信諾集團 (CI) 2010 Q4 法說會逐字稿

Please stand by for real time transcript.Good morning and welcome to the HealthSpring conference call to review its financial results for the fourth quarter and year ended December 31, 2010.

The financial results were issued before the opening 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 caution that some statements made on this call will be forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those in the forward looking statements.

Investors should refer to statements filed by the Company with the Securities and Exchange Commission for a discussion of those factor that could affect the Company's financial results and the forward looking statements made in this call.The information being provide today is as of this date only and HealthSpring expressly disclaims any obligation to update these toward-looking statements as a result of new information, future events or developments, except as required by law.

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.

Today's call is being recorded.

At this time, I'll turn the call over to Mr Herbert Fritch, Chairman and Chief Executive Officer of HealthSpring.Please go ahead, sir.

Thank you, operator.

Good morning and thank you thank you for joining us.

This call celebrates a milestone year for HealthSpring and we are continuing the momentum into 2011.

2010 was a year in which health care reform dominated headlines.

It was also our ten-year anniversary as a Company and year in which we enrolled our 1 millionth member.

We are proud of the Company's recent achievements, but I can assure you that on behalf of our members and stockholders we are focused on the future and on executing our strategy.

We will continue our commitment to providing the highest quality medical care to our members and we will enhance our position as an industry innovator in developing and managing health care delivery systems.

As indicated in this morning's release, we ended the year with continued strength in our financial results.

For the year total revenue and earnings per share were $3.1 billion and $3.39 respectively, which represent increases of 18% and 41% over 2009.

Health care utilization remained throughout the year at unexpectedly low levels.

As a result, each of our markets continued their out performance in the fourth quarter.

Additionally, the quarter benefit from one month of earnings from Bravo Health, which included the high seasonal earnings associated with the Part D product design.

Looking to 2011, strength in membership growth offset by an expected return to more normalized medical loss ratios should shape results.

For the full year, we expect total revenue of at least $5.4 billion and earnings per share of $3.60 to $3.90.

This guidance assumes membership growth of 12% in Medicare Advantage and 21% to 24% in PDP.

We are assuming MLRs consistent with our bid targets of 81% to 82% in Medicare Advantage at 86.5% to 87% in PDP.

Karey will provide more commentary on the 2011 guidance later in the call.

As you know, we completed the acquisition of Bravo Health on November 30, and have devoted a great deal of management time and attention to ensuring a successful integration.

Our synergy targets appear achievable and integration will remain a key priority in 2011.

We retained key leadership at both a corporate and local market level.

I am very pleased with our progress to date.

The Bravo Health plans have folded into our existing corporate reporting structure.

Anchored by the Philadelphia franchise, those plans located in Pennsylvania, New Jersey, and mid-Atlantic will form our east region.

This particular region encompasses a very impressive market position and we expect continued member growth, further benefit from our advanced care center clinics and improving operational results.

Bravo Health of Texas and the STAR PLUS Medicaid operations that integrated into our Texas market and new markets in San Antonio and El Paso will complement additional market penetration in Houston and Dallas, where we have a long-standing history as a market leader in enrollment and position engagement.

As a reminder, our STAR PLUS contract originally set for February 1 effective date has been delayed.

Recently we passed readiness review by the state and expect to begin enrolling members on May 1.

For 2011, STAR PLUS is expected to lose money because of lower membership resulting from a late start, fixed overhead and start-up costs.

We view this contract, however, as an opportunity to develop expertise as a Medicaid payer and we continue to see ourselves as a natural fit to administer the benefit needs of the growing aging, blind, and disabled population.

This current contract should also allow us to bid on additional opportunities coming to market.

Bravo Health and HealthSpring's sizable combined Part D operations continue to achieve economies of scale from the integration.

Day-to-day oversight is transitioned to our existing Part D team, but some vendor relationships, most notably the use of two pharmacy benefit managers, will remain in their current structure until 2012.

At which time we anticipate a full migration to existing HealthSpring contracts.

2010 also saw our first experience with a shortened enrollment period.

We continue to view this as a challenge, but are confident that seniors have and will continue to adjust purchasing patterns.

We are confident, however, in other MA plans experience this selling season has confirmed that they continue to seek the value-added services that Medicare Advantage plans offer.

To date I am very please with the early indications of our enrollment results.

Our February plan payment report lists Medicare Advantage membership of 328,653, which marks an 8% increase compared to our membership at year-end.

If you recall, this is significantly higher than the 2% growth we experienced for our comparable period in 2010.

It appears as though our expanded geographic footprint coupled with the ability to add incremental benefits to this years product offerings have heavily influenced results.

We are also pleased to report continued growth in the stand alone PDP product, which as of February had membership of 831,609, a 15% increase over year-end.

We are now the third-largest provider of Part D benefits to the low-income subsidy population and we view this scale as a tool for sustaining growth as we bid for auto assigned membership in the future.

I would also like to comment on recent developments coming out of Washington.

Undoubtedly you have witnessed the efforts of Congressional Republicans seeking a repeal of the patient protection and affordable care act.

Although we understand the motivation behind these actions, we do not expect repeal as a likely scenario under the current administration.

We do, however, wholeheartedly support the notion that certain sections of the reform law deserve further examination and modification.

The bottom line is that many aspects of health care delivery are in desperate need of repair and our stance remains firm that on the whole, the current law reform laws do not address these shortfalls.

In the meantime, our efforts will remain focused on reform implementation and execution of strategic opportunities created by health care reform.

In particular, we review accountable care organization development as a potentially meaningful piece of our strategic mission going forward.

Regulators have not provided much clarity as it relates to the government backed ACO model, but select leaders from insurance, hospital, and physician organizations including HealthSpring are collaborating to develop privately-managed delivery systems.

We believe that the ultimate solution for our country's health care crisis has to come from the private sector and the ultimate success of ACLs will be dependent on physician support, engagement and leadership.

Because these principles have historically been integral to our IPA relationships, we are positioning HealthSpring to be in the natural leader in developing these new health care deliver systems.

As provider consolidation continues and market share becomes increasingly important metric to hospital operators, our belief is that organically-developed ACL models can flourish.

These partnerships will exist with the goal of creating a value-based health care delivery system, including incentive structures to reward those efficiently managing care.

This is a message that fundamentally shapes our health care delivery today and we look toward to acting on the enthusiasm shown by the provider community as a way to expand our management model and capabilities to other lines of business and in geographies that we do not currently service.

To date we have been actively involved in discussions with several innovative groups who are highly interested in developing ACLs with our support.

Along these lines we hope to have more tangible results to discuss in the coming months.

Additionally we believe managed care consolidation will continue to accelerate.

As reimbursement comes under pressure, we expect the number of Medicare advantage plans to climb.

Under minimum MLR regulations, leveraging SG&A will also be critical.

As a larger plan, we have the financial flexibility to make necessary investments in compliance information, technology, medical management, and quality that smaller plans will be challenged to replicate.We view acquisitions as critical to our long term strategy and are evaluating opportunities as they become available.

We also continually review our balance sheet.

We feel it is important to be nimble and opportunistic in the event a larger acquisition opportunity is presented.

In turn we may consider various debt and equity alternatives to our current capital structure should the need arise.

In closing, I'll offer a few thoughts on upcoming regulatory matters.

This afternoon, CMS is set to release the 45-day advance notice for 2012 Medicare Advantage rates.

Given this timing, we are not going to discuss our expectation on today's call.

We do anticipate guidance on fee-for-service trends and benchmarks and coding intensity adjustments.

We do not expect comments on RADV audits to be included at this time.

On the subject of RADV audit, we lack final guidance from CMS as it relates to an extrapolation methodology, future audits or the results past audits.

Like many of our industry peers, we see flaws in the current proposal and have appropriately submitted comments to CMS for their consideration.

We applaud the recent announcement by CMS indicating they are seriously evaluating the comments submitted by the industry.

Beyond that, our visibility is limited.

And we have not made any related accruals as of 2010 year-end.

In the meantime, our focus will remain on caring for the members we serve and empowering the providers with whom we partner.

With that I would like to turn the call over to Karey.

Thank you, Herb.Good morning, all.

We're pleased to report another solid quarter and subsequent ending to a very strong year financially.

For the quarter and year ended December 31, reported net income of $50.9 million, or $0.88 per share and $194.2 million, or $3.39 per share reflect increases of 31% and 45% respectively from the comparable periods of 2009.

Moving to the specifics, we reported 304,604 Medicare Advantage members at the end of the fourth quarter, representing year over year growth of 61%.

The Bravo Health acquisition accounted for a 56% increase to membership and organic growth produced the remainder.

PDP membership at year-end of 724,394 increased 131% over 2009.

Both organic growth and acquired lives contributed to the large increase year-over-year and we continue to be pleased with the trajectory of our PDP membership growth as it becomes a more meaningful contributor to our consolidated results.

Total revenue in the fourth quarter was $881.6 million, an increase of $204 million or 30% versus the prior year fourth quarter.

Medicare Advantage revenue was up 25%, or $146.8 million to $733.3 million.

This increase was primarily volume-driven as Medicare Advantage premium PMPM remained largely unchanged year-over-year on a comparable basis.

For the three months MA premiums PMPM increased 1% year over year to $1,046 due to the inclusion of Bravo Health PMPMs, which are higher than the core HealthSpring amounts due to their concentration of dual eligibles.

And their higher regional benchmarks.

For the year, MA premiums PMPM were $1,058, a 67 basis point increase over 2009.

PDP premiums were $134.6 million in the fourth quarter of 2010, an increase of $58.1 million, or 76% versus the fourth quarter of 2009.

The increase was primarily attributable to member growth.

For the year, PDP premiums were $472.9 million, or 15.3% of total premiums.

PDP premiums PMPM were $93 for the year, a 125 basis point increase over 2009.

Investment income increased $1.7 million, or 224% in the quarter due to increased invested assets and higher yields across our portfolio.

For the year, investment income increased 64% to $7 million.

Our portfolio, which consists of high-quality fixed-income securities has yielded better results as we have transitioned funds out of cash and cash equivalents and into longer duration securities.

Total medical expense in the quarter was $668.7 million, an increase of $146.2 million or 28% versus the prior year's quarter.

Specifically, MA medical expenses were $587 million, an increase of $111.6 million or 23% versus the comparable prior year quarter.

MA medical expenses PMPM decreased by 40 basis points on the quarter to $838.

For the full year, MA medical expenses PMPM were $833, a decrease of 2% or $18 year over year.

Our Medicare Advantage MLR was 80% for the quarter, an improvement of 100 basis points year over year.

For the full year, the MA MLR was 78.7%, an improvement of 230 basis point from 2009.

Driving this improvement was continued favorable in-patient utilization, coupled with sustained favorability in the drug components of MA.

The stand alone PDP MLR of 82.3% for the year improved 100 basis points versus 2009.

Both our MA Part D and PDP businesses benefited in 2010 from one month of Bravo Health results included in our 2010 numbers, as well as continued favorable pharmacy rebates.

SG&A expenses for the quarter were $113.9 million, an increase of $34.4 million, or 43% versus the prior year.

The increase year-over-year was primarily the result of accelerated printing and advertising cost incurred to accommodate the shortened selling season.

A larger administrated base due to the inclusion of Bravo Health SG&A expenses in the month of December and other Bravo Health transaction-related costs.

For these reasons, SG&A expense as a percent of revenue increased 120 basis points to 12.9%.

Excluding transaction expenses, SG&A as a percent of total revenue was 11.8% for the three months.

For the year, SG&A of $324.3 million represented 10.3% of revenue.

This reflects a decline of 20 basis points from 2009.

On a comparable basis, excluding costs related to the Bravo Health transaction, SG&A expenses as a percent of revenue decreased 50 basis points year over year to 10%.

Moving to items below the EBITDA line, depreciation and amortization expense for the quarter and year was $10.5 million and $33.3 million respectively, for an increase of $2.7 million and $2.6 million versus the comparable 2009 periods.

Substantially all this increase took place in December and was related to amortization of identifiable intangible assets created as part of the Bravo Health transaction.

Interest expense in the 2010 fourth quarter was $5.6 million, an increase of $2 million from the 2009 fourth quarter and the result of increased debt obtained to finance the acquisition of Bravo.

For the year, interest expense increased by $5.3 million.

The Company's effective income tax rate for the three months ended December 31, 2010, was 38.7%, compared to 39.7% for the three months ended December 31, 2009.

The decrease in the 2010 fourth quarter compared to the 2009 fourth quarter was a result of a change in the concentration of the Company's 2010 profitability.

The annual effective income tax rate for 2010 was 37.2%.

Moving to the bottom line, net income in the 2010 fourth quarter was $50.9 million, or $0.88 per diluted share.

For the year, net income was $194.2 million, or $3.39 per diluted share.

Included in our annual EPS is one month of earnings contribution net of incremental interest expense and intangible asset amortization from Bravo Health totalling $0.06.

Reducing the reported EPS results for the year was $0.14 per share for transaction, severance and integration-related expenses incurred throughout the third and fourth quarters, which should not recur.

For the year, our fully diluted share count was 57.3 million.

Annual share count increase relates to exercising of previously-granted employee stock options and the increased dilution under the treasury stock calculation given the recent share price appreciation

Moving to the balance sheet and cash flow, our balance sheet as of December 31, 2010, reflected cash and investments of $771.8 million.

Unregulated cash was $83.4 million, compared to $106.4 million in 2009.

Total debt outstanding was $626.9 million at year end 2010, compared to $237 million to end 2009.

As a reminder, the Company amended its revolving credit facility and entered into a new term loan facility in conjunction with the acquisition of Bravo Health.

The incremental increase in total debt outstanding was $480 million, which is inclusive of $100 million under the Company's $175 million revolving credit facility.

We made a voluntary $15 million prepayment of debt on December 31.

Days and claims payable were 35 to end 2010.

Excluding the impact of Bravo Health acquisition, days and claims payable totaled 32, an increase of 3 days compared to the third quarter of 2010.

In 2010, cash flow from operations increased $51 million to $221 million, or 1.1 times net income, compared with $170 million, or 1.3 times net income in 2009.

Moving to our 2011 guidance, we expect earnings per share to be between $3.60 and $3.90.

This reflects an expected EPS contribution from Bravo Health that is better than originally anticipated at the time of the acquisition.

Major components of this guidance include MA membership of at least 340,000 at the 2011 year end, an increase of 12% versus 2010.

PDP membership of 880,000 to 900,000 at the 2011 year end, an increase of 21% to 24% over 2010.

Total revenue of at least $5.4 billion.

MA premiums PMPM growth of approximately 3%, much of which is the result of the inclusion of 12 months of Bravo Health plans in 2011.

PDP premiums PMPM growth of 5% to 7% year over year, MA PD MLR of 81% to 82%, PDP MLR of 86.5% to 87%.

SG&A as a percentage of total revenue at or below 10.3%.

Specific items contemplated in this ratio include investments in the programs like STAR PLUS, as well as Bravo Health's historically higher SG&A load.

As we move into 2012, we should see further SG&A leverage as we realize additional synergies between the two businesses.

Total depreciation and amortization growth of approximately 100% over 2010 due primarily to the amortization of intangible assets related to the Bravo Health acquisition.

A 2010 tax rate of 37.0% to 37.5% and average shares outstanding of approximately 59 million for the full year.

Before we take questions, I want to invite all of you to our 2011 investor day which will be held in New York City on Thursday, April 7.

A save the date note has been sent out and a formal press release will go out in the coming weeks with all of the specifics, but we look forward to seeing you there.

Joining Herb and me on the call today for Q&A are Mike Mirt, our President, Dave Terry, our Chief Actuary, and Lankford Wade, our Senior Vice President of Corporate Development and Treasurer.

Operator, that concludes our prepared remarks.

We can now open up the line for questions.

We'll take the first question from Justin Lake with UBS.

Hi, guys.

It's actually [Cal Levine] for Justin.

I had a question on the MLR bids for 2011 for Medicare Advantage.

I think you said the 81% to 82% reflects what your bids are targeting.

Is there any -- is Bravo within that range as well or is that a blended number?

is there any reason to think Bravo would be any different than that?

No, I believe Bravo was pretty consistent with that.

Okay.

And in terms of the RADB, I know you said there was no accrual in the fourth quarter, but would you be able to estimate the accrual if there's no change in the methodology that was published in December?

No, I think the answer is no.

We, like many of our peers, will wait to see how the final extrapolation rules come out and we'll get back to you with more data post that.

I think you said you're not expecting it in tonight's comment or tonight's advance notice.

Do you think it might be in the final notice or a separate announcement altogether?

We're really not sure.

We think it will probably end up being a separate announcement.

We don't predict CMS very well sometimes.

Okay, great.

Thank, guys.

We'll take the next questions from Chris Rigg with Susquehanna Financial Group.

Good morning, guys.

First question, with regard to your enrollment outlook for this year on both the MA and the stand-alone PDP side, obviously both pockets a little bit above where you are in February.

Is there any particular business that is coming online that's worth highlighting?

No.

I think that's just kind of routine growth.

Of course this is the first year the baby boomers are hitting so you've got a little more age inactivity than we normally have, but between age ends and dual eligibles, we believe we can still see some net growth throughout the year.

Same on the PDP side.

It's just our share of new members coming in to the program.

Okay.

And then, also, on the outlook for this year, you're looking for SG&A of 10.3% or better.

I guess it looks to me like the adjusted number 2010 would have been about 10%, netting out the Bravo costs.

Can you help me understand why we wouldn't see more leverage this year relative to 2010?

You sort of double-dipped on the MA marketing and given all the new business from Bravo, I would of thought we would seen a little bit more leverage than what you're indicating.

Fair question.

I'm able to say that the $15 million in synergies that we talked about from Bravo earlier is included in our assumption, but I think what you're seeing is one, Bravo has historically operated at a relatively higher G&A load than what we do.

And I think what you're see in our 10.3% is further synergies that we see coming down the road in 2012 and beyond.

I think Herb highlight in his prepared remarks the conversion of our PDM.

That in itself in 2012 would help us to reduce that G&A load.

There are other systems beyond behind that, that would help us as well.

Okay, all right.

Thanks a lot.

We'll take the next question from Carl McDonald with Citigroup.

Thanks.

I wanted to go back to the enrollment.

Maybe you could just contrast what you would have said at this point last year about geographic expansion and benefit changes relative to what you have done for this open enrollment season?

I don't think geographic expansion was a significant factor in either year.

I think last year we reduced benefits somewhat.

This year, they were pretty stable for the most part.

And certainly weren't a negative.

I think in selected markets, we saw competitors up premiums, reduce benefits and of course you had private fee-for-service plans for opting out for the most part.

That would have been a little bit of a tailwind this year that wasn't present last year.

And then just be interested in any thoughts you have on the PDP business, post the CVS transaction and If you have seen any change in view on the PDP from other companies or if you view that more as a one-off transaction?

Well, we certainly hope it's indicative of the value of PDP membership.

I can't say it's had any material impacts.

In terms of anything intangible.

But, we like the business.

It's been a real positive business for us.

Obviously Bravo pretty much doubled our business as we looked at 2011.

So, we're real optimistic about that part of the business.

Thank you.

We'll take the next question from David Windley with Jefferies and Company.

Thanks for taking question.

Would you mind to detail the one or two primary factors that would drive you from the low end to the high end of your EPS range?

We think the big variable there is going to be the MLR.

We waited this long on a guidance so we're pretty certain where membership starts and what the revenue per member per month is and the big variable is going to be the health care trends and the MLR.

And that's going to be the thing that determines where we come out in the range.

Herb, in terms of calculating to floor, you obviously aren't implementing or the law doesn't implement that for you in MA yet, but looking out, looking at your -- equating your GAAP floor more of a regulatory floor, where do you see now that GAAP floor being?

I think we've said in the past, we view the tax piece of this, being able to exclude taxes from the denominator on premiums being worth at least 2.5%.

We think the reclassification of quality-related expenses is worth around 1.5%.

Apples to apples, the 85% translates to about an 81%.

Really with the guidance, we're there in aggregate.

The issue then becomes regional variations.

We do have a couple of regions with a little lower loss ratios that ultimately we would have some deterioration if you were to look at it today.

Okay.

And then shifting gears just a lift bit, the owned clinic part of your business and having parts of that in the pre Bravo HealthSpring and also coming with Bravo, I'm wondering two things.

If there are integration steps that need to be taken to, say, homogenize the approach in those clinics?

And then secondly, would you like to make acquisitions to add to your own provider platform going forward?

We view this as, we have to be innovative on the delivery systems side.

These are pretty much very interesting pilots.

They look like they're producing some real positive results and it -- we've got to figure out what the best way and how much investment we have to make to scale that.

And make them a little more broadly-present across markets.

But we're certainly looking at that.

And we think that's a lot of the challenge going forward.

But the results in the local markets on the surface appear very favorable and we would like to figure out how to do more of that going forward.

Super.

Thank you.

We'll take the next question from Sarah James with Wedbush Securities.

Thank you.

I was hoping you could talk a little bit about your capital position.

Where free cash is now, where you see some of the moving pieces in 2011 and what your capital deployment strategy is?

Sure, Sarah.

We would see free cash in 2011 generating to the tune of roughly about $150 million.

Much of that would go towards debt retirement.

And then beyond, we're trying to maintain some flexibility in our capital structure, as Herb said in his repaired remarks, to prepare to be opportunistic should deals come our way.

Could you characterize your deal pipeline compared to last year, an average year?

Is it about in line where it is this time of the year?

We think it looks pretty good.

We almost think the Bravo transaction has triggered some activity and seems like there's a little more activity now than there was a year ago.

Any particular focus whether it's provider-type plans or different geographies or in general a larger --

I think in general we're looking for concentrations of membership in a particular market.

I don't think there are any geographies.

We look at each one kind of on its own merits.

But we aren't particularly interested where you're down a lot of membership spread over a huge geographic area and not much concentration.

Okay.

And my last question is on the MA product offerings for 2012.

I know it's still early yet.

But I was wondering if there was anything from just a fundamental standpoint that would make the HealthSpring offerings look different than the Bravo.

In the press release today it mentioned the discrepancy in the MA pricing and I wasn't sure if that's something that's driven on fundamentals and could continue, or if it was just a pricing strategy and maybe they will converge over time.

No.

We're pretty happy with our historical pricing strategy and I think we'll continue to apply that strategy to Bravo markets.

But in aggregate there are markets here and there on both HealthSpring and Bravo that are little different than what we would like.

We'll try to get those fixed, but for the most part, things are pretty consistent across HealthSpring and Bravo markets.

Great, thank you.

We'll take the next question from Michael Baker with Raymond James.

Thanks a lot.

Karey, I was wondering if you could share with us your thoughts for CapEx and whether you're build in any desire to build some LivingWell of advance care centers?

Sure, Mike.

We would see CapEx in the low-to-mid- 30s in 2011.

Our approach on LivingWells, at least for 2011, is more away from the bricks and mortar concept you have seen us do historically, and more towards complementing a physician office.

So, a much smaller scale.

We can build more and cost less and we think gain greater efficiencies by doing so.

That's helpful.

Thank you.

We'll take the next question from Josh Raskin with Barclay's.

Hi, thanks.

Good morning.

I'm just trying to figure out core HealthSpring earnings for next year.

You guys did sort of -- 339 was the GAAP number, but you have to take -- add back $0.14 of transaction costs, so maybe it's a 553 number.

So, if you look at 353, and if you look at the 360 to 390, you're talking about maybe $0.07 to $0.37 of earnings.

You've said that in past, Bravo would be $0.50.

Sounds like it's going to be more than that, even if you got a couple of cents in 2011.

It seem likes the core earnings for HealthSpring, you are talking about down, I don't know, between $0.15 and $0.40, with the high end being a 10% contraction in core earnings.

I'm having a little bit of trouble understanding what's going on with the internal book, especially in light of the growth or is this just you're resetting your margin assumptions and assuming no benefit this year?

Yes, Josh.

Going toward, we're taking the view that we are HealthSpring and we are not -- it's not our plan to continue to break out Bravo.

Florida may be unique in the sense it's -- or Leon rather, in the sense that it was a single market, but it is certainly not our intention to continue to break out Bravo on a go-forward basis.

I don't think there's anything indicative in your words, what's wrong with the core business.

Only to highlight that our assumptions are that health care trends return to some level of normalcy, whatever normal is, that it creeps up to an 81% to 82% loss ratio on our MA books.

I'm not sure I read anything as to what is going on in the core HealthSpring products.

Yes, I think, Josh, it's obvious that we go from a loss ratio we're at to 81% to 82%, there's going to be a degradation of margin and that would apply to the core HealthSpring business.

But we do think these are the margins that ultimately are sustainable and we have assumed a more normalized kind of medical trend, or at least what has been normal historically.

Okay.

I understand.

So, the guidance is more of the, we think is where the bid, the sustainable margin long term is where the guidance is.

If you think about your bids were made last June.

Are you saying that a reversion to more normal medical costs based off your June bids and not taking into effect anything that happened post first week of June?

Is that the way to think about it?

Pretty much.

Yes.I think that's fair.

Okay.

Second topic, the intangibles, the allocation process of the intangible assets for Bravo.

It looked like the goodwill number was actually lower than I would have expected.

It looks like you're allocating more to identifiable intangibles.

Maybe the amortization expense might be a little bit higher than I was expecting.

Is this consistent with what you were modeling when you announced the transaction?

Yes.

Yes, we would see, Josh, roughly in the low 20s in amortization of intangibles in 2011.

Okay, it is a -- do you know what the amortization schedule is?

Is that going to start ticking down sooner than later?

Right.

Right.

We broke it into -- I'll stay relatively high level on this, but roughly looking at allocating intangible dollars to the membership trade name, provider network, contracts, et cetera, those are on varying amortization periods.

Some are unaccelerated.

Some are on straight lines.

The weighted average would be about 13 years.

We'll certainly provide the full detail in our 10-K.

Okay.

And last question, synergies of $15 million that you talked about, you're on pace for that.

Do you have a 2012 expectation?

I know you talked about some of the vendor relationships that will switch over.

Any preliminary sense of where we'll get next year?

Nothing that we're prepared to quantify at this point.

Certainly there's more there.

Okay.

Okay.

Got you.

Thanks.

We'll take the next question from Scott Green with Bank of America Merrill Lynch.

Hi, thanks for the questions.

On Medicare Advantage enrollment growth outlook, you said 12%.

That's all an organic, right?

Yes.

Okay.

All right, so thinking about that guidance and going forward, where potentially with rate cuts your benefits might have to be reduced ultimately somewhat, but your relative competitive position to higher cost peers will certainly improve.

So, which kind of carries the day from your perspective?

Should 12% organic growth get better over time?

Or will it -- will there be a headwind associated with potential benefit reductions?

We haven't really tried to make that determination.

I think we'll have a lot better feel for that when we finalize our 2012 bids and really see where all that comes out.

I think it's a little premature to try to make that call right mow.

Okay.

All right.

And then a question on STAR PLUS.

Just -- you're speaking with the state.

Do you feel like you remain in a good competitive position to compete for Texas Medicaid contracts?

Yes.

This is Mike Mirt.Absolutely.

We believe that our position with the state at this moment in time is one of collaboration.

And so we are prepared to bid on various opportunities at the state will be forthcoming with over the next 30 to 60 days.

Okay, thank you.

Mr Fritch, there are no further questions at this time.

I will turn the call back over to you for closing remarks.

Okay.

Thank you, operator.

Thanks for your participation.

We look forward to our investor day coming up.

Our first quarter call.

Thank you.

That does conclude today's call.

You may now disconnect.