信諾集團 (CI) 2008 Q4 法說會逐字稿

Good afternoon, and welcome to the HealthSpring conference call to review its financial results for the fourth quarter and year ended December 31st, 2008.

Financial results were issued after the close of market trading today.

If you did not receive a copy of the press release, you may find a copy under the Investor Relations tab on the HealthSpring website, www.healthspring.com.

Before we begin, HealthSpring wishes to express that some statements made in this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Actual results of the Company may differ from that projected in such statements.

Investors should refer to statements regularly filed by the Company with the Securities and Exchange Commission for a discussion of those factors that could affect the Company's operations, and the forward-looking statements made in this call.

The information being provided today is as of this date only, and HealthSpring expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes or expectations.

In addition, certain non-GAAP financial measures may be covered in this presentation.

These non-GAAP measures are reconciled to the most comparable GAAP measures in the press release or on the Company's website.

Now at this time I would like to turn the conference over to Herb Fritch, Chairman and Chief Executive Officer of HealthSpring.

Please go ahead, sir.

Thank you, operator.

Welcome to our 2008 fourth quarter and year end conference call.

We are pleased to report another good quarter, and to close what we think was a very strong 2008.

Our total revenue and net income for the year were just under $2.2 billion and $119 million respectively.

These numbers were 39% and 38% above the year before.

We began the year with an earnings per share guidance range of $1.75 to $1.90.

We raised it three times during the year, and today we are reporting EPS of $2.12, which is within our most recent guidance of $2.10 to $2.20.

These gains are even more impressive when viewed in light of our poorer than expected performance in our PDP business att the beginning of the year, member losses from exited counties in Alabama and product changes in Tennessee, and unanticipated medical trends experienced in our South Florida health plan.

I would like to spend some time discussing the many things that went right and the few that went wrong in 2008, and how this positions us well for 2009 and beyond.

Our biggest disappointment in 2008 was significantly lower margins in our stand-alone PDP business.

We believe that we now have a more complete understanding of what went wrong.

As we have discussed in the past, the bids for all of our business rely primarily on data that is up to two years old by the time the plan year begins.

Thus, our 2008 PDP bids were based on 2006 information.

In 2006, we only had PDP auto-assigned in four of the 34 CMS regions, as compared to 2008 when we had auto-assigned memberships in 31 of these regions.

In hindsight, the assumption on our part that membership patterns across all of the CMS regions would be the same was faulty.

In Part D, the bulk of the plan's responsibility for prescription drug expense is concentrated early in the year.

Yet we are paid the same amount each month throughout the year.

Thus for an average member, our profitability increases with the number of months they are enrolled with us.

What we found in 2008, however, was that our membership additions and membership attrition during the year were significantly higher than expected.

Thus we had a much higher percentage of our membership in 2008 that was enrolled with us for far less than the total year, in essence not allowing us to catch up to our profitability assumptions.

This had a significant impact on our PDP MLRs and overall PDP profitability in 2008.

Fortunately, our 2009 PDP bid submissions were based upon 2007 data.

In 2007, we were below benchmarks in 29 of the 34 regions, and experienced more of the membership change that we saw in 2008.

In addition CMS implemented a new process in 2009 that facilitates better data exchange between plans on these members moving in and out.

This data should allow us to better capture the historical drug spend of members added in-year, and where they are in relation to the Part D coverage phases.

This should result in a more accurate allocation of costs between the member of the plan and the Government going forward.

We expect that in 2009, our MLRs and operating margins will be much closer to our bid amounts, which should result in a significant improvement from 2008 actual results.

Another area of focus in 2009 will be improving the results of our Florida health plans.

The medical trends and in-patient utilization metrics in 2008 in Florida were significantly higher than they were in prior years.

We expect that part of this year's disappointment will be corrected through the base rate premium increases in 2009 for the Florida plan in excess of 13%.

Plan recontracting efforts with hospitals have been underway over the past six months, and the early results are positive.

Our corporate medical management teams have also engaged with the health plan of the Leon Medical Centers' medical management leadership, and are meeting regularly to implement new care management protocols.

In addition, Leon Medical Centers has made some changes, including expanded Saturday and Sunday hours and new point of care diagnostic testing capabilities, which should have a positive impact on in-patient utilization.

Moving on to the positives of 2008, I am proud of the management that we added in 2008.

Mike Mirt joined us in November as our President, and is already making a positive contribution.

His keen understanding of managed care operations has made his transition to President a smooth one.

Mike is just one example of the team we now have on board to address the coming changes to Medicare Advantage.

I know many of you are also awaiting an update on our progress to our finding a replacement for Kevin as our CFO.

We have engaged a national search firm to direct the process.

We hope to have Kevin's replacement in the next few months.

We also made progress in 2008 in expanding our innovative delivery system models.

We now have three LivingWell centers up and running, one of which has onsite pharmacy capabilities.

These centers are our version of the advanced medical home tailored to a senior population.

Our Partnership for Quality program now effectively covers about 35% of our membership, and should represent over 50% in 2009.

The success of these models in driving better outcomes for patients and enhanced financial reimbursement for primary care physicians has caught the attention of several large medical groups, and these groups are driving our expansion in 2009 and our plans for 2010.

The 2009 open enrollment period has been a very good one for HealthSpring.

It seems that products like ours which can save seniors money are becoming increasingly attractive in the current economic environment.

Despite the marketing and sales restrictions brought about through the recent medical legislation, we are pleased to report MA membership from our February plan payment report of 169,491.

Our gross sales in the open enrollment period were a record for our Company.

You will note that many of these changes have required some additional investments, which are being reflective in higher selling, general and administrative expenses during the fourth quarter; in addition are the key management hires and expected increases in advertising spend in the fourth quarter due to open enrollment.

We expanded the infrastructure supporting our Partnership for Quality program, further internalized our disease management and mental health capabilities, and built a team through expansion markets.

While many of these initiatives are certainly not one-time in nature, we believe that these investments will pay off in 2009, and we have set as one of our priorities to drive further efficiencies out of our operations on a go-forward basis.

Concerning developments in Washington, I like many of you was moved by the historic nature of the recent Presidential inauguration.

Regardless of who leads the Department of Health and Human Services, who directs CMS or who leads the debate over health care reform, I believe that HealthSpring is a model for solving Medicare's looming financial issues driven by the baby boomers reaching Medicare eligibility.

In many conversations with members of Congress and key healthcare leaders, they have been struck with the innovation of our model of care delivery.

Whatever solution prevails, we expect all plans will be paid the same, and will have to compete for beneficiaries on a level playing field.

Tightly managed coordinated care models like ours should be able to provide better benefits than our competitors, and certainly better than Medicare fee--for-service.

Before I pass the call over to Kevin, I want to briefly discuss a few pieces of our guidance for 2009.

The strong financial results of 2008 are setting up a very challenging comparison for 2009.

For one, approximately $0.24 of our 2008 earnings per share came from risk-adjusted payments associated with the 2007 plan year.

We have invested considerable resources in 2008 to better estimate and accrue for these payments within the plan year, as our assumption is that any out-of-period risk adjustment in 2009 will be substantially less than in prior years.

For comparative purposes, this creates a 2008 earnings per share run rate of $1.88 going into 2009.

Our 2009 earnings per share guidance of $2.00 to $2.20 applies growth of 6% to 17% over the adjusted 2008 earnings.

Driving this increase is MA membership growth of 9% to 12%, and significant improvement in our PDP operations in 2009.

The PDP MOR guidance of 86% to 87% is an improvement of 260 to 360 basis points versus 2008.

Offsetting these improvements is an erosion in our MA MLR of 140 to 240 basis points to 80.5 to 81.5.

This erosion is caused by premium increases of 5.5% to 6% being more than offset by projected medical trends of 8.55 to 9.5%.

The increase in premiums is significantly less than it was in 2008.

Every other year, CMS recalibrates the codes underlying members' risk scores, and it typically has a negative effect on our premium increases for the year.

2009 happens to be one of those years.

In fact, Florida benchmark rate increases over 13% are a significant factor in the premium increases being even as high as it is.

Our other markets have much lower assumed premium increases.

We hope that our network advantage and improvements in Florida drive this medical trend lower, but for now we are not building it into our guidance.

With that, I would like to turn the call over to Kevin.

Thanks, Herb.

We were pleased with our performance for the quarter and the year, including our reported quarterly net income of $28.3 million or $0.51 per share, an increase of 11% compared to 2007 fourth quarter EPS of $0.46.

Before I review the specifics and discuss guidance, I would like to highlight a convention I am going to use in reviewing the results.

As we have highlighted in the past, results for both 2007 and 2008 include significant out-of-period risk adjustment settlement payments.

These payments have an impact on premiums, medical expenses, and ultimately net income and earnings per share.

In discussing the full year details, I'm going to give both as reported and as adjusted statistics.

The as adjusted statistics attempt to place the risk adjustment premium and associated medical expenses in the appropriate period.

As Herb indicated, this information will be the basis for comparison for all elements of our 2009 guidance, as we believe that the magnitude of these out-of-period payments payments should diminish significantly in 2009.

We have spent the last few years improving our ability to estimate and accrue for these payments in the appropriate period.

Moving to the specifics, we reported 162,082 Medicare Advantage members at the end of the fourth quarter, reflecting year-to-year growth of 5.8%.

Approximately 2,700 of our members are from the inclusion of our recently-acquired Valley Baptist health plans in the fourth quarter of 2008.

Growth during the lock-in period of 2008 was significantly better than we expected.

During the fourth quarter, we added approximately 3,100 new members,, excluding Valley Baptist as compared to 600 during the fourth quarter of 2007, not including Florida.

As Herb mentioned during his remarks, the 2009 open enrollment period has been a strong one for us.

Our February plan payment report reflected MA membership of 169,491.

This should serve as a good proxy for our January 2009 membership.

PDP membership at year end of 282,429 is up 103%, and despite losing 7 of our PDP regions in 2009, our PDP membership for the February report is 282,959.

Total revenue in the fourth quarter was $540.8 million, an increase of $72.3 million or 15.4% versus the prior year fourth quarter.

Medicare Advantage revenue was up 13.1% or $54.6 million to $472.1 million.

Primary drivers of this increase were an increase in member months and MA premium PMPMs.

For the three months, MA premiums PMPM increased 7% year-over-year to $976.58.

For the year, as reported MA premiums PMPM were $1,001.87, an increase of 15.4% year-over-year, or 12% if you annualize Florida in our 2007 results.

Adjusting for out-of-period risk, 2008 as adjusted MA premiums PMPM were $986.14, an increase of 12.4% from $877.47 in 2007, and again annualizing Florida this increase was 9.3% as adjusted.

PDP premiums were $56.4 million in the fourth quarter of 2008, an increase of $27.7 million or 96.7% versus the fourth quarter of 2007.

This increase was driven primarily by higher PDP membership.

For the full year PDP premiums PMPM were $82.92, an increase of 3.7% over 2007.

Please remember that quarter-to-quarter and year-to-year percentage changes in PDP PMPM are significantly affected by risk corridor adjustments.

Fee revenue for the quarter increased $2.5 million as compared to the fourth quarter of last year.

This increase was primarily the result of higher premiums and management fees associated with the IPAs that have come online since last year.

Investment income was down 48.9% or $2.9 million in the quarter, due to a significant decrease in investment yields and the refunding of $111.5 million in final 2007 Part D settlements.

Total medical expense in the quarter was $415.8 million, an increase of $57.6 million or 16.1% versus the prior year's quarter.

With respect to the components and the relative metrics, MA medical expense was $372.3 million, an increase of $46.3 million or 14.2% versus the comparable prior year quarter.

MA medical expense PMPMs were up 8.4% over 2007 to $770.11.

For the full year, as reported MA medical expense PMPMs were $784.81, an increase of 13.4% year-over-year.

As adjusted for out-of-period risk, full year MA medical expense PMPMs increased 12.3% to $780.40 versus $695.22 in 2007.

This increase was 8.8% if you annualize Florida in 2007.

The MA MLR was 78.9% for the current quarter, versus the prior year of 78.1%.

The erosion year-over-year was primarily the result of risk adjustment accruals in Q4 '07, which exceeded those of Q4 '08 as a percentage of MA premiums.

As a reminder, the fourth quarter of 2007 includes a full year accrual for the final settlement risk adjustment payment.

This was the first quarter in which we accrued for such payments.

For the year, the as reported MA MLR was 78.3% as compared to 79.7% in 2007.

Adjusting for out-of-period risk adjustment, the 2008 MA MLR of 79.1% was essentially flat year-over-year.

This was despite significant erosion in our MA-PD MLR year-over-year.

PDP MLR in the 2008 fourth quarter decreased to 75.8% versus a year ago of 78.7%.

For the year, the PDP MLR was 89.6% versus 86.3% in 2007.

Herb reviewed the details for this erosion.

Total contribution from our PDP business in calendar year 2008 did improve versus 2007.

However, the erosion in margins did cause this portion of our business to fall well short of our plan as outlined at the beginning of the year.

Fortunately, outperformance in the rest of our business has more than made up for this miss.

SG&A expenses for the quarter were $68.8 million, an increase of $13.9 million or 25.4% versus the prior year.

SG&A expense increased 100 basis points to 12.7% as a percentage of total revenue in the 2008 fourth quarter compared to 11.7% in the fourth quarter of 2008, primarily as a result of increases in selling costs, both advertising and broker commissions, and printing and postage costs.

Advertising costs are up in the current year, partially as a result of the Company's response to new [MIPA] rules, which no longer permit unsolicited phone contact to potential members.

Increases in printing and postage principally relate to our required print communications to our existing MA and PDP members associated with the 2009 annual enrollment period.

Sequentially $9.4 million of the $10.1 million increase in SG&A was the result of higher advertising and printing and postage costs in the current quarter.

Let me reiterate that we expect SG&A to remain seasonally weighted to the first and fourth quarters as a result of the marketing costs associated with the shortened open enrollment period.

Our internal target for SG&A is 11% of revenue in 2009.

As Herb indicated, our SG&A expenses in 2009 will include costs of in-house mental health and disease management services.

These amounts would have been reflected in medical costs under capitation arrangements with third-party providers in historical periods.

Moving to the items below the line, depreciation and amortization expense in the 2008 fourth quarter was essentially flat versus the 2007 fourth quarter at $7.3 million.

For the year depreciation and amortization increased $12.3 million in 2008, as a result of increases in amortization of intangible assets related to the LMC Health Plans acquisition.

Interest expense in the 2008 fourth quarter was $4.6 million, a decrease of $2.5 million from the 2007 fourth quarter, as a result of a lower average debt balance and reduced interest rates in 2008.

For the year interest expense increased by $11.7 million over 2007.

This was a result of having a full year of LMC Health Plans' acquisition debt in 2008 versus only three months in 2007.

We continue to expect that the interest rate environment will remain at these depressed levels, which will be reflected in lower interest rates for investments and debt in 2009 than in 2008.

During the quarter we repurchased approximately 1.2 million shares of our stock.

This brings our total 2008 repurchase activity to $47.3 million.

This leaves us with only $2.7 million remaining in our current repurchase authorization of $50 million.

We have no current plans to amend our credit facility to allow us to repurchase more than this $50 million authorization.

Moving to the bottom line, net income in the 2008 fourth quarter was $28.3 million or $0.51 per diluted share.

This represents increases of 8% and 10.9% respectively over the fourth quarter of 2007.

For the year, as reported net income was $119 million or $2.12 per diluted share, reflecting increases of 37.6% and 40.4% respectively over 2007.

As adjusted for out-of-period risk adjustments, EPS was $1.88 per diluted share.

Moving to the balance sheet and cash flow, our balance sheet at December 31, 2008 reflected cash and cash equivalents of $282.2 million.

Unregulated cash was $31.4 million.

Funds held for the benefit of Part D members at December 31st, 2008 consisted of a $40.2 million current asset compared to a current liability of $82.2 million at December 31st, 2007.

I'll expand upon this change more in just a moment.

Days claims payable were 41 days at the end of 2008 compared with 39 at the end of 2007.

Total debt outstanding was $268 million at year end 2008.

In 2008, cash flow from operations increased $89.7 million to $162.4 million or 1.4 times net income, compared with $72.7 million or 0.8 times net income for the year ended December 31st, 2007.

In addition to the $32.5 million increase in net income, the main drivers of this favorable variance in the current year were, one, the current year increase in non-cash amortization expense related to the LMC Health Plans acquisition in '07.

Two, the timing of cash receipts for risk settlement premiums and risk corridor settlements with CMS and other receivables.

Three, medical claims liability increasing in the current year, generally in line with the increase in both MA and PDP member months.

And four, the timing of payment for incentive compensation.

We continue to expect our annual statistics for cash flow from operations to exceed one times net income, as with the unusual and unforeseen timing of significant amounts of cash received or paid related to settlements with CMS.

I would also like to point out that our total cash flow in 2008 related to the Part D subsidies from CMS for Part D members, which we refer to as funds held for the benefit of members on our balance sheet and cash flow statement, was a net cash outflow of $122.4 million.

This use of cash was the result of our settling in the fourth quarter with CMS for the [2008] plan year, a year in which CMS overfunded such subsidy amounts to us.

This, coupled with our under performance in the current year, which results in an underfunded status, has required us to use our internal cash to pay pharmacy claims which should have been covered by the CMS subsidy amounts.

This fourth quarter settlement with CMS was the primary reason for the sequential decline in our cash balance for the third quarter of '08.

We ended 2008 with a $40 million receivable from CMS for the recoupment of these subsidy amounts.

We expect to collect these funds from CMS late in 2009.

We expect that any shortfall or excess subsidy amounts in 2009 and future years will be less significant than in prior years.

Lastly, moving to 2009 guidance, our earnings per share guidance in 2009 is $2.00 to $2.20.

This represents growth of 6% to 17% versus an adjusted 2008 EPS of $1.88.

Major components of this guidance include MA membership of 177,000 to 182,000, an increase of 9% to 12% versus 2008; PDP membership of 320,000 to 330,000, an increase of 13% to 17% over 2008; total revenue of $2.5 billion to $2.6 billion, growth of 14% to 19% versus 2008; PDP premiums PMPM increases of 8% to 9%; MAPD MLR of 80.5% to 81.5%; a PDP MLR of 86% to 87%.

This improvement of 260 to 360 basis points implies prescription drug cost trends of 4% to 5%.

The PDP MLR in 2009 should continue to follow our historical seasonal pattern improvement throughout the year.

SG&A as a percentage of total revenue of approximately 11%.

We do not expect increases in interest rates in 2009.

This will be reflected in lower investment yields on our invested cash balances in 2009, and corresponding lower interest rates on a diminished debt load in 2009.

Our 2009 cash rate we are estimating at 36.5%, and average shares outstanding of $55.3 million in 2009.

This share count reflects the inclusion of 2.7 million shares in the fourth quarter of 2009 related to the LMC Health Plans acquisition.

As a reminder, these shares are being held in escrow pending the opening of two additional Leon Medical Centers.

Operator, that concludes our prepared remarks.

We can now open the lines for questions.

(Operator Instructions).

We'll go first to Joshua Raskin with Barclays Capital.

Thanks.

First question just on the MA MLR, you talked about the 80.5 to 81.5 over, even 79 points in terms of the adjusted number, and you talked about I guess cost trends coming in higher than the yield.

Some has to do with the CMS risk adjustment rebasing, but my understanding is that is provided in the 45-day notice at the end of February, and then confirmed in the April call letter, and that's also a couple of months, so you have at least two months before your bids are due in June.

So I am just curious what happened, where -- was this targeted MA MLR increases for 2009?

No.

I think the rebasing basically cost us about 3.5%, and we anticipated some of that but not all of that in the bid process.

I thought, Herb, isn't that rebasing, wasn't that known in the 45-day notice?

Don't you usually get that, I think it was February 20th or something?

I don't think the specific factors are.

I think they come out later, and it just remains to be seen based on your weighting of the different HCCs that you have in your population.

It would be more of a mix issue if you were a membership as opposed to --

Exactly.

That's -- you really don't find that out until later.

I think you just get the base rates assuming a -- standard or constant risk factors in the April notice.

Okay.

So all else being equal, if you are thinking about this coming June, is the attempt to get the MLRs and MA back to sort of '08 levels, or is this sort of a new run rate that you guys feel comfortable with?

No.

I think the way this is playing out, we should -- we won't have that headwind on our rate increases, and I think the goal is going to be to get the MLRs and margins back to '08 levels for 2010.

Okay.

And then just the second question, you mentioned potentially higher in-patient --

Hey Josh, let me clarify there.

Okay.

What we've said since going public, and what we will continue to do, is we target the business around an 80 MLR, and so I just want to make sure we stay on an 80 MLR, we don't ever target bids that are 79.1 MLR or 79 MLR.

Right, okay.

But sort of if you are at the 81 range --

Correct.

Correct.

Okay, and just the second question.

You mentioned in the press release higher in-patient costs in the fourth quarter on the utilization side.

Any specific comments around that, geographies or what that was from?

You know, we really -- what it amounted to is we expect October to be a pretty bad month and it was, but we usually see some favorable seasonal offset and pick up in November and December, and this year both November and December were not bad months, but they weren't particularly good either.

They were just kind of average months.

And Florida in particular had an exceptionally good December the year before, and that wasn't the case this year.

Okay.

Thank you.

We'll go next to Charles Boorady with Citi.

Thanks.

Good morning.

In terms of the 2009 outlook on PDP, obviously adding a fair amount of new lives, and on the last call we characterized this as sort of a game of hot potato, where last year Humana got about 180,000 much heavier drug users than they expected, that cost Humana $1.00 a share last year.

They believed strongly that those -- a substantial number of those lives are now with other plans.

At what point in the year would you have enough information on your new Part D lives to know whether you've picked up some of those members?

It took until about March 11 in '08 for Humana to find that out.

Do you think it is reasonable that it would take that long for you as well?

Charles, I don't want to talk Humana on this call, but as we referenced on the last call, our business is 100% auto-assigns, and if I remember the issue with Humana, it was a voluntary membership selection issue.

Can a member voluntarily sign up for your plan?

They can, but we have hardly any of them.

And I think Humana got caught up with enhanced coverage through the donut hole.

We have one plan.

It's the standard plan.

There is no enhanced coverage at all, because frankly with these auto-assigned dials, CMS covers all of their cost-sharing, so there is no reason for us to have multiple benefit plans.

Right.

Okay, great.

Then on MA, can you break out the gross adds and how much attrition that you saw in MA for '09?

We don't have that with us on this call, Charles.

What about SNP lives?

What percent of '09 MA are in SNP, special needs plans?

I don't know that off the top of my head.

I'd say it's 15 to 20%, if you count all our duals in our SNP plans.

Okay.

So in the same general range as it has been?

Yes.

Pretty much.

I don't think our mix has changed a whole lot.

Okay.

And then just finally, the balance sheet item that you spiked out on your press release, and you talked about in terms of the funds due for the benefit of Part D lives.

How much certainty do you have on the exact dollar amount that you are due from CMS?

And is any of that in dispute with CMS?

Well, let me state to the settlement of this year.

The number continues to get refined during the year, albeit pretty slightly, and when we settled up with CMS this year the $11.5 million settlement, it was very insignificant settle-up, true-up to the final amount.

And your expectation for settling these funds next year, is there anything different about it?

There should not be.

Okay.

You'll get reconciliation effects through the first part of '09.

They are not that terribly drastic.

And then when we got our notice on settling the funds this year, we were pretty damn close.

Okay, got it.

If I can get one last one, just policy-related, [coating] intensity adjustment issue, that can was kicked down the road by the last administration.

Do you have a sense for when that issue will be picked up again, and what to look out for?

Well, I don't think we have a sense for exactly what they are going to do about it.

I know they are talking about more extensive audit samples, and the first wave of plans should get audited in the first part of '09.

Exactly -- I think the big question is how and whether, and if they are going to extrapolate those results to a full year's revenue.

At least at this point in our minds, that is pretty unclear.

Okay, so nothing imminent.

They are just starting the auditing process, is what is going on in this first part of '09?

Yes.

I mean, they've done some audits last year, but I think it was more informational on their part just to kind of get a lay for the land and what likely results were going to be, and I don't think they are -- at least the word we are getting is they are not going to extrapolate from those audits, so there won't be any significant results from those audits.

The prior year ones.

All right.

Thanks.

We'll go next to Justin Lake with UBS.

Thanks.

Just a quick question on -- Herbert, I didn't understand exactly what you were saying on the risk adjustment resetting at the beginning of the year.

Can you walk me through that?

Yes.

What the process is is every two years, at least that is the history now for a couple of cycles, CMS looks at the relative costs of the different diagnoses, and readjusts the relative costs one to another.

Theoretically, I think the adjustment is supposed to be budget-neutral; in other words, some go up and some go down.

For us, each time they've done that, we've lost revenue.

So two years ago, it cost us about 2 points.

This year it's a little more, it's like 3.5%.

Okay.

That's helpful.

And then -- and you expect that to happen for 2009?

That's already been [postponed] on, I should say.

It did happen.

Okay, exactly.

No, it did happen, we have got our rates in, so that's -- there isn't a lot of question about that.

We don't expect it to -- we don't expect it to happen for '10.

Okay, and that's the -- that's one of the reasons why the MLR is a little bit above target, because that 350 basis points was above the 200 you kind of probably expected?

Well, that affects your overall rate increase.

So on the revenue side, 5.5 to 6 is the reference number and '08 it would be a 9% number.

Got it.

Any other color?

You mentioned Leon having some issues down there.

Can you give us a little more color on what is going on in Miami?

We've been focused down there now for about six months, and we are pretty pleased that we think things are starting to turn around.

We hope that's the case.

We hope to see that in '09, but the trends outside the clinic essentially were higher than we anticipated.

Most of that is in patient cost and utilization.

They have successfully renegotiated, I think, their top three or four hospital contracts by volume, and we think that's going to help, and then in addition there's just a little more intensity on the medical management focus.

Can you quantify that as far as what the -- what the cost trend you expected to see was versus what you actually saw?

No, I don't think we want to get that specific right now.

Okay.

Thanks.

We'll go next to Carl McDonald with Oppenheimer.

Thanks.

The first question was just on the enrollment expectations for the balance of the year.

Just any color you have in terms of -- particularly on the PDP, but MA as well, what is going to cause the growth over the balance of the year?

Well, Carl, I think, one, we still can enroll members.

They are allowed to switch through March 31st.

So historically, while we have seen our largest change in enrollment January 1st, we still get pretty good increases for February, March and April.

And then this year in particular, we are still allowed to have all of our SNP products, and sell those throughout the remainder of the year.

We continued to grow at the end of last year every month.

So we expect we will see some growth throughout the remainder of the year, although not probably as much as we see in the first part of the year.

And my comments, Carl, we added 3,100 MA members in Q4, which sort of speaks to the ability to get new membership and lock-in.

And then on the MA side, if you do a little bit of math, the growth in our PDP membership guidance basically assumes that the trends and patterns would be similar to this year's.

We have continual growth during the year, which is really coming from auto-assign switching plans or new to Medicare -- new to auto-assignment, rather.

And then just going back to the Florida plan, can you remind us what the risk share arrangement is there?

Was it an 80% loss ratio, and then there was sharing around that?

Exactly, no, there is an 80% target, and there's a 5% corridor up and down that any variation from the 80% is split 50/50 with the provider group.

And then on the outside of that corridor, the risk both up and down is 100% for the health plan.

And on -- the out-of-clinic costs, are the vast majority of them fee-for-service as opposed to capitated?

Well, outside of the clinic the vast majority of the costs are hospital costs, and yes, those are fee-for-service.

Okay, thank you

(Operator Instructions).

We'll go next to Daryn Miller with Goldman Sachs.

Good evening.

My apologies if I ask a question that has already been asked.

Just let me know, an I'll go back and check out the transcript.

Was curious what you are seeing in the Texas market as far as competition and other plans, how you are positioned against them down there?

In the Texas market, I don't think - in our core market in Houston, I don't think a lot has changed.

I believe we are positioned about the same way we were in the last couple of years.

Universal American is the major competitor, and the primary difference from what I understand is they have a Part D [give back] that we don't, but that's been true now for three or four years in a row.

The other difference in Texas this year is we expanded into the Dallas, North Texas market.

That is new for us this year.

And the other nuance that is not insignificant is with the Valley Baptist acquisition, we are now pretty much the dominant Medicare Advantage plan down in the Rio Grande Valley, and not only did it, I guess, eliminate a competitor, but it also added the hospital system to our network, and we are the only ones that have that system.

And that's been a very strong market for us this year.

In the Houston market specifically, are you picking up enrollment, and are those coming from your primary competitor there, or are those maybe coming from traditional Medicare?

We are picking up enrollment, and I'd say most of that probably comes from traditional Medicare.

Okay.

Can you give us a sense of where your commission structure lies versus your competitors?

Well, with the new [MIPA] regulations, everyone is pretty much the same.

Okay.

I mean they pretty well dictated commissions, and I am not aware of much variation from anybody in any of our markets.

Don't keep me to it, Daryn, but I think it's 400 for a new member and it's 200 for a renewal.

Okay.

And I think that is basically in the ballpark for everybody.

Great.

In terms of M&A, just wondering what you are seeing as far as sellers and willingness to sell?

Boy, between the credit markets and the current prices, I don't think there's a whole lot of activity right now.

If you could get your compatriots to finance some deals, there could maybe be something there.

Okay.

And then one last one.

I'm not sure if you guys commented already on SG&A at 11% versus prior guidance below 12%?

I mean, we really haven't commented on it, Daryn.

We started to get a fair amount of operating leverage this year, as we started to come down under 12.

We did a lot of infrastructure build sort of late in '08 that we should be able to get leverage out of in '09.

So we are pretty comfortable with bringing that metric down to the 11% range.

Do you think there is continued leverage into 2010?

There comes a point -- I get a little nervous stomach when your second digit is a zero, but we are not there yet.

Okay.

Thank you very much, guys.

Our next question comes from Matt Perry with Wachovia Capital.

Good evening.

Just kind of one question I want to hit on.

You know, with anticipation that Congress may adjust the benchmarks for the Medicare Advantage program, just curious if you can give us an update on, broadly speaking, where your cost per member in your markets where you operate kind of compares to the fee-for-service cost per member?

Generally I think the last time I looked at that, we were in the low 80s.

80% of fee for service cost?

Yes.

If you just -- in the bid process, you normalize and adjust to benefit for benefit to what you can provide the Medicare benefit package for, with your overhead margins and medical costs, and I think we are in the low 80s every time I've looked at that.

Is that pretty much across all the markets you operate in, or are there some where you have some variation there?

I think there's probably some variation, but to be honest I don't have all the details and specifics market by market.

I guess maybe what I'm really trying to get at is, are there any markets where you would be concerned if you have to operate at reimbursement of fee-for-service level?

Well, I think we look at it, we think the world will look a lot like it did pre-MMA.

We had four years operating in that environment, and clearly benefit packages were not as rich as they are today, but there also was a lot less competition.

And primarily you were competing with the supplement carriers, and we still think we fare and look pretty well compared to a supplement.

Okay.

That's all I had.

Thank you.

Mr.

Fritch, at this time there appears to be no further questions.

I would like to turn the conference back to you for any additional or closing comments.

Thanks much.

I'll just remind everyone we are going to have our investor day at the end of the month up in New York, and hopefully we'll get into more details there.

Thanks a lot for your interest.

That does conclude today's conference call.

Thank you again for your participation.

You may disconnect at this time.