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Operator
Ladies and gentlemen, thank you for standing by for Cigna's Fourth Quarter 2011 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 the queue to ask questions at that time.(Operator Instructions) As a reminder ladies and gentlemen, this conference, including the Q&A session, is being recorded.
We'll begin by turning the conference over to Mr.
Ted Detrick.
Please go ahead, Mr.
Detrick.
Ted Detrick - IR
Good morning everyone, and thank you for joining today's call.
I am Ted Detrick Vice President of Investor Relations, and with me this morning are David Cordani, our President and Chief Executive Officer; Ralph Nicoletti, Cigna's Chief Financial Officer; and Herb Fritsche, who now leads the Seniors business for Cigna.
In our remarks today, David will begin by commenting on Cigna's full-year 2011 results, and how our accomplishments in 2010 and 2011, as well as the acquisition of HealthSpring, position us for continued success in 2012 and beyond.
Next, Ralph will review the financial results for the quarter and full year of 2011.
He will also provide Cigna's financial outlook for 2012.
We will then open the lines for your questions, and following our question-and-answer session, David will provide some brief closing remarks before we end the call.
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 use the term labeled adjusted income from operations as the principle measure of performance for Cigna and our operating segments.
A reconciliation of these measures to the most directly comparable GAAP measure is contained in today's earnings release, which is posted in the Investor Relations section of cigna.com.
In addition, when we discuss our 2011 health care financial results, and specifically our results for revenue and membership growth, as well as operating expense ratio, it will be on a basis that adjusts for our exit from non-strategic markets, most notably the Medicare individual private fee-for-service business.
This adjustment creates a better basis for comparison for explaining our financial results.
Now in our remarks today we will be making some Forward-looking comments.
We would remind you that there are risk factors that could cause actual results to differ materially from our current expectations, and those risk factors are discussed in today's earnings release.
Also please note that in addition to our earnings release and the quarterly financial supplement, we have made available on our website some additional information to facilitate your understanding of our 2011 results, and the specifics of our 2012 financial outlook which Ralph will discuss in a few moments.
Now before turning the call over to David, I will cover a few items pertaining to our 2011 results and our disclosures for 2012.
Regarding our results, I would note that in the fourth quarter we recorded an after-tax charge of $31 million, or $0.11 per share, for transaction costs related to the HealthSpring and FirstAssist acquisitions, which we report as a special item.
I would remind you that special items are excluded from adjusted income from operations in today's discussion of our 2011 results, and our full-year 2012 outlook.
Also as previously discussed, effective January 1 of 2012, Cigna's adopting new guidance regarding the accounting for the deferral of certain costs related to the acquisition of new or renewal insurance contracts.
This accounting change restricts the amount of cost that can be capitalized, and accelerates the recognition of certain acquisition costs that previously would have been deferred.
Cigna will adopt this accounting change on a retrospective basis in the first quarter of 2012, re-casting prior periods and recording a one-time, non-cash charge of approximately $250 million to $300 million directly to share holders equity.
The impact to re-cast full-year 2011 results for the adoption of this new accounting guidance will be to reduce earnings for our international business by approximately $70 million after tax.
We remind you that this accounting change has no impact on of the fundamentals of the business; that is, there is no effect on revenues, future cash flows, our statutory capital position, or the lifetime profitability of the policy.
Because this accounting change is effective January 1 of 2012, the impact of this change is not reflected in our 2011 results that Ralph will discuss in a few moments.
However, when David and Ralph provide commentary on our 2012 outlook, it will be on a basis that assumes retrospective adoption of this accounting change with both 2011 and 2012 being re-cast on a comparable basis.
One last item, we announced earlier this week that we have completed the acquisition of HealthSpring effective January 31 of 2012.
When we discuss our full-year 2012 outlook it will be on a basis which includes the expected results of HealthSpring as of February 1, 2012, excludes any future capital deployment, and assumes break-even results for our run-off guaranteed minimum death benefits business, otherwise known as VADBe.
For 2012, we will report HealthSpring's results within our health care segment, and going forward, we will not report actual HealthSpring specific earnings or provide an explicit financial outlook for our Seniors business, as we begin to integrate our commercial and Senior businesses to drive revenue, synergies, and create improved value for our customers and clients.
With that, I'll turn it to David.
David Cordani - President and CEO
Thanks Ted, and good morning, everyone.
Before Ralph reviews our results and outlook, I'll briefly comment on Cigna's achievements in 2011, and I'll highlight our expectations for the future.
First, we delivered strong revenues and earnings growth for full-year 2011.
Overall, these results reflect consistent execution of our growth strategy and demonstrate the value we continue to create for our customers, clients, and shareholders.
More specifically, our retention, expansion, and new business growth in our targeted geographies and customer segments are further evidence of our continued success.
Regarding the fourth quarter, results were consistent with our expectations and reflect continued strong operating fundamentals as well as considerable investments in our future.
These include service and clinical staffing for the high levels in growth we are expecting for the first quarter of 2012, and increased spending on branding, technology, and product development across all of our emphasized businesses.
These investments will continue to support future growth opportunities and strategic positioning.
Ralph will describe the financial impact of these investments in a few moments.
Second, 2012 is going to be a significant year for Cigna, as we continue to execute our growth strategy, including the recently announced closing of the HealthSpring acquisition, which will accelerate our expansion into the growing US senior and Medicare markets.
Lastly, we are making ongoing investments into our diversified portfolio to position us to deliver sustainable and attractive earnings growth in 2012 and beyond.
Let's dive in.
2011 was a strong year for Cigna, and it marks more than two solid years of execution of our Go Deep, Go Global, and Go Individual growth strategy.
For the full year we reported adjusted income from operations of approximately $1.4 billion, and delivered earnings and EPS growth of 12%.
These results reflect strong organic revenue and earnings contributions from each of our ongoing businesses --health care, international, and our group business, demonstrating how our solutions create value for our customers and clients in today's very challenging economic environment.
For US health care business, we delivered membership growth aided by strong client retention.
Our results demonstrate that we are gaining market share in our targeted customer segments and geography.
Specifically, we generated organic growth of approximately 17% in our select segment, and approximately 4% in our middle-market segment.
This growth continues to be predominantly in our ASO arrangements.
Our highly transparent self-funded plans enabled clients to benefit from our incentive-based integrated health and engagement solutions while retaining greater control of their health benefit spending.
In our International business, we delivered revenue growth of 31%, along with sustained earnings growth.
This includes growth from our individual health, life, and accident business, and our expatriate benefits business, which we recently re-branded as our global health benefit business, to reflect the broadening demand for our services beyond ex-pats to include third-country nationals, key local nationals, and international business travelers.
In our international business, we expanded our distribution capabilities and our product portfolio with the acquisition of FirstAssist, which extends our presence in the UK and increases the number of Cigna Affinity partners, while also adding a new travel insurance capability to our portfolio.
With more than 7 million individual policies and 1 million global health care customers, Cigna's global proprietary network, on to grown operations, established clinical models, and local license base to sell in 30 countries and jurisdictions, continues to provide a meaningful competitive advantage for us.
In our Disability group business, our revenue growth and strong profitability relative to our peers demonstrates the value clients realize from Cigna's leading disability and productivity management programs.
These programs help employees return to work faster, and often prevent disability-related absences from happening in the first place.
Our approach helps to improve the quality of life for individuals, increases work force productivity, and generates cost savings for our clients and customers.
Looking into 2012, Cigna's well-positioned, with our differentiated and balanced portfolio of businesses to deliver competitively attractive growth prospects.
This includes our US Commercial business, where we continue to expect to deliver strong organic growth; our International business, with strong top line and earnings growth, in excess of 20%; and the expansion into our Seniors and Medicare business, where the acquisition of HealthSpring is expected to be accretive in 2012, and highly accretive on a cash basis.
It is clear that the US health care marketplace remains volatile and competitive.
However, we are succeeding in expanding our existing client relationships and winning new clients who are focused on improving the health of their employee population and their total cost position.
As a result, we expect to deliver significant customer growth in 2012.
Specifically we now expect to add approximately 500,000 new commercial health care customers in 2012.
This membership expansion is a direct result of repositioning our national account business and sustained growth in our select and middle-market customer segments.
We will continue to deliver on the fundamentals that our clients have come to expect from Cigna -- service excellence, leading engagement in incentive-based programs that provide high clinical quality and lower health care costs, all while continuing to maintain disciplined underwriting and pricing standards.
As I've noted before, private and public health service delivery models will continue to evolve, regardless of how health care legislation unfolds.
In this environment, great focus on health improvement and individual engagement in quality aligned very well with our strategy and capabilities.
Let me touch on just a few examples.
Our customer-centric model is anchored in a consultative sales approach, with integrative heath and productivity solutions designed to meet each client's unique cultural and work force health profile.
Our new brand launch last fall underscores our focus on the individual, and offers highly personalized service experience that is accessible and personally relevant.
This approach is being well received by clients who are seeking to maintain a healthier, more productive work force, by physicians who are striving to improve health outcomes for the patients, and by individuals who want greater personalization and value for their investment.
A good indicator of this shift to individual engagement is the double-digit growth in consumer directed health plan that our industry is seeing, while membership is declining in traditional HMO and PPOs here in the US Big news at the forefront of this transition -- investing in and repositioning our customer engagement capabilities long before this market shift occurred.
In 2011, our growth for consumer-directed plans was 35%, more than double the industry average.
It is clear that our value proposition is resonating and we expect to continue to see growth in these plans in 2012.
In addition, we will also continue to drive innovation with accountable peer organizations.
By focusing on creating stronger engagement and care coordination between physicians and their patients through actionable information, assistance, and incentives.
Cigna now has 17 of these patient-centered initiatives, with more than 1,800 primary care physicians spanning across 15 states.
With HealthSpring, we greatly enhance our capabilities to serve seniors and partner with physicians.
HealthSpring offers a unique and proven physician partnering model based on effective engagement, highly targeted data exchanges, integrated care coordination programs, and aligned incentives to help patients be healthier, enjoy a better quality of life, and lower their overall health care costs.
Herb and I visited most of the key HealthSpring markets during the last few months.
Feedback from HealthSpring's physician partners and employees has been very positive.
Visits to HealthSpring's Living Well centers provided me a first-hand view into the outstanding service HealthSpring customers are receiving.
It is clear that together, Cigna and HealthSpring can deliver greater value for our customers throughout all stages of health and life.
In short, Cigna's success with customer and physician alignment in the commercial segment, along with HealthSpring's proven approach in the seniors market creates a complementary platform and positions for attractive future growth.
Looking ahead to 2013 and beyond, Cigna's positioned for a strong future with several engines to deliver competitively attractive growth.
These include our highly focused US Commercial business, where we are seeing increased demand for our health and productivity improvement capabilities.
Our strong client retention in new client wins demonstrate we were gaining market share from companies who are seeking to improve their employee's health and lower their total cost.
We expect to drive growth in the mid-single digits as we look to the future.
In our international business, where we are experiencing elevated demand for health solutions to serve globally mobile individuals and increasing opportunities created by the growing middle class in the emerging markets.
We are continuously evaluating opportunities to expand our international distribution capabilities and product portfolio, as well as invest in new markets where there is demand for our services.
We made meaningful organic investments in our future with the opening of operations in Turkey, and establishing our joint venture with the TTK Group to offer health, wellness, and insurance products in India.
We are now selling in Turkey, and expect to begin selling in India in 2013, following regulatory approval.
Our Seniors and Medicare business, where growth opportunities are increasing due to the aging population, eroding health status, and evolution of business models to improve quality and cost outcomes by engaging and incentivizing physicians.
As we move forward, we plan to expand HealthSpring's offerings beyond their current markets to leverage Cigna's broader US footprint, including established relationships with physicians and hospitals.
We also plan to extend the value of HealthSpring's physician engagement model by developing new commercial offerings.
By leveraging Cigna's and HealthSpring's combined capabilities, we expect to deliver continued growth by extending our health solution across the government, employer-sponsored, and individual consumer segments.
Taken together, we continue to expect to deliver 10% to 13% EPS growth over the next three to five years.
Now before I turn it over to Ralph, let me just re-emphasize a few points.
Our full-year 2011 results reflect significant revenue in earnings contributions from each of our ongoing businesses, balanced with strategic investments that position us for the future.
I am pleased with our continued progress in executing our growth strategy, and our results reflect the dedication and commitment of the more than 30,000 Cigna colleagues around the world who are working to improve the health, well-being, and sense of security of our nearly 70 million customer relationships.
The milestones we have reached and the steps we will take this year provide us with the opportunity to deliver sustained growth in 2012 and beyond.
Finally, I believe our 2012 outlook represents a competitively attractive result, and we are positioned for long-term sustainable growth.
With that, I will turn the call over to Ralph.
Ralph Nicoletti - EVP & CFO
Thanks, David.
Good morning, everyone.
In my remarks today, I will review Cigna's full year 2011 results and also discuss our outlook for the full year 2012, including contributions from the HealthSpring acquisition.
In my review of consolidated and segment results, I will comment on adjusted income from operations.
This is also the basis on which I will provide our earnings outlook.
We had a very strong 2011, driven by effective execution of our strategy, and are carrying solid momentum into this year.
Our 2011 results include several key accomplishments, specifically top-line growth for each of our targeted businesses, attractive organic membership growth in our targeted markets, health care earnings growth of 15%, international earnings growth of 19%, earnings per share growth of 12%, just to name a few.
Our fourth quarter results were in line with our expectations, and we generated strong overall revenue and earnings contributions while making significant strategic investments in capabilities in each of our businesses.
Our full-year 2011 consolidated revenues were $22 billion.
Revenues reflect growth in premium [MCs] of 6% in health care, 32% in international, and 4% in group disability and life, driven by continued success in our targeted customer segments.
Full-year consolidated earnings for 2011 were $1.43 billion, compared to $1.28 billion in 2010.
Earnings per share for 2011 was $5.21 per share, a 12% increase over 2010, reflecting strong earnings from each of our ongoing businesses.
Our 2011 earnings per share were $5.24, adjusting for the dilution of approximately $0.03 per share related to the shares issued in the fourth quarter for the HealthSpring acquisition.
Turning to health care, 2011 premiums and fees grew to $13.2 billion, representing a 6% increase from 2010.
Full-year health care earnings were $990 million, and reflect contributions from sustained growth in our medical and specialty businesses, as well as the impact of favorable prior-year development.
Importantly, we have increased our spending on strategic investments in the fourth quarter in branding and technology to support future growth in membership and capabilities.
These increased investments amounted to $40 million before tax, while approximately $0.09 a share on an after-tax basis.
We ended 2011 with 11.5 million health care members, which is approximately 2% higher than year-end 2010.
As David noted, our membership growth is aligned with our Go Deep strategy, with particularly strong results in our middle-market and select segments, where we offer clients differentiated funding alternatives and product solutions through a consultative and incentive-based approach.
Now turning to medical costs, in 2011 we achieved a competitively attractive commercial medical cost trend of approximately 5% for our total book of business.
I would remind you that approximately 90% of our customers are in funding arrangements where they directly benefit from these medical trend results.
Across our risk book of business, our fourth quarter earnings include favorable prior-period claim development of $24 million after tax.
For the full year 2011, the impact of favorable prior-year claim development was $53 million after tax, including a negligible amount in the fourth quarter.
Specific to commercial guaranteed costs, our full-year 2011 medical care ratio, or MCR, was 79.7% on a reported basis.
Excluding prior-year claim development, the commercial guaranteed cost MCR for 2011 was 80.9% including the effect of our rebate accrual.
Overall, we are pleased with the results in our medical risk business as they continue to reflect good pricing and underwriting discipline, as well as sustained clinical quality for our clients and customers.
For the full year 2011, total operating expense ratio was 27.2% which is a 50-basis-point improvement over the 2010 expense ratio.
Now I will discuss the results in our other segments.
Cigna's international business continues to deliver attractive growth and profitability.
The results reflect strong retention and further product penetration of existing customers, as well as targeted new sales.
Premiums and fees for 2011 totaled $3 billion, up 32% year-over-year, driven by strong customer retention and growth within our health, life, and accident business and our global health benefits business.
Our top-line growth drove earnings of $289 million in 2011, which represents a strong 19% increase over 2010.
Full year results were driven by strong customer retention and growth in health, life, and accident, and global health benefits businesses, partially offset by an elevated MCR in our global health benefits business, in part due to business mix, as well as higher spending on strategic initiatives.
Our earnings in the fourth quarter were consistent with our expectations and demonstrate continued success in the marketplace.
These results reflect solid top- and bottom-line growth, partially offset by continued strategic investments for future growth, some cost to streamline operation, and unfavorable changes in foreign tax law, all totalling approximately $10 million after tax, or about $0.03 per share.
In our group, disability, and life segment, premiums and fees for 2011 were $2.8 billion.
Group premium and fees increased 4%, including 9% growth in our targeted disability business.
Full year 2011 earnings were $282 million, which was in line with our expectations, and a good result in a challenging economic environment.
We continue to deliver value through our market leading disability and productivity management model, which focuses on early customer engagement, and leverages Cigna's proven clinical capabilities.
Full-year 2011 earnings also reflect favorable life and accident experience, partially offset by higher disability claims, as well as the impact of strategic investments.
Finally, I would remind you that fourth quarter 2010 earnings included an after-tax gain of $11 million from the sale of our workers' compensation and case management business.
Results for our remaining operations, including run-off re-insurance, other operations, and corporate, totaled to an after-tax loss of $133 million for the full year of 2011.
The full year 2011 results includes the third-quarter reserve strengthening related to our run-off VADBe book and business.
No additional VADBe reserve strengthening was required in the fourth quarter.
Overall, our 2011 results reflect strong revenue and earnings contributions from each of our ongoing businesses, and these businesses continue to generate significant free cash flow.
Turning to our investment portfolio, we are pleased with our results in 2011.
For the full year, we recognized net realized investment gains of $41 million after tax, coupled with strong net investment income results.
Our commercial mortgage loan portfolio continues to perform well in a challenging economic environment.
Overall, we continue to be pleased with the quality and diversification of our investment portfolio.
Our strong investment management capabilities and disciplined approach to risk management have delivered solid results.
Before turning to our 2012 outlook, I will now provide an update regarding our acquisition of HealthSpring.
We were pleased to announce this week that we closed the transaction on January 31, a very good outcome from a timing perspective.
We have been engaged with the HealthSpring Management team on integration, and plans to recognize significant growth opportunities, as well as cost efficiencies over time.
Consistent with our previous discussions, we expect the acquisition to be earnings-accretive in the first full year, and highly accretive on a cash basis.
I will provide some color on the expected HealthSpring contributions in my discussion on the 2012 outlook.
Now turning to 2012, we are carrying solid momentum into the year, from strong membership-driven revenue growth, earnings growth off a strong 2011, and strategic investments which will provide sustained growth into the future, most significantly the HealthSpring acquisition.
This outlook reflects our expectation that the global economic conditions will remain challenging, and that the US unemployment rate remains essentially unchanged.
Based on our current view, for the full year 2012, we expect consolidated adjusted income from operations of $1.46 to $1.57 billion, and EPS of $5 to $5.40 per share, reflecting continued strong underlying results in each of our ongoing businesses.
Adjusted for reserve -- adjust for prior-year reserve development and VADBe reserve strengthening, this represents growth of 2% to 10% in earnings per share over 2011.
I would remind you that consistent with our prior practices, our outlook excludes any contribution from future reserve development or capital deployment.
For our Health Care business, including the impact of HealthSpring, we expect full-year 2012 earnings in the range of $1.12 billion to $1.19 billion, compared to 2011 results of $937 million, excluding prior year claim development.
This outlook reflects continued benefits from customer-driven revenue growth, specialty contributions, and operating expense leverage.
I'll now summarize some of key assumptions reflected in our health care earnings outlook for 2012, starting with membership.
We anticipate full-year 2012 membership growth of approximately 900,000, driven by organic growth and the addition of customers through the HealthSpring acquisition.
We expect government and medical membership to grow by approximately 400,000.
HealthSpring added 365,000 Medicare Advantage customers at the acquisition date, and we expect some additional Medicare Advantage and Medicaid membership growth during the year.
We expect commercial medical membership to grow by approximately 500,000, which is higher than with a we had previously discussed.
This growth is across all our targeted market segments and essentially all in our ASO funding arrangements.
We expect the majority of that growth to be delivered in the first quarter.
Turning to medical costs, our outlook assumes an increase in medical services utilization during 2012.
For our total commercial book of business, we expect full-year medical cost trend to be in the range of 6% to 7% which is above the amounts we realized in 2011.
These expected medical costs have been reflected in our pricing for 2012.
Based on these factors and change in business mix, we would expect the full-year MCR to be in the range of 81% to 82% for our commercial guaranteed book of business, which is approximately 50 basis points higher than the full-year 2011 results, excluding prior-year development.
Our Medicare Advantage MCR for the full year is expected to be in the range of 81.5% to 82.5%.
Regarding operating expenses, for full year 2012, we expect a total health care operating expense ratio to be in the range of 22.5% to 23.5%, based on our current outlook for membership growth and business mix.
Pulling the pieces together, we expect full-year 2012 health care earnings, including HealthSpring, to be in the range of $1.12 billion to $1.19 billion.
We expect HealthSpring to contribute $160 million to $180 million to health care segment earnings, excluding transaction costs that will be reported as a special item.
The 2012 earnings contribution from HealthSpring reflects approximately $130 million after tax, or $0.45 per share for depreciation and an amortization expense.
This acquisition has significant strategic value, and is immediately accretive.
In addition, on a cash basis we expect to realize approximately 10% accretion in 2012.
Now moving to the other components of our outlook.
For our international business, we expect continued strong top-line growth, and earnings in the range of $265 million to $285 million, which represents continued attractive growth on top of the strong 2011 earnings of $219 million, adjusted for the required accounting change for deferred acquisition costs adopted in 2012.
This outlook reflects continued strength in both our health, life, and accident, and global health benefits businesses.
The outlook also includes the impact of increased investments and new market expansion, as well as ongoing contributions from the Vanbreda acquisition.
Regarding Vanbreda, while we saw better-than-expected earnings contributions in 2011 associated with this acquisition, we estimate that the earnings contribution in 2012 will be consistent with 2011, which is less than our original expectation, due in part to competitive pricing pressures, as well as a low level of internalization of the insurance underwriting for some of our clients.
We continue to view the strategic rationale and long-term growth opportunities for this business as attractive.
Importantly, overall, we expect international earnings growth of 21% to 30% for 2012, with growth in both our health, life, and accident, and global health benefits businesses.
For our group disability and life business, we expect full-year 2012 earnings in the range of $260 million to $280 million, which reflects a competitively attractive result in a continued challenging economic environment.
This outlook for group assumes revenue growth for both our disability and life books, and strong execution of our disability management model, as well as increased investment in customer-facing capabilities.
Regarding our remaining operations, including run-off re-insurance, other operations, and corporate, we expect a loss of $185 million for 2012, inclusive of additional interest expense of approximately $55 million after tax associated with the incremental debt issued to finance the HealthSpring acquisition.
All in for 2012, we expect consolidated adjusted income from operations of $1.46 billion to $1.57 billion, and consolidated EPS in the range of $5 to $5.40 a share.
I will now discuss our capital management position and outlook.
Overall, we continue to have good financial flexibility, as our subsidiaries remain well capitalized and are generating significant free cash flow to the parent, reflecting the strong return on capital in each of our ongoing businesses.
Regarding the HealthSpring acquisition, we have put in place a financing structure that allows us to maintain good financial flexibility.
We ended 2011 with parent Company cash of approximately $3.8 billion, which was used to fund the HealthSpring acquisition.
For the full year 2012, we expect subsidiary dividends of approximately $1.3 billion.
After funding the HealthSpring acquisition, as well as other sources and uses of capital in 2012, this outlook indicates that we would have approximately $900 million available for deployment, approximately half of which we would tend to hold for capital flexibility as a parent.
Overall, our capital position and outlook remain strong, and our capital deployment strategy and priorities remain unchanged.
We will provide capital necessary to support the growth of our ongoing operations, as well as supporting our pension plan and run-off reinsurance business.
We will pursue M&A activity with focus on acquiring capabilities and scale to further grow in our targeted areas of focus.
After considering these first two items, we would return capital to the shareholders, primarily through share repurchase.
I would remind you that we executed on each of these in 2011.
Now to recap, our full-year 2011 consolidated results reflect the strength of our global diversified portfolio of businesses, and effective execution of our focused growth strategy, with solid growth in our targeted customer segments.
We expect the momentum from our 2011 results will position us well for strong growth in 2012, highlighted by strong revenue growth, as well as attractive customer growth, earnings growth off of a strong 2011, EPS growth with the opportunity for excess cash deployment.
Positive impact from the HealthSpring acquisition, and targeted strategic investments which will provide sustained growth into the future.
We will now turn it over to the operator for the Q&A portion of the call.
Operator
Thank you, sir.
(Operator Instructions)
Scott Fidel, Deutsche Bank.
Scott Fidel - Analyst
Thanks.
First question, maybe if you can share some views on the revenue outlook for 2012, maybe a consolidated revenue view, and then maybe some guidance around what you're expecting for the health care business?
David Cordani - President and CEO
Scott it's David, I'll start.
Obviously, we didn't walk through detailed quantification of the revenue outlook.
If you take the comments that I made and Ralph made, we expect to have strong retention and good client adds throughout all of our businesses, so we have good revenue growth, very importantly in the specific geographies and buying segments.
I'll comments specifically on health care and see if Ralph wants to add, but within the health care business, we step out of 2011 with net growth of about 2% in terms of new customers or individual lives we're covering.
Stepping into 2012, as we note in our prepared remarks, we've increased our outlook from at least 400,000 to 500,000 commercial lives.
What's exciting about that is one, the vast majority of that will show up in the first quarter.
Two, it's heavily oriented to the ASO business portfolio with a lot of engagement and incentive-based programs that are attached to it, and three, there's some good balance and symmetry in all of our operating segments -- the national segment contribution, the middle-market segment contribution, and the select segment.
We feel good about both the quality and I'll call location -- both segments and geographies for our revenue growth.
Ralph, would you add anything to that?
Ralph Nicoletti - EVP & CFO
The only thing maybe I'd just add is within the health care segment, on our guaranteed portion of the business, which is a smaller percentage of the total, there is some pricing in there to the cost trend as well, so that would play through the revenue, no change to the medical cost ratio net.
So there's a little bit of revenue lift just from the small part of our guaranteed book.
I think just overall I think you can think of it as, in the long term we look at this business growing in mid-single digits on the revenue line, and we certainly are putting a great step in that direction this year.
Scott Fidel - Analyst
Okay.
Then I want to ask a follow-up question on the D&A expense guidance.
Maybe if you can walk us through the accounting treatment you're using for that, and then what you expect for D&A expense in the out years.
I think you're using a declining balance approach, though.
Should that start to come down, or do you expect that to be similar in, let's say, 2013?
Ralph Nicoletti - EVP & CFO
Sure.
Clearly the earnings contribution from HealthSpring is affected by amortization.
I had mentioned in my remarks is about $130 million after tax.
The valuation is still being finalized by some outside experts, but this is a pretty good estimate.
The phasing of the amortization is, as you point out, skewed to the early years.
What we would expect to see over the next several years is about a 10% to 15% decline in the level off of this year over the next several years and then you begin to see it level out.
Scott Fidel - Analyst
Okay.
Thank you.
Ralph Nicoletti - EVP & CFO
Okay.
Operator
Ana Gupte, Sanford Bernstein.
Ana Gupte - Analyst
Hi, thanks, good morning.
I wanted to follow up on your commercial guaranteed cost results for the quarter.
It's not terrible by any means, but that being said, Aetna came out pretty clearing saying that utilization's low, and your days in claims payable seem to have trended down significantly, and it certainly wasn't anything to write home about in terms of a beat.
Trying to understand what exactly is causing the result that's in line to probably slightly worse than even your own expectations.
Is it seasonality?
Is it MLRs?
Did you accrue later?
I understand you have a different methodology, or are you seeing anything to do with pricing?
One of your competitors says you're under-pricing -- doesn't show up in your premium yields, or is it trend?
Ralph Nicoletti - EVP & CFO
Ana, it's Ralph.
First, there's a lot of moving parts in all this, and a couple parts to your question.
First, overall we came in at where we expected.
And in first, just to remind you on our guaranteed cost to book to business, again, a small piece of our total portfolio, but having said that, came in as we expected., essentially year-to-year flat.
Also what you see, back on the comment you made on the payable, there's some noise in there because we exited the private fee for service business.
So as those liabilities ran out, you see a reduction in those liabilities.
When you strip that out, it's a fairly even level year to year.
So that has some noise in the numbers, looking year on year.
I think also importantly in the fourth quarter you see a jump year on year, quarter on quarter.
Again, full year it's essentially where we expected, essentially flat.
In the quarter you see a big jump, because just the prior-period development flow into the fourth quarter of 2010 was significantly higher than the flow of prior-period development on our guaranteed cost to book of business in the fourth quarter this year.
So there was about a 400-basis-point swing, and it's all because of that.
So absent the change in the prior period flow, we're essentially flat, year on year.
Ana Gupte - Analyst
Okay, follow-up on that.
It sounds like pricing, and my math tells me it's okay.
Days in claims payable you're attributing it to privacy, and then the MLR largely to a reserve headwind.
Going forward, can you tell us what your -- is being embedded in your outlook for health care, in terms of your cost trend, and would you be able to highlight the puts and takes in terms of the tailwinds from possibly unit costs.
The reform provisions, which are one-time, and then possible headwinds from the Cobra which you don't see now.
Utilization, if you're seeing -- or what exactly are you embedding in your expectation?
David Cordani - President and CEO
Ana, It's David.
I'll start and ask Ralph to embellish on the trend piece.
As you started the second part of your question, your headline is right.
The pricing, the underlying medical cost trend, and as Ralph said, the net result for 2011 is in line with our expectations.
We feel good about it, and to be very clear, we don't see any pricing issue relative to that small book of business.
Secondly, in Ralph's prepared remarks he referenced approximately 5% medical cost trend for 2011.
We feel good about that.
He referenced a uptick in that medical cost trend going into 2012.
That is predominantly utilization-oriented as we're making assumptions that utilization will escalate off the lower levels that exist today.
To your question, we're pricing for that, so we're pricing for that in our assumptions that we move forward within our boo of business.
To the extent it doesn't manifest itself or manifest itself more slowly, we'll see that in our results as we go forward.
Last thing I'll say is the rate execution that we have with our physician and hospital partners were -- 2012 is also in line with our expectations.
A meaningful amount of the large contracts are entered into in the first quarter of the year, and our team's doing a good job in terms of partnering with physicians in hospitals in terms of revenue management for them, administrative cost savings, et cetera.
That basic rate execution is in line with our expectations, and we've had several years of consistency around that.
Headline is comfortable with the pricing for 2011, comfortable for the pricing for 2012.
Feel good about the medical we delivered in aggregate for our book of business in 2011.
Step off into 2012 is in line with our expectations, and our rate execution from a contracting standpoint is in line with our expectations and is the third year of consistency for us.
Ralph, any more color on the medical cost trend assumptions?
Ralph Nicoletti - EVP & CFO
No, essentially for 2012, even to this year essentially.
Ana, there may be some wiggle in there because of mix that runs through.
But essentially to David's point, we're pricing to where the trend is, so you'd expect a fairly even level year to year on the ratio.
Ana Gupte - Analyst
So based that to conclude then that there is some upside to your health care guidance, assuming the low levels of utilization that currently persist, they remain throughout the year because you're pricing for something that's above what you're seeing now?
David Cordani - President and CEO
Ana, you obviously have to draw your conclusion, but as we tried to lay out in our prepared remarks, really there's two things relative to that point that we tried to be very clear on.
One, it's our practice and we are consistent with, we do not put any assumption for reserve development in our future year.
That's held out, and anything that transpires we have transparency and clarity.
Two, we've projected for an up-tick in utilization.
You seen the trend numbers we talked about, we've priced that.
To your conclusion to the extent it manifests itself at a slower, different rate, but be both contribution to our clients and customers, and some contribution for out share holders.
Ana Gupte - Analyst
Thanks very much.
Operator
Josh Raskin, Barclays Capital.
Josh Raskin - Analyst
Hi, thanks, good morning.
I guess my question talks about the guidance, just broadly speaking for 2012.
It sounds like membership is probably coming in a little bit better than your long-term expectation.
You're talking about HealthSpring being accretive.
It sounds like additional cash potentially, et cetera.
Yet, the guidance is at best kind of 2% to 10% EPS growth, and you're talking about 10% to 13% long-term.
How do we think about 2010 as being a bad year -- I'm sorry, 2012 being a bad year, relative to sort of that long-term 10% to 13%?
David Cordani - President and CEO
Good morning, Josh, it's David.
We view 2012 as a good year, and so let me put context around it.
Importantly, I want to start from where your question -- the marketplace, the market demand.
When we look at 2012, 2013, and beyond, we continue to see the shift back here in the US of the orientation of buyers around the health and productivity focus.
The orientation around the movement around incentive engagement-base programs, both for the consumer client-driven, but also increasingly in terms of physician partnership, and then increasing demand for the transparent programs that we offer, whether it's ASO or experience-rated.
Outside the US, the palpable continued growth in the middle class in emerging markets and our position, and the growth of the globally mobile all bode well for us as we look to buying trends.
To your point, we feel good about the top-line positioning, both in terms of what we're stepping out of 2011 and into 2012 with, in the US and outside the US.
As we look at our 2012 guidance, our 2012 guidance has a variety of things that we assume in it.
First and foremost is we referenced, Ralph and I referenced, there's no capital deployment in the way we build up our assumption.
There's no reserve development in the way we build up our assumption.
We're stepping into the year with the 500,000 customers in the US health care business, and sustained growth in our international business.
We have 11 months of contribution from HealthSpring.
As Ralph also articulated, we have a first-year upward skewing of the amortization that comes along with that.
With then taking all that into consideration, plus the full year of financing, we have an outlook that is in the 2% to 10% range, and if you bookend that with 2011 and the directional comments I made for 2013, the 10% to 13% is a multi-year, it's not a year-in, year-out.
It's a multi-year view, and we're making investments in strategic positioning in the Company to make sure we can continue to deliver that.
We view 2012 as a good year.
We view 2011 as a good year, and we're quite excited about setting up an even more attractive year as we look to 2013.
Josh Raskin - Analyst
Maybe let me ask it a different way.
2012 is a good year, one in which you're getting HealthSpring, and I think it'd probably be very helpful if you could give an EPS number in terms of accretion from HealthSpring, as well, on top of this.
It sounds like 10% to 13% long term is predicated on this additional growth, which sounds like that's not lacking in 2012.
You're certainly seeing that, and then like I said, it sounds like HealthSpring's accretive.
I'm just curious how you get from a good year in 2012 being 2% to 10% to a long term average of 10% to 13%?
David Cordani - President and CEO
Sure.
Josh, I'll try to give it to you at a macro level, and there's a couple supplemental pieces of information we tried to help as Ted noted in the advanced materials, but then I'll ask Ralph to expand on the HealthSpring specifically.
At the end of the day, consistent with when we've talked with you all about it in our investor days and otherwise, as we look forward, we see the US commercial business with focus of delivering sustained mid-single digit revenue growth opportunities with something above that in terms of earnings growth.
We see the Medicare and senior space delivering high-single, low-double-digit growth in earnings opportunities, and we see the international business continuing to deliver mid- to-upper teens delivery of results on a growth basis.
Then, as we've talked about before, we have the additional capital deployment that would come off of our free cash flow.
It's the combination of those two.
They come together, the organic contribution with the balance in our portfolio of the US, the seniors, and then the international business with ongoing capital deployment that steps us up as we go forward.
Ralph, if I could ask you just to highlight the EPS in-year on HealthSpring, I think that'd be helpful.
Ralph Nicoletti - EVP & CFO
Sure.
Josh, as David mentioned, too, we had -- and Ted -- we had a slide that we posted on the website that would help bring some clarity to this beyond our speaking points.
Couple things.
One, when you look at the earnings outlook for HealthSpring, which we put in the range of $160 million to $180 million, on an accretion basis, that would be $0.03 to $0.10 per share, accretive.
Then when you add back the amortization, which we pointed out was skewed to the early years here, it would bring us to 10% cash EPS accretion.
So immediate accretion coming right into the first year.
Then beyond that, as we think about it, there's some other things.
There's another month coming through, there's only 11 months out of 12.
The amortization does pare down over time, as we pointed out.
Then also, the build of cost and revenue synergies and growth opportunities are really out ahead of us beyond 2012.
So I think the opportunity for additional accretion and value creation is really going well beyond 2012.
But the good news is we're immediately accretive right out of the gate.
Operator
John Rex, JP Morgan.
John Rex - Analyst
Thanks, I'm going to continue on kind of the same path, here, to preface it.
I want to focus exclusively on the health segment, and for the moment I want to focus on the legacy health segment, so ex-HealthSpring.
It looks like -- let's take out the favorable development, mid-point guidance would look for about 5% operating growth, is that correct?
Ralph Nicoletti - EVP & CFO
That's about right.
John Rex - Analyst
Wouldn't you characterize this as -- this isn't just -- this is a really good year for enrollment gains for you.
I wouldn't expect every year to trend -- hopefully, it will, but I wouldn't expect every year to trend this well.
Help me understand why we're delivering so little to the bottom line in terms of impact for what should be kind of a very low variable cost add here.
The issue being, so we're kind at what you talk about mid-point, long-term earnings growth for this segment in what seems to be like a very good enrollment year.
David Cordani - President and CEO
John, let me just try to frame that broadly, and good morning to you.
When you look at first year, I think you know, if you take the 5% and you look at the 500,000 lives we're talking about, you can correlate the two and you're saying, well where's the margin expansion?
One, I think you know and recognize that when you have first-year contribution of lives, there is cost to setting up those lives, bringing those lives on board, et cetera.
We're building a future annuity, and we're building a high quality future annuity that we like.
Secondly, we've been very clear.
We're continuing to make very targeted investments in the business, and we'll continue to make those investments.
We've expanded our brand spending.
We're expanding some capability builds, and we're making trade-offs around that.
That both presents a headwind and a tailwind opportunity for the rate and pace of the investments we'll make relative to that.
Finally, consistent with my answers to Ana before, we're making estimation that there's going to be some up-tick in medical cost trend as we go forward.
We think the estimate that's on the page is a prudent estimate, and it's an estimate that's based upon both the underlying earnings power, stepping off a very strong 2011, as you said, with or without the reserve development.
Good organic growth.
Very importantly, we're choosing to invest back in the business, and we will guide the rate and pace of that as we look at fundamentals.
We voted well in terms of yields from that, and we'll continue to make those investments as we look into the future.
John Rex - Analyst
And maybe size this.
I don't know if there are ways -- how would you characterize kind of those incremental investments that we can kind of think about what headwind they're creating?
I guess just to follow on that also is, are there integration costs that are meaningful that are being incorporated in the outlook, also.
So that's HealthSpring integration costs that would not recur in the out year.
Ralph Nicoletti - EVP & CFO
Ralph, on the integration costs?
This -- in 2012, there are some, but not that significant.
I would say while we don't obviously have the planned forward beyond 2012 fully laid out, I think you'd expect 2012, 2013 to be relatively even in the amount of integration costs that flow in both of those years.
John Rex - Analyst
Can you size those, Ralph?
Ralph Nicoletti - EVP & CFO
I would rather not at this time.
We really just closed the transaction and are kind of formulating those plans.
But I think importantly, the tailwinds on this are, clearly you have the synergies, both cost and revenue-growth oriented, really all outside of 2012.
So those will really be coming 2013 and beyond, and there's very little, if any, in 2012.
Then you have the benefit, as we talked about of the timing items of the additional month and the amortization skew.
David Cordani - President and CEO
John, on the first part of your question, as you'd expect, I'm not going to give you a pinpoint answer, but your question was the step up in investments versus the 5%, you can think about several points of discretion that we're taking in terms of re-deploying operating earnings back into the business above and beyond the historic run rate, and we'll make trade-offs.
Back to your typical question of headwinds and tailwinds, we've demonstrated the last couple of years that we'll make tradeoffs relative to the rate and pace of those investments, be they technology, geography, brand, capability build-out, but we'll continue to do so because we're running the business for the long term.
John Rex - Analyst
Then just one broad thing.
Across your book and your outlook for 150-basis-point step-up in trend, have you seen any evidence that utilization patterns have changed from what you saw exiting -- from what you saw in the 4Q, essentially?
Ralph Nicoletti - EVP & CFO
No, we haven't at this point.
John Rex - Analyst
Okay, great.
Thank you.
Operator
Justin Lake, UBS.
Justin Lake - Analyst
Good morning.
First off, I was hoping you could walk us through the pressure on the disability business in the fourth quarter, and what are the moving parts embedded for 2012 in terms of the reserves.
Maybe reserves start some benefits in 2011 that I might be forgetting, that won't re-occur.
The expectation, what have you embedded for your expectation of those higher fourth-quarter costs trending into 2012?
David Cordani - President and CEO
Justin, I'll take that one.
In terms of the fourth quarter, I think a couple of points I'd want to make.
One is that, importantly, in the year ago in the fourth quarter, we had a gain of about $11 million from the sale of Intercore business.
That's affecting the comparison.
But having said that, even if you adjust for that, earnings were slightly down on the quarter, year on year.
What we're seeing there is some favorable claims experience continuing on the life side of the business, continuing increase -- I wouldn't say at a higher rate, but at similar rate -- that we've been seeing in the back half of this year on the disability side of the business, which is offsetting some of the favorable life side.
And we continue to make investments on both systems and then kind of capabilities in terms of case management, and being able to work with our clients and customers on early engagement and managing through for better outcomes, which ultimately over time, is going to play out to improving disability trends, which we've seen in the past.
Those pieces are all moving, and that's why you see the -- even after adjusting for the gain in last year -- a slight decline in the group earnings.
Then when you move into 2012 -- here as we said, we're -- on a macro basis, our assumption is that we're going to be in a continued difficult economic environment.
On that basis, we're expecting to see some of the pressure on the disability claim side continue, and in a more even level of -- I would call it continued good performance on the life side.
So not necessarily getting earnings lift, but continuing to see good performance there, and then making some year-on-year modest investments.
So that's why you see the range that we put out there to be even to slightly down relative to this year's results.
And this year we're exiting with we think the appropriate level of reserves on the balance sheet, and we're comfortable how that's been set up, given the experience we've seen.
Justin Lake - Analyst
Okay, great.
Just a follow-up here.
On the Other operating cost line, I see in health care you spent about $100 million this year on individual market expansions.
I'm just wondering what is the return there, given I know that hasn't been a huge business for you historically in terms of profit?
Then what do you see that becoming?
If you look ahead, and we think 2013 if we look, it might have some lower costs and therefore from HealthSpring you might have an accelerated year there, are we going to see further investments and, if so, in what other segments might you be looking to spend some dollars?
David Cordani - President and CEO
Good morning, it's David.
Let me frame that and then answer the specific question.
First, as I think you know, we have a very successful individual franchise outside the US.
I want to just touch on the key strength there, because it converts over to some of the US direction.
Our key strength there is really market segmentation and targeted needs identification down to micro-segments, product development and innovation, and then the multi-channel distribution, be it telemarketing, internet distribution.
direct TV.
Back here in the US, the line you're talking about, over the last two years we've been driving some very targeted pilots in the individual primary space to drive some targeted growth.
We wanted to target about 100,000 lives or so over a couple years, which we did in some specific geographies, and test some innovation, product design, underwriting approaches, seeing the changes in the regulatory environment, some micro-sub segmentation, some different distribution channel approach.
Yes, we did broker an agent, but we did distribution outside that, and were able to grab some very good learnings.
From a profitability or drain standpoint, the loss rations are in line with our expectations.
It's a sub-scale business, so the expense ratio's not where you'd want it to be for a long -- on a long-term basis.
Lastly, it bridges back to your comment.
One of the things we're quite excited about with HealthSpring is since health care, especially individual health care, is so local, the ability to use their what we call physician-directed network approach, and physician-directed partnership approach, to offer very targeted commercial offerings for individuals as we go forward.
We're going to seek to build on that.
None of that is built into our 2012 estimation, as Ralph mentioned.
Revenue growth and profitability synergies are broadly 2013 and beyond, but we will build on that.
What you're seeing in the expense is the underlying operations for that about 100,000 lives.
There will be a little bit more growth of that as we target and play with some initiatives in 2012, and we're excited about stepping into 2013 well in advance of 2014 changes in distribution.
Justin Lake - Analyst
Great, thanks.
Operator
Christine Arnold, Cowen and Company.
Christine Arnold - Analyst
Hi.
Couple of quick follow-ups here.
I estimate that the prior-period development last year $64 million, all guaranteed costs, was worth about 620 basis points on the guaranteed cost-loss ratio.
Was all of the prior-period development that you reported in the fourth quarter this year in the guaranteed cost line?
Ralph Nicoletti - EVP & CFO
I missed the back part of your question.
Was all the --
Christine Arnold - Analyst
Was all the prior period development this quarter, I think it was $24 million, was all that in guaranteed cost?
Ralph Nicoletti - EVP & CFO
No, only a portion of it.
Only a portion of it was.
I think around $8 million or so.
Christine Arnold - Analyst
So $8 million guaranteed cost.
Where was the rest?
Ralph Nicoletti - EVP & CFO
On our experience-rated side.
Christine Arnold - Analyst
Experience rated was the rest.
Okay.
Then why is Vanbreda not growing earnings in 2012?
David Cordani - President and CEO
Christine, it's David, good morning.
Relative to Vanbreda, first off for 2011 the earnings contribution from Vanbreda in 2011 was a bit higher than our expectations.
A little bit of that was some internalization of the underwriting margins a bit ahead of plan for 2011 versus 2012.
Some of it was expenses, some of it was new business growth.
Looking into 2012, the 11 base is a little higher, but at the end of the day the 2012 number's lower than our original 2012 expectations.
Really two forces -- competitive pricing environment in the global landscape relative to that sub-segment is elevated, and we're maintaining our pricing discipline, so less business.
Secondly, the rate and pace of internalization of some of the underwriting margins are lower or less than we had planned for 2012.
So net-net, better in 2011, less in 2012.
As Ralph mentioned, strategically we still feel good about the asset.
With that movement in 2012, as you'll note with our international guidance, we are still expecting to grow the international earnings in the 20% to 30% range in 2012, which we think is an outstanding result.
Operator
Charles Boorady, Credit Suisse.
Charles Boorady - Analyst
Thanks, good morning.
Two questions.
First, if you can peel back the onion on the 2011 full-year cost trend, and what you saw for utilization versus unit cost increases for in-patient/out patient and pharmacy?
David Cordani - President and CEO
Charles it's David.
I'll just give you the macro and ask Ralph to give you the pieces.
At the end of the day, when you think about the 2011 trend, you should think about the vast majority of that by percentage unit.
At the headline, you think about the vast majority of that is unit cost.
As it relates to the components, you'd expect to see the facility side of it be higher than the professional side.
Ralph has a few other pieces to highlight for you.
Ralph Nicoletti - EVP & CFO
Sure.
We're seeing on the couple of components here on in-patient, mid- to high-single digits.
Outpatient more mid-single digit level.
Pharmacy, kind of in the 3% range.
Those are the trends that we see that make up in total the 5%.
Charles Boorady - Analyst
Okay.
In terms of inpatient/outpatient do you have generally the utilization component recognizing the vast majority as unit cost?
David Cordani - President and CEO
As I noted before, Charles, think about utilization as essentially de minimis.
Charles Boorady - Analyst
Okay.
For both and out?
David Cordani - President and CEO
Correct.
Charles Boorady - Analyst
Okay, great.
For cash at the parent in 2012, can you step us through where it's at, at the end of 2011, and how much deployable cash you think you'll have in 2012, including any excess statutory capital post the HS acquisition that you might be able to dividend up to the parent?
Ralph Nicoletti - EVP & CFO
Sure.
Charles, it's Ralph.
We obviously feel great about our position as we exit the year, significant amount of cash on hand.
We expect, as I mentioned in my remarks, subsidiary dividends at around $1.3 billion.
Then included in our plans would be to continue to fund our pension plans, well above the minimum requirements, and continue to do that.
As well as when you look at other net sources and uses.
We would expect to have just a little less than a billion dollars of available cash.
We'd like to keep about half of that, all sort of conservatively for flexibility, held at the parent.
That means the other half we would be looking to re-deploy.
The other thing I would add to that is with that type of plan, we will be making a meaningful step down in our leverage ratio, based on the earnings contribution from the business.
Frankly we have a little bit of flexibility there, too, in terms of the timing of that.
So that gives us some additional capability.
But all in, our expectation would be a little less than a billion at the parent at the end of the year, and about half of that clearly deployable, and then we have some flexibility beyond that.
Operator
Carl McDonald, Citigroup.
Carl McDonald - Analyst
Thanks.
If I look at your Other and Corporate segments, it looks like you lost $85 million in 2011.
You've got that going to a loss of $185 million in 2012, $55 million of that I get from the increased interest expense.
Is there any other major item to single out there, or is that the usual cushion that you put into the guidance?
David Cordani - President and CEO
I think you're looking at it pretty correctly.
There's the interest piece in there, and then it is a plan, and we have no specific area designated for the balance that you point out.
Carl McDonald - Analyst
Then just a follow-up question on the amortization.
In response to the earlier question, did you say that amortization would be down 10% to 15% per year for the next few years?
Or pretty stable at that $0.45 hit and then let's say three years it falls 10% to 15%?
David Cordani - President and CEO
More sequentially, Carl.
Each year, for the next few years, about 10% to 15% lower.
Carl McDonald - Analyst
Thank you very much.
David Cordani - President and CEO
Carl, just one other item, though.
Just remember there's another month in 2013.
So it will be in the lower end of the range next year, but then more at the higher end of the range sequentially after that.
Carl McDonald - Analyst
Sure.
Thank you.
Operator
Dave Windley, Jefferies & Company.
Dave Windley - Analyst
Hi, I wanted to ask a follow-up to Justin's earlier questions about your investments, and focusing on international.
What I'm interested in, David, is philosophically, do you see the international business at some point being able to grow bottom line faster than top line, and are you making those investments today so that can happen in the future, when maybe the revenue growth is not so robust.
David Cordani - President and CEO
Dave, good morning.
I appreciate it.
First, when you think about that business, think about the two major drivers of that business today are the individual business where we target the emerging and growing middle class in the emerging markets, and then the globally mobile business.
Both of those businesses have inherent tailwinds behind them in terms of secular growth.
The underlying business strategy for international that we've been consistent around is that it is a growth business, and it is a top-line growth story.
We -- as we articulated, our 10% to 13% EPS growth for the corporation, we did not embed -- I'll call it margin expansion, that would generate what you said.
What you said is you'd grow the bottom line faster than the top line.
The exciting part of the business is we see over the strategic horizon the ability to achieve top line growth rates high teens and potentially beyond, as we've demonstrated over the recent past.
We're making investments to make sure we're in position, because product innovation and geographic expansion is a key enabler to us.
As the market moves and changes, if you take your hypothesis that we don't see unfolding in the next three or four years, if certain of our markets mature a little more, yes, we have markets in our portfolio where the bottom line grows faster than the top line, but the portfolio in total, you're going to see more of the top line and bottom line either grow inline and slightly different if we're making growth investments.
Dave Windley - Analyst
Okay, and then on the Vanbreda piece in particular, was the slower level or lower level of internalization that you were commenting on for 2012, is that opportunity lost, or opportunity delayed?
David Cordani - President and CEO
I appreciate the question.
Broadly speaking, it's opportunity delayed, right?
There's a market environment out there.
There's a pretty differentiated value proposition.
There's purchasing cycles that IGOs and NGOs have.
As you go through those purchasing cycles, as you might imagine just like other business, the larger entities have longer-duration purchasing cycles.
The smaller entities have shorter-duration purchasing cycles.
That's where on both Ralph's comments and my comments, we still feel quite good about this capability and positioning strategically.
We view it as more opportunity delayed as we manage the portfolio in total.
Ralph Nicoletti - EVP & CFO
The other thing I'd add, too, is we also stayed disciplined on our pricing and underwriting, too, and I think that's very important, so we're not just kind of going after revenue, but we're trying to strike the right balance there, too.
I think the team there has put some good discipline in place, too, as we work through this.
Operator
Kevin Fischbeck, Bank of America, Merrill Lynch.
Kevin Fischbeck - Analyst
Thank you.
I wanted to ask a couple of questions on the HealthSpring contribution, and just how that compares to the S-4 that was filed with the merger?
Had to do a little math here, but it looks like if you adjust for the D&A and interest expense, according to the S-4 they were looking for something closer to $210 million versus the $160 million to $180 that you're including in guidance, and that their MLR target was $80.7, but you're assuming something much higher than that.
Could you talk a little bit about what that delta is?
Ralph Nicoletti - EVP & CFO
Our guidance for 2012 is consistent with the performance and the expectations that we put in the valuation.
As I pointed out in my remarks, there is significant accretion.
I think there's some trickiness in trying to reconcile the guidance to what is ultimately there for a few different reasons.
One, you have tax -- before tax, after-tax basis you have to add back the amortization.
The additional month, and there's a lot of moving pieces within there.
There is a little bit of the integration costs included that you wouldn't have seen in that projection that was in the proxy.
When you put those pieces together, we're pretty close to where that is, and we're spot on to where we were in our valuation.
David Cordani - President and CEO
And I might ask Herb to just expand a little bit in terms how you feel about the quality of the business.
We're stepping out of the fourth quarter and into the first quarter knowing the volume, the sales, the quality of the underlying loss ratio, et cetera.
Herb, do you want to expand on that.
Herb Fritch - President, HealthSpring
No, we feel pretty good.
Everything's pretty much right in line with our growth expectations.
Our medical loss ratios has been very consistent and favorable with the positive trends we've seen.
I might comment, the one clarification on the loss ratio is really adding in the Phoenix Cigna business that ran at a little higher loss ratio.
So it really isn't a deterioration in legacy HealthSpring business.
Kevin Fischbeck - Analyst
That's very helpful.
Just want to follow-up there on this opportunity you keep talking about for revenue growth next year within combining Cigna and HealthSpring.
How quickly can you add new geographies?
Are you going to be able to do that in a meaningful way for the 2013 season?
Or with the deal just closing, integration going on, is it going to be difficult to do that, and that's maybe more of a 2014 opportunity?
David Cordani - President and CEO
Kevin, think about it in a couple steps.
Herb's business model's done a nice job of being able to -- I'll say expand to related geographies.
So just think about counties expanding off of the existing geographies.
We'll push hard on that in collaborating with Herb and his team to drive some acceleration.
The work, as you might imagine, is already under way to figure out the additional geographies.
It's an open question in terms of the rate and pace in terms of how fast we'll be able to step into those in 2013, 2014 for sure, and the heavy lifting work is being done right now from a sequencing standpoint between the new geographies for MA, and the existing geographies that drive the commercial business into.
Kevin Fischbeck - Analyst
Great, thanks.
Operator
Peter Costa, Wells Fargo Securities.
Peter Costa - Analyst
Good morning.
I like to get a better understanding of the international margins, if you would, in terms of things causing pressure on it this quarter.
You talked about the favorable third-quarter reserve studies.
I don't really recall what that was, perhaps you could refresh me?
What was the favorable reserve study's impact on margins in the third quarter, and then how much of the impact on margins is related to sort of the shorter-term things is related to sort of the shorter-term things of near-term spending versus some of the cost streamlining?
Ralph Nicoletti - EVP & CFO
Sure.
Peter, it's Ralph.
Couple of pieces in here when you look at the sequential flow of the international earnings.
The reserves studies actually, we did several of them across different geographies.
Actually in the year ago, while we were in the fourth quarter this year, they were completed in the third quarter, and we recognize them -- I think about that in around the $5 million after-tax range, as an impact.
The other thing that we did point out, which is an item that happened in the fourth quarter and will recur in 2012, is that the tax rate in Korea did not decline.
It was expected to decline, and then it was ruled from the government there that they would not decline it from 24% to 22%.
We had to recognize that in full in our fourth quarter this year for the deferred tax liabilities that we had.
So you had an out-sized impact in the fourth quarter of 2011, which will carry about the same level of impact in 2012.
And then the other areas are on the staging of the market expansions, particularly in India and Turkey, as well as some costs to streamline operations throughout the international areas, no one area in a significant way.
When you put those all together, those are the drivers of the change.
I think when you step back then from it, I don't think you should feel really any different about our margins and how we talked about those being in the higher-single-digit area over time.
But quarter-to-quarter, they're going to bounce around a little bit because of these kinds of things.
Peter Costa - Analyst
And yet, you're projecting a mid-single-digit number.
Is that because of the DAC charge, so that's separate from what you were talking about before, in terms of margins, so your margins will actually be lower than the higher single-digit?
Ralph Nicoletti - EVP & CFO
You're right.
The DAC piece does have a couple hundred basis-point impact on margins.
No impact to cash flow, no impact to returns--
Peter Costa - Analyst
So the real margin would be more of a mid-single-digit number going forward.
Then in terms of the competitive pressure that you felt in Vanbreda, did you find that in some of your existing businesses, as well, like particularly in South Korea?
David Cordani - President and CEO
Did not.
It's David.
We did not -- the Korean business retention rates were outstanding in 2011, new business growth and product innovation.
Think about Korea, predominantly when we talk about Korea, think about that as the individual health, life, and accident portfolio.
Now we service ex-pats in Korea, of course.
But the bulk of the earnings driver, when we talk about Korea is the individual heath, life, and accident business, as opposed to Vanbreda, think about ex-pats largely IGO, intergovernmental organizations.
But we did not see any impact to speak of in Korea.
Peter Costa - Analyst
Okay, thank you.
Operator
Chris Rigg, Susquehanna
Chris Rigg - Analyst
Thanks a lot.
Thanks for taking my question.
Just one last big picture question for you guys.
Sort of the topic of the day in the investment community is the dual-eligible opportunity.
Obviously you guys have brought on substantial Medicare assets with HealthSpring.
Really don't have much positioning in the Medicaid side.
I guess can you comment on what -- if you actually view the dual-eligible as an opportunity for you guys -- and if you do, what you might be able to do over the near term to improve your positioning to benefit from the potential expansion of managed care into that segment?
David Cordani - President and CEO
Good morning, Chris.
It's David.
I'll start, and I'll ask Herb to expand based on his experience and insights.
From a strategy standpoint, we've been very consistent.
We view it in the US our number one priority in terms of inorganic expansion was in the Medicare space, and we took our time obviously, because we wanted to find an asset we thought had really differentiated capabilities, and we found that with HealthSpring in terms of the clinical capabilities.
As we've talked about in the past, we said off of Medicare asset that has differentiated clinical and physician engagement capabilities, we saw the opportunity on a targeted basis to pursue Medicaid using our Go Deep strategy, so market by market, and specifically looking at the ABD or dual population.
We've had that view for several years now.
Clearly, there's some change in the marketplace due to budgetary constraints and pressures, and seeing that the duals could benefit from a more comprehensively managed portfolio.
The good news is within HealthSpring you have a proven capability to deliver an outstanding clinical quality, service quality, and cost outcome for individuals, especially our higher medical cost or higher co-morbidity population, and Herb has built an entree into the Medicaid space as an initiation.
Herb, if I could ask you to just expand on how you think about the dual population?
Herb Fritch - President, HealthSpring
Well first, we certainly have a whole -- we've had dual snips in all of our geographies today.
We serve a lot of the duals from the federal perspective in terms of the benefits that they cover.
We are looking to expand, as David said, I think our clinical models work exceptionally well with that population.
In March, we'll start as one of the dual-eligible star-plus providers in the Rio Grande valley of Texas.
Should give us about 20,000 to 30,000 new lives there.
And we're bidding on at least one other state that's opening up the duals now.
We' re hopeful that this is a real growth opportunity for us.
Some states are considering, I think, going through their current Medicaid contractors, and we're going to see if there's a way to partner or get in with those states, too.
There are other states that are bidding them out separately.
Where that happens, I think we're clearly well=positioned to deal with that.
Chris Rigg - Analyst
Okay, thanks.
Operator
Thank you, Mr.
Rigg.
I'd like to turn the call back to Mr.
David Cordani for any closing comments.
David Cordani - President and CEO
Briefly, I want to thank you for your questions today and your continued interest in Cigna.
In closing, just emphasize a few points from our discussion.
One, pleased with the continued progress we are having in executing our strategy, and just highlight that our results reflect the dedication and commitment of our 30,000 plus colleagues around the world who work tirelessly to improve the health, well being, and sense of security of our customers.
The milestones that we've reached and the steps we're targeted to take in 2012 and beyond position us for very strong top-line and bottom-line growth, specifically in our highly focused US commercial business, our international business, and now our seniors in Medicare business here in the United States.
We view that our 2012 outlook represents a competitively attractive result, and we are positioned for long-term sustained growth.
Finally, I'm confident in our ability to achieve our full-year 2012 strategic financial and operating goals.
We thank you for joining today's call, and look forward to our future discussions.
Operator
Ladies and gentlemen, this concludes Cigna's Fourth Quarter 2011 Results Review.
Cigna Investor Relations will be available to respond to additional questions shortly.
A recording of this conference will be available for ten business days following this call.
You may access the recorded conference by dialing toll-free (888) 203-1112 or area code (719) 457-0820.
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Thank you for participating.
We will now disconnect.