, our HealthCare results for the first quarter reflect continued strong performance.
Today, I will provide our membership outlook, I will also discuss the actions we are taking to profitably grow our membership, specifically our leading consumer directed products, our information and decision support capabilities, and our ongoing talent additions.
Finally I will provide a brief update on the migration of our customers to our new end-state platforms.
Now moving to membership, first I will discuss our 2005 goal of stabilizing our membership results.
At the end of the first quarter, we had had 9 million total members, split about equally between the national and regional segments.
This was 7% below the year-end 2004 levels, and better than our previous estimate of an 8 to 9% decline.
Regional membership declined 3% in the first quarter, which is better than the 5% outlook I communicated to you in February.
For our national segment, membership declined 11% consistent with our prior discussion.
And relative to emerging the indicators we experienced net membership growth in February and in March.
Now, February, at the February call I cited several factors underlying the improved results we realized through January in the regional segment.
Specifically the improved retention rates, the growing sales pipeline, and improving close ratios.
I am pleased to note that we are maintaining our momentum in each of these areas.
Today we are seeing retention rates in the regional segment that have improved from 74% last year, to the 84 to 85% range this year.
Additionally, our regional sales have increased significantly as a result of the stronger pipeline of sales opportunities, and improving close ratios.
Relative to the national segment, as we've stated previously, 85% of our book renews in January.
And as such, we are now fully focused on materially improving our retention and growth rates for the January 2006 selling season.
In March, we hosted our annual and national accounts forum that was attended by more than 100 customers and prospects.
Feedback from the forum was very positive regarding our current capabilities, and our planned product enhancements.
Also, our ongoing dialogue with brokers, consultants, customers, and prospects indicates that our strength in medical management and clinical quality are increasingly being recognized in the market.
Specifically, feedback indicates that CIGNA is increasingly being viewed as a leader in, consumer directed solution capabilities, information capabilities and decision support tools, and integrated clinical programs such as the new obesity and depression programs.
While early in the purchasing cycle for January 2006, our RFP activity is up significantly over last year.
Overall, we continue to track toward our goal of stabilizing membership in 2005, post-January and positioning ourselves for membership growth in 2006.
Regarding our outlook for membership, with the January 2005 renewal cycle producing an outcome that was better than expected, we now anticipate our year-end 2005 membership to be down approximately 8% from year-end 2004.
Again this is at the favorable end of the 8 to 9% range that we had previously communicated.
Now, I would like to address three years of focus to enhance our value proposition and resume membership growth, specifically consumer-directed solutions, information and decision support capabilities, and sales and marketing talent.
First, consumerism.
Our approach to consumerism is not just to compete in the space but to shape it, and to work toward a position of sustainable leadership in the consumer-directed benefits marketplace.
We have built a new consumer-oriented business model, one that improves cost as well as health outcomes at the member level.
Our suite of products positions us to serve customers, as the market moves from a narrowly focused cost-based model, to an all inclusive value-based business model.
The guiding tenants of value-based care is that members become more active participants because they are well informed, and they are able to effectively make health decisions.
They must also be supported by targeted integrated clinical programs.
It is this activation of the consumer, supported by our clinical programs, and information and decision support capabilities, that truly differentiates our value proposition.
The CIGNA Choice fund, our consumer directed offering, is a unique and highly competitive solution that better meets customer needs in three ways.
First, the flexibility of our product design enables customers to target wellness, preventive care, and pharmacy-specific programs, in addition to a core medical fund.
Second, the unique combination of HealthCare expertise, with financial management features made possible through our relationship with J.P.
Morgan Chase.
For example, in the case of the CIGNA Choice fund HSA, claims are automatically forwarded to the savings account on a seamless basis.
And third our user friendly decision support and information capabilities, which I will comment more on in a moment.
We also fully linked our integrated health management approach which already delivers the industry's best clinical quality outcomes to the consumer directed capabilities I just discussed.
Again, these programs, products, and service capabilities drive better health and cost outcomes.
Moving to the information and decision support capabilities, our commitment to provide actionable information and decision support tools for employers, as well as members, is at the heart of our consumerism and health management initiatives.
In our view, information drives knowledge.
Which then enables choice for the consumer.
I think you will agree that viewing information as an enabler of choice is a key component of consumerism.
And overall, our goal is to help guide customers and consumers to the best value solutions, which includes appropriate high quality care.
Let me provide a few examples of the tools we have for our members and employers.
Our decision support tools for our members continue to deliver cost and quality information through our member portal, MyCIGNA.com.
For instance CIGNA was one of the first health plans to provide an online tool, that allows consumers to enter one of approximately 200 medical procedure, their zip code and the radius of desired service area, and receive quality and cost rankings on hospitals performing that procedure.
In addition, we recently launched some enhanced hospital quality evaluation tools, which provide ratings on patient outcomes and efficiency.
A hospital which earns three stars for both outcomes and efficiency is designated as a CIGNA center for excellence for that procedure.
And also, CIGNA was the first national health plan to provide an online drug comparison tool.
We are also leveraging information for the benefit of employers.
Our health improvement score or high score, is a new suite of proprietary information products which provides employers a detailed look at the connection between consumer behavior and health care outcomes, so that we can work with them to help develop targeted strategies for enhancing their employees' health and well-being, there by better managing health-related costs.
To recap, we believe we are very well positioned to capitalize on, and help drive the shift toward value-based consumerism in the health benefits marketplace.
And again, information and decision support tools are at the heart of our focus on consumerism and health management.
And as you can see, we continue to strengthen our capabilities.
I will now provide just a few remarks on our efforts to strengthen talent in support of our membership initiatives.
On the talent front, clearly the confidence we have in our improving business fundamentals consumerism and health management capabilities is gaining recognition with employers, producers, and members, as well as perspective employees.
For example, we have added over 20 seasoned senior sales professionals, over the last quarter alone.
Including a top caliber sales professional from the consulting community, and several sales executives who possess proven experience in consumer-driven health care.
We also continue to add seasoned professionals to our contracting and network management staff.
This infusion of new talent, coupled with competitively strong product offerings, and more effective sales and distribution processes, are all critical ingredients to realizing our goal of stabilizing membership in 2005, and setting the stage for growth in 2006.
Now, before turning it back to Ed, I wanted to provide a brief update on our migration to our new technology platform.
As of January 2005, approximately 90% of our medical members were on our new end-state platforms.
We expect to have all national account and middle market accounts and the majority of our small segment accounts on the new platforms by January of 2006, representing about 99% of our total membership.
We expect the remaining 1% of members which represent small case business to migrate by year-end 2006.
I would also note that productivity gains in the form of higher audit adjudication rates continue to emerge as we expect to realize further improvements throughout the years ahead.
To recap, we are making very good progress and are on track to our goals of stabilizing membership and resuming growth.
Specifically, our first quarter membership results demonstrate a continued improvement.
We staked out a leadership position in consumerism and total health management.
We will continue to invest in and deliver highly focused consumer friendly information and decision support capabilities.
We are pleased with the ongoing strengthening of our sales marketing, product development, and contracting teams.
And finally, we continue to track toward our goal of stabilizing and ultimately growing our membership.
And with that, I will hand it back to Ed.
Ed Hanway - Chairman & CEO
Thanks, David.
Now, before discussing CIGNA's strategy, I want to stress several points relative to the progress that we have made.
First, membership remains our top priority, and we continue to see several encouraging indicators.
David noted we are receiving positive feedback from our customers, and the broker and consultant communities, that our capabilities are strong.
We have also meaningfully improved middle market retention rates, sales pipeline, and close ratios.
And we are focused on achieving an improved national account result for January 1 of '06.
Second, the market trend towards consumerism is accelerating, and we are very well positioned to capitalize on this opportunity.
Our consumer directed products are quite strong and this is recognized in the market.
We are making additional investments in our consumer directed offerings to further enhance our position.
So overall, I remain confident in our outlook to stabilize membership in 2005, and to resume growth in 2006 and beyond.
Let me now comment briefly on the key elements of CIGNA's strategy.
As I noted last quarter, our success in the health and related benefits industry will be driven by delivering superior health and wellness solutions for both employers and consumers.
We will achieve this by creating a competitive cost advantage, by delivering superior clinical outcomes, by driving product innovation, by being a partner of choice for employers and producers, and by creating a winning environment for our people.
We are making solid progress on each of these priorities.
First, we have made strong progress in product development, particularly relative to the accelerating trend toward consumerism.
We are very pleased with the response that we've seen from the marketplace regarding our consumer-directed health products.
We're confident that the market shift from a cost base to a value-based business model, provides a significant market opportunity for us.
And the trend aligns well with our competitive strength in clinical quality and product innovation.
We will continue to expand our consumer directed offerings with our strong medical management and clinical excellence providing a strong foundation for our products.
Our medical management capabilities provide us a distinct advantage.
Our results demonstrate the importance of medical management in helping our customers achieve better outcomes and better manage the costs of providing care.
Our HealthCare facilitation centers continue to be very successful in ensuring that members receive care in an effective and efficient manner.
We have also continued to see positive results in our hospital recontracting initiatives over the past several quarters.
The strategic alliances that we recently announced notably with Tufts and Health Alliance plan, will also enable us to offer a broader health network to our customers, while at the same time improving our medical cost structure in those areas.
In 2005, we are also investing further in our already superior clinical quality outcomes.
We've expanded the breadth of our disease management programs, and now provide care for additional chronic conditions, including obesity and depression.
Both of these programs are really good examples of integration at work.
Each program successfully links disease management and case management protocols with pharmacy, behavioral health, and behavioral modification capabilities.
Our product integration capabilities including our in-house specialty HealthCare businesses are unmatched in the industry.
Members are able to utilize our dental, behavioral health, disease management, and pharmacy offerings as part of a comprehensive HealthCare experience.
We continue to take a proactive stance in addressing the needs of employers, and initial feedback on the high-score tool that David described is very positive, as employers realize that this approach will help them achieve better quality, and more affordable outcomes for their employees.
In summary, our first quarter results were strong and our outlook for membership and earnings reflects good progress in executing on our strategic imperatives.
Results in our HealthCare business are tracking with our expectations.
Our disability and life, and international businesses continue to produce strong earnings with very attractive margins, and we expect both of these businesses to continue to support our overall growth.
Overall, our first quarter results represent a strong start to 2005.
This concludes our prepared remarks.
Now we would be happy to take your questions.
Operator
Ladies and gentlemen, [OPERATOR INSTRUCTIONS] One moment please for our first question.
And we will go first to Charles Boorady with Smith Barney.
Charles Boorady - Analyst
Thanks.
Good morning.
And congratulations on the quarter.
First question is on the administrative cost cutting opportunities, and whether you could quantify for us longer term what the opportunities are, once you sunset the legacy systems, you know, post-conversion, and also, you know, how you think of a reasonable target or benchmark versus your peers.
You historically have talked about percent ratios using premium equivalents on the revenue line.
Are you starting to look at SG&A more on a per-member month basis?
And if so, how do you feel about where that compares to your peers?
Mike Bell - EVP & CFO
Charles, it is Mike.
I will start.
In terms of our longer had-term targets, they are not changed from what we've talked about in the past.
And so specifically, as we've talked about the benefits of transformation, we really get two main benefits.
First the new platforms enable stronger market pacing capabilities that David outlined this morning, and secondly, directly to your question, we also expect that they will enable additional operating expense reductions relative to the 2005 starting point.
And as we've discussed in the past, we ultimately expect an additional 200 to 250 million of pre-tax annual savings relative to 2005.
And that stems from all of the things that we've talked about in the past.
The shutdown of the legacy systems, the higher productivity and auto adjudication rates on the instate platforms, et cetera.
In terms of the other part of your question on longer term targets, we continue to believe that SG&A per member, just like earnings per member, is an effective way of comparing ourselves to our competitors.
Now, obviously, there are differences in business mix, between us, and the competitors.
But we believe that between the 200 to 250 million of pre-tax savings that we expect to get from transformation coupled with stabilizing and ultimately growing our membership, and continuing to increase our specialty penetration, that we will get our earnings on a per member basis in line with the best-in-class competitors.
Charles Boorady - Analyst
Great.
My second question and final one, just relates to long-term bottom line growth targets, which historically were at 10% and I don't know if you've revised or raised that bar in light of the, you know, reduction in the dividend, which leaves you more cash to buy your stock back, or to make acquisitions, and if you can break it down for us, in terms of what you think is organic versus acquisition related growth?
In particular, given Wellpoint just announced that it's acquiring Luminous, and United acquired Affinity, you've just seen a lot of organic investments in consumer-directed plans, and I am just wondering if we should expect to see M&A start to be a bigger contributor to your long term growth targets also?
Mike Bell - EVP & CFO
Charles, it is Mike.
I will start and ask Ed if he wants to add to it.
First, to state the obvious, the overall markets that we're competing in, whether it be HealthCare group, or even the niche international businesses that we participate in, those overall markets are not growing in aggregate at a 10% annual rate.
So I would expect, you know, organically, in terms of top line revenue growth, to be in the high single digits longer term.
Now, we're starting from a point where our 2005 margins, as we discussed in the past, and as you noted from your earlier question, are lower than where we expect to be.
So in terms of bottom line organic earnings growth, I would expect that to be greater than top line revenue growth as we improve our margins.
Now, to the second part of your question on how that all would translate into longer term earnings per share targets, the other two contributors to EPS earnings growth over the long term, as compared to dollars of earnings growth over the long term, would be a stock repurchase, since our returns on equity are quite a bit higher than our overall growth rate, and second, that as you said, selected opportunities in M&A, you know, subject to all the caveats that we've talked about before, in terms of it being the right strategic set, as well as the right kind of financial result.
Ed, do you want to add to that?
Ed Hanway - Chairman & CEO
I think the only thing, Mike, I would add, Charles and we've been very consistent on this, we have been very focused on improving the fundamentals in the business, and I think have executed those actions very, very well.
We have also been consistent in acknowledging over time that we would clearly consider acquisitions if they added value, and were economically attractive for us.
But that our focus at the moment was to demonstrate to Mike's point, that we can grow earnings on an organic basis, and particularly that we can grow membership on an organic basis, because I think that is the best proof that your value proposition in the marketplace is solid.
So those continue to be our priorities.
And we think we have good opportunity to grow earnings meaningfully through both margin enhancement as well as a return to organic membership growth.
Charles Boorady - Analyst
Is that to say, just to be clear, you want to see that return to organic membership growth, before pursuing a health plan related acquisition or not necessarily?
Ed Hanway - Chairman & CEO
I think it is -- we've been pretty consistent.
We said we want to see that organic membership growth.
And we think we're very close to that.
So that's the priority at the moment.
Charles Boorady - Analyst
Thank you.
Operator
Thank you, Mr. Boorady.
We go next to Matthew Borsch with Goldman Sachs.
Matthew Borsch - Analyst
Yes, hi, good morning.
Actually, just picking up on your comments on the rolloff of transformation transformation and savings that you expect, can you just give us some idea over what timeframe you would get from the 200 to 250 in annual savings?
Mike Bell - EVP & CFO
Matthew, it is Mike.
I prefer not to be specific at this point, in terms of the -- in terms of the timeframe.
As David noted, we're still in the process of sorting out exactly the schedule, in terms of shutting down the legacy systems, and the other wrinkle here is our additional investments in consumerism in particular.
I think it is fair to say that certainly within five years, we would expect to get that, but I would rather not be more specific at this point.
Matthew Borsch - Analyst
Okay.
And on a slightly different topic, the benefits that you've gotten from prior period development, and generally from better medical cost trends, that's ruled through to be a big benefit to the bottom line, and quite a bit bigger than I think would come from your commercial HMO risk business.
And I understand some of it is coming from the experience rated book.
Can you just talk us through a little bit of how much maybe is coming from each, and give us some sense of how the retrospectively experience-related book is contributing to your bottom line at this point?
Mike Bell - EVP & CFO
Sure.
First, in terms of the breakdown Matthew, of the 67 million of after-tax prior development in the quarter, 21 of that 67 comes from commercial HMOs, so that does improve the 2004 starting point in terms of medical costs by a commensurate amount. 31 of the 67 came from our experience related book.
Again, just further evidence that the 2004 experience related results were very strong.
And approximately the remaining 15 million came from a combination of the other guaranteed cost blocks, as well as a little bit in our specialty book.
In terms of the second part of your question on experience-rated, we've talked in the last couple of calls about the very strong 2004 results we had in experience related, to recap, it's a combination of two primary factors, first very strong pricing and underwriting discipline that's given us a higher quality book of business, as well as medical costs results that have also been particularly strong.
And again, the overall earnings contribution on experience rated was very strong in '04.
Again, a significant driver of the year-over-year earnings results versus '03.
Now, as we've also talked about, we don't expect quite as high a margins in 2005.
Not the least of which is driven by the fact we now have fewer cumulative aggregate deficits to be able to recover.
So net-net, it has been good for long-term economics and good for our customers, but less opportunity to repeat the kind of exceptional earnings that we had in 2004.
David, do you want to add?
David Cordani - President, Health Segments, CIGNA HealthCare
The only thing I would add to that, that is in the past, the experience rated products for those customers are typically highly penetrated with other specialty products, including stop loss pharmacy, and behavioral health as well, so when we look at the aggregate profitability, it is enhanced by those expanded relationships as well.
Matthew Borsch - Analyst
Great.
I will get back in queue.
Thank you.
Operator
We will go next to Josh Raskin with Lehman Brothers.
Josh Raskin - Analyst
Hi, thanks.
Just want to follow-up on the membership comments that you guys gave.
First question, the business that renewed as a percentage on the regional side?
Mike Bell - EVP & CFO
Josh, it is Mike.
You're asking what percentage of our regional --
Josh Raskin - Analyst
What percentage in the first quarter.
Mike Bell - EVP & CFO
It is approximately 65% renews in the first quarter.
Josh Raskin - Analyst
Of the regional, not national?
Mike Bell - EVP & CFO
That's correct.
Josh Raskin - Analyst
And then, we saw the specialty hold up a little bit better, or certainly a lot better in the behavioral, and just wondering is, that from your national account business, or are you selling that to smaller groups and just wondering, you know, what is impacting that on the specialty side?
Mike Bell - EVP & CFO
Josh, it is Mike.
A combination of both of those items.
Our value proposition capabilities are very strong in that business.
And we feel good about the overall membership results across the board.
Ed, do you want to add?
Ed Hanway - Chairman & CEO
No, I think the -- we keep saying, Josh, that the specialty value propositions are very strong.
I think that's true across the board.
And particularly true in behavioral, and I would also point out that behavioral is quite active in the EAP area, and has a very good value proposition there, and also is increasingly being integrated into our disease management program because behavioral modification is an important part of these management programs, I think that's one of the unique capabilities that we bring, so those specialty businesses are quite strong.
Josh Raskin - Analyst
No one large account in behavioral or anything like that?
Ed Hanway - Chairman & CEO
No.
Josh Raskin - Analyst
And is it further penetration to your existing book or are these external sales?
Mike Bell - EVP & CFO
A combination of both, Josh.
David Cordani - President, Health Segments, CIGNA HealthCare
As we retain business, we tend to retain business that is more highly penetrated, so as you're looking at the relationship of the renewal patterns of business that we lose versus business that we retain, what we learn is that typically if we have two to three relationships with an employer, we have a higher probability of retaining the business, with our specialty programs, such as behavioral, pharmacy, dental, et cetera.
Josh Raskin - Analyst
That makes a lot of sense.
Okay.
Thanks.
Operator
We will go next to Ellen Wilson with Sanford Bernstein.
Ellen Wilson - Analyst
Yes, I was wondering if you could walk through the cash outlook for the year?
I know you said you had 1.5 billion at the parent at the end of first quarter.
Kind of sources and uses.
What should that become by year end?
Mike Bell - EVP & CFO
Ellen, it is Mike.
First, our overall outlook for parent company cash for the full year is potentially a little stronger, than what we had discussed at last quarter.
And we're literally in the process of updating the specific numbers.
But just to recap, what we talked about last quarter, and then I will give you some updated directional color.
We began the year, as you know, with a 1.5 billion, approximately a billion five of cash at the parent level.
We had said last -- in February, that we expected subsidiary dividends to be in the 700 to 800 million for the full year.
And we talked about approximately 100 million of other net uses, most of that is the interest on our corporate debt.
Through the end of April, we have repurchased 313 million of our stock which leaves us with 1.85 billion of projected available financial resources through the balance of the year.
Now the new news here is, that there is some potential upside now to the 700 to 800 million of subsidiary dividends.
And that's driven by two factors.
First, we've had had stronger 2005 earnings and obviously have increased the outlook.
And that's likely to increase the subsidiary dividend power relative to the 700 to 800.
In addition, we ended 2004 with a particularly strong capital position in CG life, and we are reviewing options there, in terms of CG life dividends, and would expect again there to be some potential upside to the 700 to 800 range that we had previously estimated, and once we complete the review of those options, we would expect to communicate updated estimates on the second quarter call.
Ellen Wilson - Analyst
Okay.
And kind of a follow up to that, how should I think about how much of that kind of, you know, 1.85, maybe more, for the balance of the year, that you can realistically redeploy?
I know you talk about keeping 500 million at the parent or something, but I guess I'm thinking more in terms of your sort of rating agency objectives.
How much of it that realistically could you redeploy this year?
Mike Bell - EVP & CFO
Well, our overall capital management strategy has not changed, so you've got it exactly right.
The two main factors that impact our decision-making, are first to keep it at least a minimum of 500 million of cash at the parent company level, and second, after we've kept sufficient capital to maintain our targeted, as you noted, financial strength ratings, and support the growth of our businesses, the rest will be available.
So again, more to come, obviously, at the second quarter call.
Ellen Wilson - Analyst
Any -- I mean any kind of quantification on what is necessary to maintain the sort of target debt ratings?
I mean is it -- you know, a billion of that, is it something way less than that?
I guess I have a hard time getting my head around that.
Mike Bell - EVP & CFO
We are literally having ongoing discussions with the rating agencies.
And again, part of it is capital driven.
Part of it is the outlook driven.
I would expect given the strength of the earnings, as well as the strength of the membership results relative to our prior estimates, that things are looking favorably there.
But I can't be more specific at this point until we complete those discussions.
Ellen Wilson - Analyst
Okay.
Thanks.
Operator
We will go next to Doug Simpson with Merrill Lynch.
Doug Simpson - Analyst
Thanks.
Good morning, everyone.
Just a couple of questions, Mike, on the cash flow statement, the 218 dip in insurance liabilities, and it looks like 52 on the reinsurance recoverables, could you just walk us through your expectations on how those line items are going to trend over the balance of the year?
And maybe talk to the 52 on the reinsurance recoverables, just what that related to?
Mike Bell - EVP & CFO
Doug, as I've said on prior calls I would really suggest that you not overweight the GAAP cash flow.
I again, there are a lot of moving parts here.
And specifically, in terms of the liability balances, that really reflects primarily the decline in the HealthCare membership, and the commensurate changes there.
We also have other run-off businesses which are declining.
For example, the run-off reinsurance business.
Therefore, again I wouldn't get overly caught up in the GAAP cash flow statement, and I would note instead that the 271 million of positive cash flow for the quarter, even though that has a hot of moving parts, is actually reasonably close to our adjusted income from operations, less the prior year development in HealthCare.
And specifically, on the reinsurance recoverables, two specific points that I would make there are, one is in aggregate, our reinsurance recoverables continue to decline materially, due to the novations through the retirement business, as customers move directly on to Prudential paper, they come off of our paper, and so we see a big reduction in the reinsurance recoverables, and the associated liabilities with those.
Second, the -- in runoff reinsurance, there was not a significant amount of new news there.
We did have some favorable settlements, which favorably impacted the reinsurance recoverables, but it is not material in the grand scheme of things.
Doug Simpson - Analyst
Stepping back, there is -- you guys are moving through the transition period, repricing the book, and still a lot of moving parts, charges, items what not in the quarter, and I'm just trying to get a sense for when do you think you are going to get to the point where it is more of a steady state, and there is less of those items or one-time issues kind of showing up in the quarter?
Is that something we should look for at the end of '05, or just the first half of '06?
How do you think about that timing?
Mike Bell - EVP & CFO
Well, Doug, for the most part, in this particular quarter, the prior year development as well as the favorable claim experience in group and international, as well as the accelerated novations with retirement, from my perspective, all of those are good news items, and really represent, in the case of HealthCare group and International, strong execution, and strong capabilities.
I'm not really in a position to project when we will stop seeing favorable prior year development, or stop seeing unusually favorable claim experience in group and international.
Doug Simpson - Analyst
I meant more kind of the restructuring costs, than some of the other items.
But as you work through, we may see more drips and drabs is what it sounds like maybe?
Ed Hanway - Chairman & CEO
Well, Doug, it is Ed, you know, first of all, we have completed the retirement sale and the accounting for that is such that as the novations occur, we need to continue to recognize that.
As Mike said, that is a good thing and it has been actually been much quicker than we might have discussed.
So it is a little hard to say when we're not going to have anything unusual.
But I would suggest consistent with Mike's comment that most of what we have had has been acceleration and that's a good thing.
Doug Simpson - Analyst
Okay.
Thank you.
Operator
We will go next to Patrick Hojlo with Credit Suisse Capital.
Patrick Hojlo - Analyst
I just wanted to follow up on the membership trends, came in a little better than expected in this quarter.
That is good news.
You did mention that you still expect membership to be down 8% for the year though.
So is that to say you expect a little more -- a few more losses this quarter and next before things really bottom?
Mike Bell - EVP & CFO
Patrick, it is Mike.
I will start and I will ask David if he wants to add color.
We're not trying to be overly precise with the full-year membership outlook.
The point is that the membership did come in favorable in the first quarter.
We actually had some net growth in February and March.
And that gives us greater confidence that we would expect to see additional net growth in the middle market over the next three quarters.
But again, we weren't trying to be overly precise to compare the 7.2% membership decline in the first quarter to the full-year point.
We're simply saying that it is at the favorable end of our prior range of estimates.
Patrick Hojlo - Analyst
Fair enough.
What stands out to me this are quarter in terms of membership, is that you saw a big jump in the other line under the medical risk header.
I know that some of this is classification.
But can you give a little detail on why that jumped up so much?
And then in the same context, you know, what that meant to the per member per month computations that I'm seeing year-over-year, that look like they're in a couple of areas here down?
Mike Bell - EVP & CFO
Patrick, it is Mike.
I will start and ask David to add color here.
The -- I think you're referring to the other guaranteed costs line item, which increased approximately 100,000 members sequentially.
This line item primarily reflects our fully insured open access and point of service customers.
And as we've discussed in the past, the market has been moving away from lock-in commercial HMO products, to more open access type plan, and we've seen a positive market response to those open access products.
We're not to the point where we disclosing loss ratios and expense ratios at this point, because it is a reasonably immature book, but as it increases in importance, we will look for opportunities to expand those disclosures.
David, you want to add color there?
David Cordani - President, Health Segments, CIGNA HealthCare
Patrick, it is David.
Just to expand as we've talked before about our product offering around the CIGNA portfolio we said that portfolio is modular in nature, so we essentially decoupled the funding mechanism, in this case the risk funding mechanism from the network, and it is helping us in markets where the go to product might be a guaranteed cost open access, as opposed to a guaranteed cost point of service product, and it is playing well in the market.
We do expect growth here and as Mike said, as that block grows, would he will continue to bring more visibility to the underlying economics there.
Patrick Hojlo - Analyst
And that is a lower PM/PM premium, correct, in general?
Mike Bell - EVP & CFO
Patrick, it is Mike.
I would say all in, we would expect longer term for that to have similar PM/PMs, similar loss ratio, similar all-in profitability relative to commercial HMO.
Ed Hanway - Chairman & CEO
I do think Patrick what we are seeing and we've said this consistently for a couple of quarters, is that the benefit structures in total for us are thinner than they have been in the past.
Mike commented for example in some of the demographic change, some of the benefit changes that we saw, even in the commercial HMO book, and that has been a conscious strategy of ours, as the market has moved to less robust benefits, we have moved in that direction as well, and I think that is true for several of the different funding vehicles.
Patrick Hojlo - Analyst
Great.
Thanks for the color.
Operator
Eric Veiel with Wachovia Securities.
Eric Veiel - Analyst
Thanks.
I just wanted to follow up on Patrick's first question.
It just seems like from everything you guys are saying as it relates to improvements in net membership growth in February and March, a better pipeline, higher retention rates, to still be guiding for membership attrition in the back half of the year seems really conservative, unless there is something that you know about the 7/1 renewals that we don't.
If you could just comment on that, that would be helpful.
David Cordani - President, Health Segments, CIGNA HealthCare
It is David.
Again, for January, we were down 8%.
That's where we expected to be.
And we've essentially said that we would be flat thereafter.
We expect there will be some small puts and takes in every month.
We've obviously saw some better performance in February and in March.
We expect that as the year unfolds, we will see continued traction and improvement in the regional segment, we will see a little bit more softening in the national segment, a couple of known retention losses later this year, nothing to write home about, but squarely on-track to realize a stable result from February through December, and we feel quite good about that.
Noting that the underlying indicators for the regional block are quite strong in the retention, the pipe and the close ratio, and as I said in my prepared remarks our attention on the national segment is on the 1/1/06 selling season, and we're seeing a very good uptick in the RFP volume early in the season right now.
Eric Veiel - Analyst
That's helpful.
Thank you.
And if you could just update us you talked it the consumer-directed strategy and your position there.
If you could give us an update on what your membership is, and specifically how you define those products?
David Cordani - President, Health Segments, CIGNA HealthCare
This is David, I will start.
First off, we began the year with about 100,000 members, in what would what we would define as what I call true consumer-directed HSA, HRA products, and we're very pleased with that growth coming into the year.
So we started 1/1/05 with about 100,000 members.
We expect to see significant growth going forward.
We have not defined consumer-directed as what I will call -- indemnity or lean coverages akin to that.
We can track that, but we do not put that in the exclusive category of consumer-directed.
Stepping back a little bit more broadly, we view that the consumer directed product is an important subset to our consumers and suite of solutions, but it is not the only tool.
So 100,000 members, expect continued growth as part of the pipeline we're seeing for middle market, as well as 1/1/06 national accounts, we see good demand there, but it is explicitly HSA, HRA products, it is not lean indemnity coverage.
Eric Veiel - Analyst
Great.
Thank you.
Operator
We will go next to John Rex with Bear Stearns.
John Rex - Analyst
Good morning.
Thank you.
First wondering if you can just update us on your component cost trend outlook?
Just taking what you previewed last quarter and where you would be now?
Jon Rubin - SVP & Chief Underwriting Officer
This is Jon Rubin, John.
Mike mentioned earlier for our total book of business we're currently expecting full year medical cost trends to be between 7.5 to 8.5%, and if we turn to the components, this projection breaks down roughly as follows.
Inpatient, 5 to 7%.
Outpatient, 9 to 11%.
Professional, 5 to 7%.
And pharmacy, 6 to 8%.
As an aside, if you compare these component ranges to what we provided at year end, you will see a very consistent theme, with the exception of pharmacy, for which our outlook has improved from our original range of around 8 to 10%.
John Rex - Analyst
Okay.
But that doesn't move your overall view at all, the fact that it dropped by 200 basis points?
Jon Rubin - SVP & Chief Underwriting Officer
Not materially.
I mean it is about 10% of our total cost basis.
John Rex - Analyst
Okay.
And then I noticed you include another cost line item on your health segment now, the other benefit expense, so is the HealthCare medical claims expense now a very clean medical cost line?
Mike Bell - EVP & CFO
It is Mike.
That is correct.
John Rex - Analyst
And what is in other now?
What kind of products are in there?
Mike Bell - EVP & CFO
That would include, for example, the -- some experience rated life and disability.
I think there may be a little bit of dental in there as well.
But we've worked to make the medical number as clean as humanly possible.
John Rex - Analyst
So it should kind of be all-in and start thinking before it is as a medical cost ratio, like we would to your competitor companies now.
Mike Bell - EVP & CFO
Correct, John.
Recognizing there is a difference in mix of business between us and our competitors.
John Rex - Analyst
Kind inform that vein, your experience rated book runs about the same premium level, as the commercial HMO book which you give the most disclosure on.
Do you envision being able to provide us with more metrics on the experience-rated book looking forward?
And maybe, can you even help us think about, you know, I think historically, you said you used to run low 80s underwriting margin in that book.
And it looked, clearly, there was a huge flip '03 and '04, in terms of what is going on.
What are you baking into your view for '05 for an MCR on that book now?
Kind of a return to that low 80s?
How should we think about that?
Mike Bell - EVP & CFO
John, it is Mike.
First, I hope you would agree that we have made good progress in expanding our financial disclosures over the last couple of years.
We're still not at the point where we're comfortable reporting specific ratios on experience rated, but it is an item that we're looking at.
I think the way I would suggest that you think about the book, is that we have very strong earnings in this book.
A higher earnings rate on an all-in basis per member than our overall book.
And as I he noted in the last call, there is some downward year-over-year earnings pressure in that book, simply because it who be very, very difficult to repeat the exceptional level of earnings that we had in 2004.
But we are working -- we are reviewing various options in terms of disclosures.
John Rex - Analyst
All right.
And I very much appreciate the enhancements that you guys have made, you have made a lot.
And it has helped tremendously.
So should we think about -- last year, the experience rated book running mid to low 70s, medical cost ratio this year your guidance had incorporated a view of that returning back to the low 80s.
Is that roughly how you would think about it?
Mike Bell - EVP & CFO
Again, John, there is so much noise in the numbers, I would rather not give you a specific ratio, because I think without a discussion around context, I don't think it would be meaningful for you.
I think that the way to think about it is, last year, the medical cost trend in that book of business has emerged to approximately 7%, and we had pricing yields in that book in the low teens.
So we got significant margin expansion from a higher level of deficit recovery than we had gotten in the prior years, and we had fewer new account level deficits because of the strong medical cost performance.
But I would prefer not to give you a ratio that could be taken out of context.
John Rex - Analyst
Sure.
Maybe just taking kind of more just a forward view, rather than '04, which is going to look a little strange.
Is thinking about going back to low 80s appropriate?
Mike Bell - EVP & CFO
I think the way I would suggest you think about -- I think things going forward is that in -- as we discussed on the last call, there will be about 0.5 to 1 point of after-tax margin compression, '05 versus '04, on approximately $4 billion of overall revenue and premium equivalents on the minimum premium book.
I think that's the way I'd suggest you think about it as opposed to from a ratio perspective.
Ed Hanway - Chairman & CEO
The other thing to keep in mind is the point that David made earlier, which is this book really does have high penetration specialty businesses here, so while I know the loss ratios are important, as we look at this on an all-in basis, you know, the margins of this book of business are very attractive, and it is a fairly unique product for us out there in the marketplace.
So the loss ratio, while important is, only a part of the story for the experience rate of book.
The total margins are quite attractive.
John Rex - Analyst
Great.
Thank you very much.
Operator
We go next to Joe France with Banc of America.
Joe France - Analyst
Thank you.
On your fourth quarter conference call you indicated you didn't think that restructuring charges would exceed 50 million after tax this year.
Are you done?
Or do you expect more after the first quarter?
Mike Bell - EVP & CFO
Joe, it is Mike.
We are still reviewing our options in terms of operating expenses.
I would stick with the original point, which is all-in, I would not expect cost reduction program charges to be greater than $50 million after tax for the remainder of the year.
So by definition, then, if you do the arithmetic, that would suggest something smaller than 33 million after tax charge that we took in the first quarter.
Joe France - Analyst
But we should assume there will be further charges?
Mike Bell - EVP & CFO
Again, I'm not asking to you assume there will be further charges.
My point is we are reviewing those options as we speak.
Joe France - Analyst
Great.
One last question, the prior period development of 67 million after tax, what was the corresponding pre-tax number?
Mike Bell - EVP & CFO
A little over 100. 103.
Joe France - Analyst
Thanks.
Operator
Scott Fidel with J.P. Morgan.
Scott Fidel - Analyst
Hi, thanks.
Good morning.
First question had to do, can you break out what types of cost trends you're seeing in your consumer driven products relative to the overall book of business?
Mike Bell - EVP & CFO
Scott, it is Mike.
It is early for us to give you trend numbers on the consumer directed membership.
It is something we're literally analyzing right now, but there are a number of moving parts.
I would prefer not to give you a number at this point.
It is something obviously we're interested in and something that we intend to share with you as it becomes meaningful.
Scott Fidel - Analyst
Okay.
And what was your hospital utilization levels look like in the quarter relative to 1Q '04?
Mike Bell - EVP & CFO
In aggregate, for the total book of business, in-patient utilization was up a percent relative to first quarter of 2004.
Now, we would expect that to moderate over the remainder of the year and we would expect ton a full year basis as Jon Rubin talked about, the in-patient utilization to be flat, to potentially down a point.
Scott Fidel - Analyst
Okay.
And then just one last question, just on the specialty businesses, and especially after looking at some of the growth in behavioral care, what would you estimate is the total penetration of your specialty products relative to the overall opportunity at this point?
David Cordani - President, Health Segments, CIGNA HealthCare
Scott, it is David.
The specialty products, as you would expect, the penetration to our medical portfolio varies by segment and by product.
Just broad brush measures for you, if you go down to the small segment you can assume that most of our specialty products such as pharmacy and behavioral are penetrated well in excess of 85%.
As you move up into the middle market, it should range up from the low end of the middle market to the high end of the middle market.
Those products are penetrated in the 65 to 75% range, and then as you go into the national segment is where you will start getting some further dissipation of that level.
But typically in excess of 50% penetrated on many of the products, higher on concern products.
Operator
That's helpful.
Thanks.
Ed Kroll with SG Cowen Investment Bank.
Ed Kroll - Analyst
Good morning.
If I missed this, I apologize but I don't think I've heard you say what the net yield was for Q1, and what you're expecting for the rest of the year or for the full year '05?
Mike Bell - EVP & CFO
It is Mike.
I will start and I will ask Jon or David if they want to add.
In terms of our overall yields, as we've talked about, we are seeing a pretty significant change in the mix of business for the commercial block.
Now, I would remind you that this is now a reasonably small book of business.
I mean literally it has less than 800,000 members.
So it does tend to be susceptible to business mix changes and that's why we keep talking about the medical cost trends as really being more meaningful on an aggregate basis, which is why we keep talking about the 7.5 to 8.5% for the 9 million members.
Now specifically on the yield question, we did obtain a 9% average rate increase on the accounts, the commercial HMO accounts that reviewed in first quarter.
The new business yields were lower and that was due to favorable benefit plan designs, and demographics.
And we expect that business mix change to be approximately neutral on the MOR, because the -- and that's why the operating basis MOR, we continue to expect 84 to 85% for the full year.
But in terms of the full year revenue yield for commercial, we would expect it to be in the 6.5 to 7% range.
Ed Kroll - Analyst
I'm sorry 6.5 to 7?
Mike Bell - EVP & CFO
For the full year revenue yield for commercial HMO.
Again reflecting the business mix changes that I have described.
Now again, I will remind you that this is a very small book of literally 50 basis point change in medical costs or revenue, is worth less than 10 million per year after tax earnings for us.
So it is a small book.
Ed Kroll - Analyst
And does the mix change of the membership, is that how you -- you know, despite what -- having a yield below what you expect the cost trend to be, that's how the MLR stays roughly flat for the year?
Compared to Q1?
Mike Bell - EVP & CFO
That is generally right.
We do expect that the business mix change will be approximately neutral on the MLR.
But again, even if it is a 50 basis point deterioration, it is still literally -- you know, we're talking 7 or $8 million after tax, so a couple million a quarter.
It is not material given the size of the book at this point.
Ed Kroll - Analyst
Thanks for that, and then just a follow up on the Q2 guidance, if we pull the prior period development out of Q1, it still looks like we're down sequentially a little bit on an EPS basis.
Anything else going on there?
Seasonality?
Could you just reconcile that for us?
Mike Bell - EVP & CFO
It is Mike.
The first quarter did include very favorable experience in the group and international operations.
The guidance that we gave for the consolidated results for second quarter assumed that claims will get back to a more normal level for those operations.
Specifically, for HealthCare, you are right, that the health care estimates for second quarter are a couple percent below first quarter, excluding prior year development.
Again, this are a number of moving parts here in health care.
The most notable in terms of first quarter versus second quarter in HealthCare is that in first quarter, we had ASO fees on cases that canceled 1/1/05, that boosted the earnings in the first quarter, and we would expect that to be reasonably nonrecurring over the balance of the year.
Now, that's not a huge number.
It is is approximately $5 million after tax in the quarter.
But if you take the first quarter results, you back out the prior year development, back out this 5 million of ASO fees on canceled cases from the 1/1s, we're -- we would expect the run rate for Qs 2 through 4, to be slightly better than that starting point.
Operator
Thank you.
Our final question from Carl McDonald with CIBC.
Carl McDonald - Analyst
Thanks.
I would like to return to G&A for a minute.
How should we think about the timing on the elimination of the 1700 employees, and the impact that will have on the G&A?
And also how that will be offset by the product investments you're making this year?
I'm trying to get a sense of how we should think about the year end G&A in the HealthCare business.
Mike Bell - EVP & CFO
Carl, it is Mike.
First off, we are thinking through carefully exactly what our investments are going to be in the market-facing capabilities, so that is an item literally that we're reviewing as we speak.
I think it is fair to say that we're getting good traction in the market from these additional investments, including the investments in new product capabilities, as David and Ed talked about, the consumer-directed products in particular are getting good market perception.
We plan to continue to strengthen of our sales and client management staff as well as maintaining our strong customer service.
So all of those are items we think we're getting good pay back on, and we would expect to continue to look at that.
Now, on your specific question on the 1700 job eliminations, we would expect the benefit of those job eliminations in terms of lower operating expenses to get -- order of magnitude, $100 million pre-tax on an annualized basis.
We would expect more than half of that to come in this year, and get a little bit of additional tailwind next year.
Carl McDonald - Analyst
And if I could just follow up on a couple of the earlier questions, if you could just break out the components of cost trend between utilization and unit costs for each of the different components, and highlight any significant differences relative to the prior expectations?
Jon Rubin - SVP & Chief Underwriting Officer
Carl, this is Jon.
In terms of the split between utilization and unit cost trends, we expect the following.
In-patient is all unit cost as we mentioned earlier, we're expecting flat to a slight decline in in-patient utilization over the course of the year.
Outpatient is approximately two-thirds utilization and one-third unit costs.
Professional, also about two-thirds utilization and one-third unit costs.
And pharmacy is essentially all unit costs.
And these splits are pretty consistent with our expectations coming into the year.
Carl McDonald - Analyst
Thank you very much.
Operator
Ladies and gentlemen, this does conclude today's CIGNA first quarter 2005 results review.
CIGNA Investor Relations will be available to respond to additional questions shortly.
A recording of this conference will be available for 10 business days following this call.
You may access the recorded conference by dialing 888-203-1112.
Or 719-457-0820.
The passcode for both numbers is 4219257.
Thank you for participating.
We will now disconnect.