使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
At this time, I would like to welcome everyone to the WellChoice quarter three earnings conference call.
All lines have been placed on mute to prevent any background noise.
After the speakers' remarks, there will be a question-and-answer period. (OPERATOR INSTRUCTIONS).
Ms. Bohren, you may begin your conference.
Deborah Bohren - SVP of Communications
Thank you and good afternoon, everybody.
Welcome to WellChoice's third-quarter 2004 conference call.
I am Deborah Bohren, Senior Vice President of Communications, and with me are Mike Stocker, President and CEO of WellChoice, and John Remshard, Senior Vice President and Chief Financial Officer.
Mike will start off the call with some brief comments about our third-quarter 2004 performance, as well as current issues that we know are of interest to you.
John will then discuss our financial results in detail, after which we will go to questions.
Please note that on today's call, we will be making some forward-looking statements.
Listeners are cautioned that there are factors that could cause these actual results to differ materially from our current expectations.
For a detailed discussion of these and other risk factors, please see the Company's filings with the Securities and Exchange Commission, including the risk factors contained in WellChoice's annual report on Form 10-K for the year ended December 31, 2003, its quarterly reports on Form 10-Q for the 2004 reporting period, including the quarterly report on Form 10-Q for the period ended September 30, 2004, filed with the Commission this afternoon.
And now, I would like to turn the call over to Dr. Stocker.
Dr. Michael A. Stocker - President, CEO, Board Member
Thanks, Deb.
Good evening.
Thanks for joining us on our third-quarter 2004 earnings conference call.
Let's get right into it.
Earnings -- WellChoice reported net income for third quarter 2004 of $61.9 million or 74 cents per share.
This is 1 cent ahead of the top end of our guidance and 2 cents above the Thompson/First Call estimates.
Membership growth -- enrollment in our Commercial Managed Care products, excluding the New York City and New York State account, increased by 238,000 members or 10.3 percent since year end 2003, to 2.54 million members total.
The 10.3 percent is clearly within our guidance for the year of 9 to 11 percent for 2004.
This includes a very strong increase of 60,000 members in the third quarter, which came from small group, middle-market and national accounts.
Self-funded membership grew 11.9 percent since December 31, 2003, to 1,942,000 members as of third quarter of 2004, and now accounts for 39.4 percent of overall membership.
That's an increase of 290 basis points over the prior year end.
The increase continues to be primarily driven by our ongoing strong growth in national accounts.
And just to note, we anticipate enrolling in excess of 100,000 new national account members as of January 1, 2005.
Total corporate membership stood at 4.93 million as of September 30, 2004.
This represents an increase of 177,000 members or 3.7 percent since year end 2003, which is within our previously issued guidance for year end of 3 to 4 percent overall.
With respect to earnings per share, we are raising full-year 2004 earnings guidance to a range of $2.93 to $2.96 per diluted share, from a range of $2.90 to $2.94.
We expect our full-year 2005 earnings to be in the range of $3.35 to $3.41 per share.
That is based on 84.3 million average diluted shares outstanding.
Before I turn the call over to John, to discuss our financial performance in more detail, I want to take a few minutes to comment on some ongoing issues that I know are of interest to you, and then speak more broadly about Company performance.
First, the New York City account -- we have nothing to report.
I can reiterate, at this time, it is not possible for us to predict when or whether the city will complete the pending competitive bid process that started three years ago.
We will keep you up to date.
We are still negotiating with the account for renewal rates for the period from July 1, 2004 through June 30, 2005.
Having said that, our relationship with the city continues to be, I believe, productive and ongoing.
Second, we have an announcement on the New York State account.
The New York State account has about 880,000* members.
As you know, the account did not have an out-of-network benefit differential, so if a hospital was out of network, for example, in a contract dispute, we or the state were forced to pay charges to the hospital.
So we were not able to broker hospital contracts with the state account in the past.
They have agreed to a PPO plan design for approximately 80 percent of their members beginning January 1st.
Under the new plan, the members will now be subject to coinsurance if they go to a nonparticipating hospital.
Inpatient *THE CORRECT NEW YORK STATE MEMBERSHIP TOTAL IS 997,000 AS STATED IN FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2004.
stays at participating network hospitals will still be covered at no cost to the member.
We believe that this change will provide an incentive for employees to seek services at more cost-effective hospitals, and will help us with hospital contracting.
We also have an announcement which you may have seen in the Boston Globe about deNovis. deNovis is the company IBM was working with to develop a new claims payment system for us. deNovis announced that they are shutting down their operations.
As a result, we agreed with IBM to terminate the claims engine development agreement without any further obligation to either party.
We've talked about this before, including in our IPO.
Our spending on deNovis systems to date has been de minimus.
The issue really is that they ran out of money.
There may be further developments here, but just to reiterate, our current claims system is very adequate to meet our claims processing needs for the current and immediate future, and we will continue to investigate alternative options.
Last and no surprise is broker commissions.
As we have previously indicated in our press statement, we do not engage in any of the potentially criminal practices cited in Attorney General Spitzer's complaint, such as bid rigging or submitting sham bids, nor have we been contacted by any regulatory authority regarding this issue.
Broker bonus or incentive programs that provide brokers with additional payments, based on factors such as volume and persistency, are a market standard and are legal in New York.
Generally, these programs are filed and approved by the Department of Insurance.
We do pay; we do pay incentives for small and middle-market accounts, and for some large group businesses where the employer has not retained a consultant.
However, the aggregate dollar amount of these incentive programs is almost insignificant; it is less than $500,000 for 2003.
To give you some numbers, so these kinds of incentive payments constitute 0.75 percent of our broker commissions, so that would be 0.0075 times the total dollars for broker commissions.
That is 0.05 percent of our administrative costs and 0.01 percent of our premiums for 2003.
While the current investigations relating to broker payments have focused primarily on the property, casualty, life and disability industries, they may be expanded to include an examination of brokerage arrangements in the health insurance industry.
As a result, we can see regulatory or legislative changes that could affect the matter in which we currently conduct our business.
I believe, however, that if certain broker commissions were prohibited going forward, as a result of these changes, it would not harm us.
We also believe that the market would benefit from a standard set of rules on broker commissions that provides an even playing field and ensures transparency.
As we have announced earlier this year, we have launched the Empire Total Blue suite of consumer-directed health plans.
A number of our new and existing national accounts will be effective with this product January 1, 2005.
And, as we have announced previously, to support these products we have entered into a relationship with Lumenos to provide the administrative support for the product and to provide a seamless member experience.
We are very excited about this program.
I want to talk more broadly now about corporate performance.
The future, I strongly believe, of the health insurance industry is actually quite promising, as it moves into core competencies that it did not have before.
And I would kind of group these under the general category of consumer-directed health products.
The name covers a lot of things, and I think it is probably fair to keep in mind that consumer-directed health products means a whole broad array of things.
So we're going to talk about some of those things now.
We believe that we will be a leader in providing critical medical information to our members, and we are very active in the consumer-directed area in general.
As we have talked about before, we are four years into a six-year program to give our members to tools to communicate with their physicians and have access to and control the distribution of their medical records, provide specific information to our members about hospitals and physician quality, and to help our members to use that information to decide how to spend discretionary funds in their consumer-directed health accounts.
We have integrated these programs into a single system called 360 Degree Health.
And since there are so many aspects of these programs, many of which we have discussed in the past, I'm going to talk about three programs that we are introducing during 2005.
The first is a personal medical record that includes information contributed by the member and health assessments by a vendor, but also includes lab, pharmacy and selected claims data from our databases.
The second is a ranking of hospitals using CMS and Leapfrog criteria that allows accounts to provide financial incentives to go to preferred hospitals.
And the third is in partnership with Relay Health, a pilot program of an online health visit between members and physicians has been started.
We pay the doctors $25 per visit for each visit.
Overall, I believe strongly the company that can execute on this set of core competencies will have a significant strategic advantage in the future.
Next, I would like to highlight very quickly about how we are using technology to control administrative costs, and I am going to talk in this presentation about our broker portal in the small group marketplace.
We have 35,000 accounts in the marketplace of under 50 employees in New York; this is a community-rated marketplace.
And as you probably know, many of them add and subtract members, dependents, new hires, people who leave on a monthly basis and make benefit and product changes often annually.
In the past and presently, all of this is done by a blizzard of phone calls and paper communications.
The use of an online portal to make these changes is growing very rapidly, and we are very happy with the results of our portal to date.
By the end of 2005, we expect 40 percent of all plan design changes will be made online, saving substantial administrative dollars and improving customer satisfaction.
Finally, just a comment about service in the New York marketplace.
This is the time of year when the insurance department announces the staff ranking of companies and the number of upheld complaints that they have as a ratio to total premium dollars.
We have, for the last four years, been number one in the marketplace in this measure.
We are once again number one in the marketplace, beating out all competitors in this marketplace.
This ranking is an important, objective affirmation of our performance and customer service, and helps us with our accounts in the New York market.
With that, I am going to turn the call over to John.
John Remshard - SVP, CFO
Thank you, Mike.
Before we discuss the details of our third-quarter performance, I'm sure that you noted that we are now filing our 10-Q before our conference call.
We are doing this to provide you with the opportunity to review the details behind the quarterly results prior to the call and throughout the evening.
WellChoice has had an excellent third-quarter performance.
We reported net income for the third quarter 2004 of $61.9 million or 74 cents per diluted share, which represents 19 percent improvement over the prior year.
For the nine months ended September 30, 2004 we reported $186.6 million, or $2.23 per diluted share, which represents 26 percent improvement over the prior year.
The 74 cents per diluted share for the quarter is 2 cents higher than the First Call consensus earnings estimate, and 1 cent higher than our guidance.
In general, the strong fundamentals that we have been highlighting during the year remain in place -- revenue increases, resulting from strong membership growth, and disciplined pricing.
Also, by continuing our practice of strong pricing discipline, while continuing to realize increased operating efficiencies coupled with strong membership growth, we are well-positioned to meet our financial objectives, and have increased guidance for the year to a range of $2.93 to $2.96 per diluted share.
Our core Commercial Managed Care membership, which excludes the city and the New York State PPO accounts, grew by 10.3 percent to 2.5 million members during the quarter, compared to last year end, and is near the top of our guidance range.
Sequentially, our core Commercial Managed Care membership increased 2.4 percent, or 60,000 members and since June 30.
This sequential increase was driven by strong small group, middle-market and national account membership growth.
Compared to year end, membership for the Commercial Managed Care segment as a whole, which includes the New York State and New York City PPO accounts, grew by 6.1 percent to 4.4 million members.
Total corporate membership grew 3.7 percent to 4.9 million members as of the end of the quarter compared to year end, which is, once again, near the top of our guidance of 3 to 4 percent for the full year 2004.
Membership in our other insurance products and services segment declined, as expected, by 11.1 percent to 576,000 members since year end, due in part to the conversion of indemnity members to managed care.
Total insured members in our core Commercial Managed Care business increased by 28,000 members or 3.4 percent since year end 2003.
In our lower-margin Other Insurance Products and Services segment, total insured membership decreased by 68,000 members since year end, and now totals 330,000 members.
National account membership grew 1.2 million members, a 10.5 percent increase since year end.
And our small group and middle-market membership grew by 4.3 percent to 463,000 members.
This is driven primarily by strong HMO and middle-market growth.
Since year end, self-funded membership increased by 11.9 percent, and totals 1,942,000 members.
This segment now represents 39.4 percent of total membership, compared to 36.5 percent at year end.
The increase was obviously driven by continued strong membership growth in national account business.
For our revenues, corporate revenues were $1.5 billion for the quarter, an increase of approximately 8.3 percent over the third quarter of last year.
Total revenues in our Commercial Managed Care segment increased 10.3 percent over the third quarter and totaled 1.2 billion, while total revenues in our Other Insurance Products and Services segment declined by 1.2 percent to $224.9 million.
Insured premiums for all segments increased to $1.3 billion for the third quarter, an 8 percent increase from a year ago.
Premiums for our core Commercial Managed Care business, which excludes the city and state accounts, grew by 8.6 percent over the third quarter of last year.
Premiums for our Managed Care business, including New York City and New York State accounts, increased by 9.7 percent to 1.1 billion compared to the third quarter of last year.
These increases were partially offset by a 2 percent premium decline in the Other Insurance Products and Services segment.
Sequentially, excluding claims and related revenue changes in our city and state accounts, core Commercial Managed Care revenue increased by $7 million or 1 percent.
In the third quarter of 2004, self-funded membership increases in our core Commercial Managed Care segment generated strong service fee growth of $14.3 million, a 20.7 percent increase compared to one year ago.
For the nine-month period, our total corporate medical loss ratio was 86.1 percent, which at first glance represents an 80 basis point increase from the reported nine-month results for the MLR for last year.
However, if you recall, last year we reported having received $38 million worth of regular Reg. 146 pool funds, and the late hospital claims reported totaling about $9.4 million.
Adjusting for these two one-time items, the 2003 MLR is actually essentially flat at 86.3 percent, so really we have seen a net-net 20 basis point improvement year over year.
For the nine-month period, the medical loss ratio for our core Commercial Managed Care business was 82.7 percent, which is a 30 basis point increase from the first nine months of last year.
For the current period, both medical loss ratios fall well within our guidance.
Our corporate medical loss ratio for the third quarter was 86 percent.
However, the medical loss ratio for our core Commercial Managed Care products improved to 82.3 percent, a 70 basis point decrease from the third quarter of last year.
And if you look at the numbers sequentially, you'll see a 190 basis point improvement.
A 100 basis point improvement was related to the relative changes in prior-period development, which we will discuss in a minute, and the remainder is just good old-fashioned improvement in the performance of our small group and middle-market products.
Adjusted for the impact of account funding changes, the premium yield for our core Commercial Managed Care book is 10 percent, and the change of claim costs PMPM is 11 percent.
By components, we experienced a trend for inpatient of about 8.9 percent; for outpatient services, 11.2 percent; and for medical, of 7.4.
For drugs, we experienced a trend of 13.1 percent for the nine-month period.
Our reported trend has been remarkably consistent with prior quarters, and is fairly even-split between costs and utilization.
I would like to also point out that we continue to develop premium rates in the 11 to 13 percent range.
This is before buydowns, and this is depending upon the product.
I believe that the best measure of tracking how well we are really doing in determining premium rates charged is our underwriting margin.
Our underwriting margin equals underwriting profit as a percentage of premium plus service fees, and our underwriting profit equals premium plus service fees minus claims and administrative costs.
Through nine months 2004, our underwriting margin for our core Commercial Managed Care book of business was 8.5 percent, which represents a 40 basis point improvement over the prior year.
As noted in the press release, we experienced $1.2 million of positive prior-period development in the quarter, for prospectively rated business.
Our days claim payable at the same time increased by 3.3 days, and now totals 55.9 days for the quarter, compared to 52.6 days in the prior quarter ended June 30, 2004.
During the quarter, this increase was influenced by one fewer day of drug claim payments, and primarily lower claim levels within the city and the state account.
Lower claim levels in the city and state account in quarter two to quarter three were about $60 million.
And just so you know, when you are looking at the Q, that has two impacts.
One, it lowers claims costs, but it also lowers revenue, because claims, if you recall the point, become revenue on a fixed-margin account such as the city and state account.
So when you look at sequential revenue, keep in mind that $60 million of the change is due to lower claims in the city and state.
We continue to work very hard to realize improved administrative expense ratios, and have concentrated our efforts on a combination of spending discipline and increasing our operating efficiencies.
We have seen good results from our efforts, especially during the third quarter.
For the third quarter, the administrative expense ratio of 15.9 percent is 160 basis points lower than the third quarter of 2003.
For the nine months ended September 2004, the administrative expense ratio is 15.8 percent, a 90 basis point improvement since September 2003, and is well within our guidance range.
I'd like to remind you that in the third quarter of last year, we incurred a one-time charge for unused facilities of at MetroTech of $13.4 million.
Excluding that charge, our administrative expense ratio improved 50 basis points for the quarter and 60 basis points for the nine months.
Due to the increasing significance of self-funded business as a proportion of our total book, expense ratios using premium equivalents allow a better comparison between periods.
Premium equivalents are the sum of premiums, service fees and paid claims attributable to our self-funded business, for which we provide a range of service including claim administration and membership and billing services.
On a premium-equivalent basis, the expense ratio for the nine months ended September 30th shows a 110 basis point improvement to 9.7 percent, compared to 10.8 percent for the nine months ended September 30, 2003.
And this change is very consistent with our expectations.
If we exclude the facility charge that I just mentioned a few minutes ago from the calculation of the administrative expense ratio on a premium-equivalent basis, the overall improvement is still a remarkable 90 basis points for the nine-month period.
As mentioned previously, we continue to work hard to improve this -- or to lower our administrative costs and improve these ratios.
So we expect for 2005 that the administrative expense ratio to be in a range of 14.5 to 15.5 percent.
Consistent with our guidance in our second-quarter conference call, our effective tax rate for the quarter was 38 percent.
We expect it to be the same for the fourth quarter and throughout 2005, as well.
As you look at our income tax expenses, we would like to remind you that it contained a benefit in the second quarter of $5.7 million or 7 cents a share for the settlement of the tax audit which we reported previously.
Going to other matters, cash flow was strong.
Cash flow for the nine-month period was $214 million.
We expect cash flow for the year to be within our guidance of 325, which means we expect a very strong cash flow result in the fourth quarter.
And the fourth quarter usually has a strong cash flow result, as we benefit from advanced payments from CMS, as well as payments that are owed to us for various government programs.
These extraneous payments will total about $66 million, in addition to what we would earn normally through our insurance book.
Total stockholders' equity was 1.62 billion through the quarter, an increase of 187.5 million or 13.1 percent from year end.
WellChoice continues to have no debt on our balance sheet.
Total investments in cash and cash equivalents at WellChoice, the parent holding company, were 556.4 million.
All other components of the stand-alone condensed balance sheet of WellChoice, Inc. are provided in the liquidity and capital resources section of our quarterly report on Form 10-Q, which should by now be in your possession.
Investment income and realized gains were essentially flat for the third quarter, at $16.7 million this year compared to the prior year.
Generally, in summarizing our performance, I believe we continue to demonstrate our ability to increase margins through disciplined pricing and aggressive administrative expense management.
Our investments in technology and infrastructure and strategic outsourcing agreements have enabled us to reduce administrative costs as a percentage of revenue.
It is through these very strong fundamentals that we believe we are positioned to meet our growth expectations throughout 2005.
This concludes our overall review of our third-quarter operating results.
I would like to provide you some additional guidance for the balance of the year and into next year.
We are raising, as we mentioned, our earnings guidance for the full year 2004 to be in the range of $2.93 to $2.96 per diluted share, based on 83.9 million average diluted shares outstanding.
For the fourth quarter of 2004, we expect earnings to be in the range of 70 to 73 cents per diluted share.
As mentioned, we're confirming our forecast of 325 million in cash flow from operations for the full year.
Our initial guidance for the full year 2005 is in the range of $3.35 to $3.41 per diluted share, based on 84.3 million shares outstanding.
With this, I would like to turn it back over to Mike for any wrapup comments.
Dr. Michael A. Stocker - President, CEO, Board Member
No, I think we can go right to questions.
Operator
(OPERATOR INSTRUCTIONS).
Joshua Raskin, Lehman Brothers.
Joshua Raskin - Analyst
Two questions.
Just the first is cash flow in the quarter came in a little bit below net income.
I was wondering if there were any one-time items in there that we could reconcile.
And then, secondly, I think Mike, you mentioned some of the expected changes in the New York State account, with regard to coinsurance for out-of-network charges next year, et cetera.
I was wondering how you thought about that account for 2005, with regards to profitability or even just on the pricing of that account, and maybe any expectations in terms of what you built in for utilization changes would be helpful, as well.
Dr. Michael A. Stocker - President, CEO, Board Member
Let me talk about the state account.
We don't actually give profitability by individual accounts.
And what we have always said is it is priced consistent with our expectations.
We have a three-year contract with the state which extends through next year, so we will start negotiations in 2005 to extend the contract.
Joshua Raskin - Analyst
I guess, Mike, to ask another way, in terms of your pricing, are you making any expectations with regard to changes in utilization?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
Let me talk about the network issues with the account.
It functions as a PPO, in the sense it uses our PPO network up until the benefit changes.
In the PPO, virtually every single hospital in the service area is in the network.
Occasionally, we have contract disputes, and a hospital will go out of network.
Two years ago, we had a dispute with Long Island Healthcare Network, a group of about 12 hospitals on Long Island.
So the major advantage here is not that they are going to go to in-network hospitals versus out-of-network hospitals; it is that we have leverage when we negotiate with hospitals, because we can move business to in-network hospitals if we have a contract dispute.
So, having said that, we would make slightly decreased utilization and cost-per-unit services assumptions, based on that.
Joshua Raskin - Analyst
I see.
So it is really just in case of disputes, because at this point, the network -- there really is no chance at this point to go out of network until a potential dispute arises?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
And this is, of course, in New York State.
Joshua Raskin - Analyst
Right.
Dr. Michael A. Stocker - President, CEO, Board Member
But the hospitals are very aware of that, and the leverage that those accounts do or do not provide, when you negotiate with them.
So this is obviously an added value.
John Remshard - SVP, CFO
On the cash flow issue -- there is one government program that we participated in that was running about 3.5 to 4 months in arrears, as far as their payment to us.
We have received a payment in October, and that amount is about $25 million.
Operator
Matthew Borsch, Goldman Sachs.
Matthew Borsch - Analyst
I wanted to ask a question, just in looking at the 10-Q that you had filed.
And specifically, I was looking at page 32, where you show the per member per month rates for Commercial Managed Care, excluding New York City and New York State, and I believe that also excludes the minimum premium funding arrangements.
And the PMPM in the quarter, I guess, was $295, and that was down $10 from the PMPM last quarter.
And the yield was down 300, 400 basis points.
Can you just elaborate on if there is an item there that explains that?
John Remshard - SVP, CFO
Yes.
The difference is basically the PMPM impact of adjustments to our retrospectively rated book of business.
Claim trends have improved; we have seen claims go down, so that translates into a revenue change.
The entire difference was just an accounting entry based on the retrospective book.
Matthew Borsch - Analyst
Got it.
So as far as the prospectively rated business is concerned, and the yields there, they are still really in line with where you were last quarter?
John Remshard - SVP, CFO
Oh, yes.
The prospectively rated, as I pointed out during the -- we are seeing 10 percent PMPM increase in premium yield year over year, and that's pretty much prospective book.
Matthew Borsch - Analyst
And, slightly related to that, just in looking at your breakdown of the medical claims payable, while I recognize your days increased, if I look at the portion of IBNR that you're holding for your quarterly runout, just doing the math, that looks like it was about 478 million for the third quarter, down about 5 million from last quarter, using the 74 percent of that IBNR that relates to the current quarter.
Is any of that impacted by the retrospective rating, as well?
John Remshard - SVP, CFO
I think that whole amount was city and state.
We point out there was a significant amount of claim development that's favorable for the city and state account, and that affects carried reserve levels, as well.
Matthew Borsch - Analyst
Let me just ask a last question, related to sort of the competitive environment that you're seeing now versus last quarter.
Any change there?
And generally, if there has been any sort of marketplace reaction or disruption, as a result of the Oxford-United merger?
Dr. Michael A. Stocker - President, CEO, Board Member
We don't really see much difference, in terms of competitive changes.
It's a competitive market, but we haven't seen anything irrational, and we clearly haven't seen anything irrational from the combination of Oxford and United Healthcare.
We would expect to benefit, in terms of acquiring some customers as they come together, but that is not related to -- we just haven't seen anything related to irrational pricing.
And that has been pretty consistent with the past.
Operator
Charles Boorady, Smith Barney.
Charles Boorady - Analyst
Just a couple questions.
First, the free cash at parent, which went up quite a bit sequentially -- was there a special dividend from the subs?
And can you give us guidance, if we assume you don't spend any of the money on share repurchases or acquisitions, just thinking about -- why start now? -- just thinking about what you are going to be able to dividend up over the next year?
What would that number be in a year from now?
John Remshard - SVP, CFO
Charles, basically, we received a dividend of about $75 million during the reporting period.
And, as I said before, we are giving you our earnings per share.
We believe that at this point, we are well positioned in terms of capital base at the subsidiary level, so we put a dividend in an amount equal to 100 percent of our after-tax net income, should we choose to.
Charles Boorady - Analyst
And that is right now, or that is over the course of the next year, as you earn the next year's net income?
John Remshard - SVP, CFO
No, that's both.
That's both.
Our subsidiaries are capitalized well enough now that we could dividend 100 percent of after-tax net income, assuming approval of the state insurance department from now forward.
Charles Boorady - Analyst
I'm not going to ask you -- I assume there's no change since your previous responses to all the questions on uses of the cash?
Dr. Michael A. Stocker - President, CEO, Board Member
Let me do that, if that's okay, Charles.
I have a feeling that this is somewhat related to our position vis-a-vis the state, so let me go through this again.
We go through this every quarter, and we treat it quite seriously, and we are very cognizant of our responsibility for shareholders for appropriate use of the cash.
Part of the problem is that if we do a share buyback, we decrease liquidity of the stock, and if we do a dividend, 62 percent of the dividend will go to the state, who has already received the benefit of the IPO.
So it is our perception that improved liquidity would substantially help the stock, and we have been somewhat supported by that by the follow-on offering we just recently did.
So I would suggest that, in addition to the usual considerations about the use of the money, in terms of acquisitions, there are other considerations that are, I think, unique to us in this situation.
I don't know if that's satisfying.
The only thing I can say is that we spent a huge amount of time talking about this, both at the management level and at the Board.
Charles Boorady - Analyst
Yes.
It's over $0.5 billion.
Your market cap is only 3 billion, and that is where, I think, the questions have got to keep coming from us.
But I think your response kind of is in the direction that -- of what I was looking for, so I appreciate that.
The second question -- as deNovis has gone de minimus, what does that mean, in terms of your future plans?
You said that you are evaluating options, but should we expect an uptick in your admin costs related to internalizing some of those development functions?
Is there anything you can salvage from what they have developed to date?
Can you give us a little more guidance on sort of what to expect going forward, in terms of your plans and what some of those options are that you're evaluating?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
We did not have an investment in deNovis, but IBM did.
This is a relatively recent event; actually, we heard about it on Monday, so it's relatively new.
My understanding is they ran out of money.
DeNovis has assets.
It's not quite clear what is going to happen to the assets.
It's my understanding also it's not a failure of the basic system; it's just a failure of funding.
Having said that, we are very comfortable with our current claims system and, although it is on COBOL, which is not a modern language and at some point needs to be changed, it is industrial strength, very functional, and we can support all of our products on the system and can do that into the future.
We also have, just talking -- I'm kind of in part answering the question I wanted you to ask;
I'm sorry about that.
But you know, people who have these systems have problems in terms of training new people to program on COBOL.
What we have done with India has helped assure us that we can do that along with our own local workforce, and that has been successful.
And so, in that sense, we are somewhat reassured about our ability to service this going forward.
But we will continue to evaluate other claims systems in the marketplace.
It's just too early to have any idea about what that means, in terms of capital expenditures or costs.
Charles Boorady - Analyst
Okay.
But for now, in your '05 budget, are you looking at a higher admin spend or CapEx-related (multiple speakers) to do that?
Dr. Michael A. Stocker - President, CEO, Board Member
No, and we have given suggestion about '05 administrative expense ratios.
Charles Boorady - Analyst
Last question, just on that '05 guidance, which is just for 15 percent EPS growth, granted that is huge relative to what your multiple is suggesting.
But looking at 10 percent premium yields on the prospective commercial business, adding 100,000 new national lives -- and I know first-hand where a lot of them are coming from -- is 15 percent too low of a number?
And could you give us more detail on how you arrived at the 3.35 to 3.41?
Because the information you did give would suggest a higher range than that.
John Remshard - SVP, CFO
A couple of things.
On the positive front, as Mike pointed out, we are very convinced that our national account members in January will be over 100,000.
All in all, though, we think we'll see somewhat of a slowdown in net new members in the core Commercial Managed Care, and we would guide down to that, from the 11 percent we talked about this year to somewhere around 7.5% - 8.5%.
At the second time, don't forget that in the year-over-year comparison of the earnings per share, we are showing 15 percent, but there is a 7 cent per share tax benefit, one-time tax benefit in this year.
So actually, I like thinking about it like 18, 18.2 percent.
So actually, I think that's a pretty aggressive goal.
We are showing good leverage ability in the administrative expense ratio; we are guiding that down to 14.5 to 15.5 percent.
Otherwise, we think we feel very good about claims trend being very stable.
It has been very stable for us for quite a while now, and that becomes more apparent in the Q's as you go forward, with less and less of the many multi-million-dollar PPD that people have reported in 2003 and 2002 coming across in your year-over-year numbers.
So you see that being fairly stable for a while.
We are getting good membership growth, and we have good renewal rates in terms of our premiums.
So we think we are very well-placed, and we think it's a fair estimate, a little bit above what we have seen today, as far as the consensus for next year, which seems to be around 3.25, 3.30 per share.
It's aggressive, but we think it's very doable.
Charles Boorady - Analyst
Are you assuming any improvement on the hospital cost side, which has been problematic for everybody in New York, as a result of the New York State agreement to (multiple speakers)?
John Remshard - SVP, CFO
No.
We model our hospital costs based on what we expect out of the contracting.
And, as Mike pointed out, there is some potential, given the state's benefit changes.
But I have not factored anything in, in terms of our plan next year, for any additional leverage in hospital contracting on that, because of changes in the city and state benefit -- or the state benefit program.
Charles Boorady - Analyst
It's still about a third of your hospitals that are up for renewal next year, dollar-weighted?
Is that about right?
Dr. Michael A. Stocker - President, CEO, Board Member
Give me just a second.
I want to get you -- yes, usually it's about a third.
In 2005, it's 40 percent are subject to negotiation.
Charles Boorady - Analyst
And I assume these negotiations during 2005 have not fully begun yet?
You will be able to, for that 40 percent that's renewing, go in armed with this 80 percent of the 880,000* members now on a PPO with the coinsurance?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
You can imagine how hard it is to estimate what that might be, but the answer is yes.
Editor
*THE CORRECTED NEW YORK STATE MEMBERSHIP TOTAL IS 997,000 AS STATED IN FORM 10-Q FOR THE PERIOD ENDED SEPTEMBER 30, 2004
Charles Boorady - Analyst
And you're not building that into -- okay.
And there is no share repurchases built into your guidance, either, obviously?
John Remshard - SVP, CFO
No, there is not.
Operator
Joe France, Banc of America Securities.
Joe France - Analyst
John, in your commentary, the 11 to 13 percent pricing before buydowns that you mentioned -- is that what your experience is, or what you're looking for in '05?
John Remshard - SVP, CFO
Well, that is what our experience has been, and I think that's what our experience will continue to be.
I think there's a change in the buydowns;
I think drugs have run its course.
Everybody now has pretty much a three-tier system and has gone to the higher two tiers.
We are continuing to see activity in the buydowns in terms of medical and outpatient, particularly going to a higher copay.
And we think the impact of that going forward is probably 1.5 points to 2 points.
Joe France - Analyst
And so the cost breakdown that you gave, then, would be what you were looking to use going forward as well, then?
Is that correct?
John Remshard - SVP, CFO
Our target pricing is still in the 11 to 13 percent range prior to buydowns.
And like I said, I think we see buydowns 1.5 points, 2 points, depending on the product.
Joe France - Analyst
So one last question, if I could just follow up on Matthew's question about the United and Oxford merger.
One of the challenges, as I understand it, for the combined company is to get their provider contracting cost down, and I was just wondering if you had seen any activity in the market that would suggest that they were going in and making any changes?
In other words, you have a tremendous cost advantage versus companies that came in and built up a network, that were trying to increase access rather than focusing on costs, and I wondered if you had seen any change in their behavior.
Dr. Michael A. Stocker - President, CEO, Board Member
No.
The answer is general, no.
There is a very public dispute between United and a group of hospitals in Westchester, but that's been in all the press.
I'm not at all certain it's related to the merger.
So no, I don't really have anything to add.
Operator
Tom Carroll, Legg Mason.
Tom Carroll - Analyst
A quick question for you -- a couple quick questions, actually.
One on -- sequentially, second quarter into third quarter, your fully insured enrollment was up slightly from 2Q, but premium revenue was down about $58 million.
Is this a mix-related issue?
And perhaps it's related to what Matthew was talking about, that you answered with the retrospective book.
John Remshard - SVP, CFO
Tom, it's city and state account.
The premiums and the claims were down $60 million.
The way the account works -- I'll just refresh everybody's memory -- it's a fixed retention account that for each member you receive -- or actually, you receive a fixed amount of dollars per year to cover overhead profit.
And claims flow through -- we account for it -- it's like an experience-rated account.
Claims flow through our P&L, although the city and state pays their own claims.
For the quarter, claims and corresponding amount of revenue was favorable, or the claim was favorable, down $60 million, which affects carrier reserves; it affects premium revenue by the same amount.
Adjusted for that -- that's why I pointed out in our comments I wanted to adjust for that.
And I said in our presentation that if you adjust for the claim-related revenue for the city and state account, our sequential revenue from our core Commercial Managed Care increased by $7 million or 1 percent.
Tom Carroll - Analyst
I got it.
That's more clear.
And then, just to confirm, do you -- and I believe you answered this, but do you expect to realize favorable hospital recontracting in '05 due to the New York State benefit design changes?
It sounds like you do.
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
What I had said is that you might expect slightly improved utilization in unit service, cost per unit of service.
But it has not been factored into our guidance, and it would be extremely hard to estimate that.
Tom Carroll - Analyst
But it certainly sounds positive going into '05.
Okay, thank you.
Operator
Scott Fidel, JP Morgan.
Scott Fidel - Analyst
A question just had to do with the sequential enrollment growth, which was very nice -- actually, you are the third company in the last two days that has reported better-than-expected enrollment, at least to my numbers.
And I'm just wondering, because of that, how much of that are you seeing just affirming in the existing accounts at this point?
So generally, how much of that was in-group growth, as compared to new accounts that you picked up in the quarter?
John Remshard - SVP, CFO
What we have said, we have seen -- and what becomes especially visible, the new growth in-group comes the first of the year.
A lot of the renewals for especially the large group and the large middle-market is in January and July, and that is when you see a lot of the expansion in terms of penetration within existing accounts.
And last year, it was pretty good; we were seeing our membership growth coming from existing accounts, increased penetration in existing accounts, and from new accounts.
We have had strong growth in the quarter coming from new accounts.
Dr. Michael A. Stocker - President, CEO, Board Member
Yes, that's in the quarter, because it is smaller-sized accounts where, generally, the whole account comes over.
It's not unusual for a national account to get part of the account, and then you kind of have an enrollment contest each year.
And we have done very well in those.
But in the third quarter, it's very much across the spectrum.
It's small group, it's middle market, it's large local accounts, a little bit of national accounts, not much national accounts in that group.
But I always want to say in these things, especially when you get into middle and small group, it is really about execution -- I know this sounds boring, but it's about execution, every single one of the details year after year after year, month after month after month, quarter after quarter after quarter.
So I think we're seeing the fruit of that, and what I would describe as a very good relationship with the broker community, which is very important in that group.
Scott Fidel - Analyst
And also, just tuning in on that, just generally, with the economic attrition -- which you did primarily answer.
But clearly, that was a drag on enrollment in New York; you certainly had higher unemployment rates last year.
Have you sort of seen that at this point, with the stabilization in the job market, at least starting to narrow out on an impact?
Dr. Michael A. Stocker - President, CEO, Board Member
I've said this before.
I think that for this business, at least in this city, the variation in the economy does not have -- it definitely has an effect, and clearly has an effect in buydowns, but it does not have as much effect in enrollment as you might suspect.
And the enrollment numbers you see there -- I can't quantify this.
I just don't believe it's related to the improvement in the economy.
Operator
Christine Arnold, Morgan Stanley.
Christine Arnold - Analyst
A couple questions.
In terms of the shift to minimum premium products that you saw this year, are you expecting another shift to those products entering next year?
John Remshard - SVP, CFO
No.
Actually, as the year goes on, the impact of that becomes less.
It was very big in the first quarter, less so in the second.
And as you go on, you have a better comparison period over period.
So I think we have seen a big shift initially, stemming from the large increase in the premium taxes in the state of New York, and people who are going to shift did it.
Since then, it has been fairly stable.
So I think the noise from that event, which caused me a little bit of angst in the first quarter, is kind of disappearing now.
Christine Arnold - Analyst
You are not seeing members shifting to that entering '05?
John Remshard - SVP, CFO
No.
No, we are not.
We are not seeing any big shift to minimum premium at this point.
Christine Arnold - Analyst
And then the 100,000 members that you're signing up kind of entering this year -- what does that look like in terms of ASO versus insured?
I suspect most of that is ASO.
Can you give us a sense of the breakdown there?
Dr. Michael A. Stocker - President, CEO, Board Member
The 100,000 is all national accounts.
It's all virtually ASO.
Christine Arnold - Analyst
Do you have a sense for how insured enrollment looks kind of entering the year, or is it too soon, because the last small groups haven't probably worked on it yet?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes, it's a lot harder estimate.
John, I --
John Remshard - SVP, CFO
Yes, we have a sense.
That's how we develop numbers, but we haven't provided that out.
Granted, within our growth estimates for next year, we talked about 7.5% to 8.5% for core Commercial Managed Care, and that is pretty much split between prospectively rated, insured and ASO.
I would say about two-thirds of that is ASO, and that is pretty much it.
Christine Arnold - Analyst
And then, in terms of the underlying commercial non-city, non-state commercial yield, excluding this whole minimum premium product issue, does that remain pretty stable, in the 4.5 percent range, kind of with the minimum premium issue?
Or does that change the financing?
John Remshard - SVP, CFO
Well, adjusting for minimum premium, which you really have to do to get the full effect of it, 10 percent has been pretty good for us.
We have been renewing; our renewal rates have been pretty good at 10.5 percent, so we are happy with it.
Christine Arnold - Analyst
And the final question is, I heard in response to Joe's question that 11 to 13 percent is the gross premium yield that you are expecting for next year.
Do expect the medical trends to remain in the same range?
John Remshard - SVP, CFO
No.
Actually, the 11 to 13 percent is not guidance of premium yield.
Christine Arnold - Analyst
It's growth?
John Remshard - SVP, CFO
No.
It's basically our pricing target, and it's before buydowns.
And we are saying we expect the buydowns to be about 1.5 to 2 points.
So I would just subtract 1.5 points to 2 points, and say that is what we go in the game with, with the expectation of that.
As far as medical trends, I think one of the things we said, that prior years have a lot of PPD in them.
If you look at even our stuff, last year at probably this time, we had like $20, $22 million worth of PPD, favorable PPD versus much less than half of that this year.
Once that goes away from your numbers, your trend numbers year over year start stabilizing.
Actually, we are seeing our trends as very stable in the 10.5 to 11 percent level.
And once you adjust the numbers, as far as the baseline you are comparing the PMPMs to, we are saying that we see the trend going forward at 9 to 10.5.
Operator
Bill McKeever, UBS.
Bill McKeever - Analyst
Most of my questions have been answered, but I did have a philosophical question.
When you look out into 2005 at the medical costs, if you could review maybe one or two factors that might cause an increase in medical cost trend, and then perhaps maybe one or two that might cause a decrease in overall medical cost trends?
Dr. Michael A. Stocker - President, CEO, Board Member
How philosophical is this?
Is this the market in general, or --?
Bill McKeever - Analyst
I think, related to you, just in general.
Dr. Michael A. Stocker - President, CEO, Board Member
All right.
Well, one of the real unknowns is consumer-directed health products.
And it's a little early, but I don't think it is clear.
I've read all the various claims, but I don't think it's clear.
I know that there are things about it that are attractive to individual members, and there are things about it that are attractive to employers, unrelated to this.
But it's not clear if it has an effect or what the effect would be on, actually, reduction in medical costs.
I think that's an unknown.
My guess is that it does, but I don't think there's enough evidence to really know.
So that would be one of those things.
And obviously, a lot of people are betting a lot that, the fact, that that will be the case.
There are other reasons to do those kinds of products, so I'm not actually that worried about the receptivity in the marketplace.
I think that's really the critical issue about the products, based on the total amount of actual medical costs saved.
But that is really an open question, at least in my mind.
So that would be one area.
There's a lot of things on technology that make it extremely difficult to estimate.
But in general, technology is inflationary.
There is certainly technology that lowers costs, but in general, technology is inflationary.
And I think you would always have to see that.
Any changes -- we have an election pretty soon, and there will be differences in approaches when we get done with the election.
But any changes in other sectors like Medicaid leads to cost shifting and increased pressures on people that are not in those programs, payers that are paying for members that are not in those programs.
So that would be one of the unknowns that could have a major effect one way or another on health costs.
I don't know if that answers your question.
Bill McKeever - Analyst
Yes, it does.
That's helpful.
And then just a follow-up.
After the election, if there is some initiative to do something about the uninsured marketplace, would you say in general that the New York market has more than its fair share of the uninsured, given the fairly high concentration of small group?
Dr. Michael A. Stocker - President, CEO, Board Member
It does, yes.
I think they are at -- help me here -- the last I heard was 15 percent.
That's an estimate.
But yes, it is higher than the national average.
New York actually has more programs to kind of support people without health insurance than most states, but it still has a high rate of people who are uninsured, many of whom are employed, as you know.
And obviously, that will be a big issue, no matter what happens, after the election.
Operator
Patrick Hojlo, Credit Suisse First Boston.
Patrick Hojlo - Analyst
A question for you about -- actually, a follow-up to your response to Christine's question.
It sound like you're thinking cost trends are going to go down in '05, at least slightly, from where they are right now.
Can you give a little more detail on what you see declining next year?
John Remshard - SVP, CFO
What I am really saying here is I think we have seeing costs to be fairly consistent this year.
And where the trend changes is when you compare the PMPM to last year, to the prior period's base year.
And I maintain that last year was low because of the extensive amount of favorable prior-period development that people were recording.
And consequently, that makes it look like, say, 11 percent.
And if you take the same number and the same type of inflationary expectations going next year, compared to this year, the amount is just going to be a little bit lower.
But there are some things.
We have seen some indications that outpatient is stable, down a little bit; bed days are going down a bit.
And drug bounces around all the time, but we think we expect to see a couple of point improvement in our drug costs.
So for us specifically, we think that those factors will probably offset some inflationary increases, and allow us to stay fairly stable in the market going next year.
Patrick Hojlo - Analyst
Makes sense.
One other question on the deNovis issue.
Any recourse against them or IBM for money already spent?
Dr. Michael A. Stocker - President, CEO, Board Member
You know, over three years -- we have looked at this -- we've spent less than $1 million on the -- and most of that was management time.
So we really don't have a significant investment in deNovis, anyway.
So there is very little downside.
We have always been very clear about that.
So there is very little downside, and we always knew that it was speculative.
We just thought that the technology was better than anything that is currently in the market.
Patrick Hojlo - Analyst
Is the technology now transferred to IBM, or is there anything --?
Dr. Michael A. Stocker - President, CEO, Board Member
No.
We don't know.
That's just an unknown.
This really happen very recently;
I guess it happened Friday, but we did not hear about it until Monday.
So it is uncertain what happens to the assets.
Patrick Hojlo - Analyst
One last question on the whole Spitzer investigation issue.
Can you just tell us what sort of internal review you're doing, just checking with some of your folks, to make sure that nobody out there in your ranks is violating your own internal policies against any of these inappropriate actions or activities?
Dr. Michael A. Stocker - President, CEO, Board Member
Yes.
I tried to address that before, but let me do it in a little bit more detail.
We went through our internal policies right away, and we discussed the matter with management responsible for broker relationships in submitting bids, which are the two areas that would be affected.
Based on our review, we're confident that we have not engaged in any potential criminal practices, such as bid rigging or sham bids or any other things that were talked about in the category, and that our practices and procedures are consistent with applicable legal requirements.
We have a very elaborate code of ethics.
We have a 24-hour anonymous ethics hotline.
We have made it clear that everybody has access to those.
And maybe part of it is because we are concentrated in a single market and are relatively close to the business.
We're confident we did not engage in those activities, if you're talking about the clear criminal activities discussed in the paper.
The other issue is the incentive payments, and I think I addressed those in my comments.
Operator
Eugene Chen SuttonBrook Capital Management - Security Analyst
Eugene Chen - Analyst
I was writing down very quickly;
I just wanted to make sure.
Cash at the holdco now is 556?
John Remshard - SVP, CFO
Yes.
You got it right, Gene.
Eugene Chen - Analyst
So kind of rolling forward, by the end of the year, would price be somewhere around the 615 range or something like that?
If you could just go back to one of your comments earlier on uses of cash at the holdco, you made a comment that, obviously, a buyback would impact float.
But I didn't quite understand your comments about why a special dividend would not necessarily make sense.
Dr. Michael A. Stocker - President, CEO, Board Member
Let me go through that.
And some of this is addressing conversations that I have had over the past year.
I just wanted to point out that if we do a dividend, obviously it's going to go to all shareholders, and almost two-thirds of it will go to the state, not to the -- my guess is -- I just want to make sure that everybody knows that.
As everybody knows, the state needs to sell down to 50 percent by this time, pretty much, next year, by November 7th next year.
And it's important that we cooperate with them.
And so far, our relationship has been very good that we get that done.
So that's our primary interest, in terms of the fund.
Honestly, I'm not certain that if we add a big dividend to the state, that that helps us, in terms of their selling down.
Eugene Chen - Analyst
Of course.
Obviously, those monies could be used to buy back shares from the state, but I guess -- I don't know how you guys think about it, as -- are there -- it doesn't have to be one or the other.
Is there any thought in terms of a special dividend and some buyback?
Because I certainly think, with close to $7.50 of cash on the balance sheet by the end of the year, that's a lot of capacity, and will continue to build over the next 12 months and into 2005, as well.
Dr. Michael A. Stocker - President, CEO, Board Member
I know what you're thinking, and I am very sympathetic, and I am sensitive about the issue, and we talk about it hugely, both with management and the Board.
The only thing I can say is that we continue to be committed to ensuring that the use of cash is consistent with the best interests of all of our shareholders, and we feel passionately about that.
Eugene Chen - Analyst
And just one last question.
But the state wouldn't -- obviously, they would not look -- they would not frown upon receiving a special dividend for any reason, correct?
Dr. Michael A. Stocker - President, CEO, Board Member
Well, no, I don't think that they would --
Eugene Chen - Analyst
It's just more money into their coffers, so --
Dr. Michael A. Stocker - President, CEO, Board Member
No, I don't think they would mind.
Operator
John Rex, Bear Stearns.
John Rex - Analyst
A question on the component cost trends you provided.
The one that had the biggest change, outpatient, I think you had approved about 200 basis points from the number you reported last quarter.
Was that just a blip in the quarter, or was there anything meaningful going on there to bring that down?
And is that how we should expect that to trend going forward?
John Remshard - SVP, CFO
Outpatient moved from about 13 -- I think we said it was about 13.3 percent when we did the second quarter to about 11.2 percent.
Outpatient is down in the third quarter, and it's a function of utilization.
But, pointed out before, it was running fairly consistent, John, at 13.
If I go back to third quarter 2003, we said it was like 13.5, then 13.9 in the fourth quarter '03 to 13.3 in the first quarter, 13.3 in the second quarter.
And then it flipped down to 11, and I think that's a combination of our contracts working through and, at the same time, utilization.
I don't know whether that is permanent or not;
I'll just be cautious about that.
But we are watching it.
Drugs stayed stable during the whole period of time.
Inpatient was pretty good.
That stayed fairly stable.
And physician costs at about 6.5, 7 percent, that is pretty much what we expect.
That is probably the one element that probably has gone up at a higher level than the others.
So we kind of watch that.
But outpatient, yes, has flipped down, it's true.
And it's utilization-driven, not cost-driven.
And we are just going to watch it.
John Rex - Analyst
It sounds like you highlighted that as one of the elements you could see deceleration in, in '05.
It sounds like you must have some sense that maybe there is some permanent shift in utilization here, or is there some kind of contracting change that impacts you?
John Remshard - SVP, CFO
Well, I think there's two things.
I think the contracting issues that Mike addressed are going to help us address this one.
And the second thing is we think drugs have probably maxed out and will probably get a little bit lower.
But no, I can't say that there is any other thing that's -- there's always some switches between inpatient and outpatient emergency room copays, where increased.
And you're seeing, in a new benefit structure, the buydowns now, as I pointed out earlier, the characteristic has changed away from just increasing drug copays to now they are increasing inpatient and outpatient copays.
And that may have a dampening effect.
How valid it is and how long it lasts -- it's too new.
Whenever you see a change like this, it's just something that signals us to watch it.
John Rex - Analyst
And just on your full-year cash flow guidance, a number of companies have indicated that CMS will be delaying the traditional January payment that was received late December until early January this year.
Do you incorporate that assumption into your 325 million?
John Remshard - SVP, CFO
No.
We have not heard that, and that is not what CMS represents to us.
As I said before, I expect $66 million in the fourth quarter in cash flow coming from a couple of government programs.
Two-thirds of that is CMS.
John Rex - Analyst
Two-thirds of that number?
Just so we can -- a number of other companies have stated that is going to occur, like that payment is going to be January 3rd through 5th this year, so I just wanted to see if that was --
John Remshard - SVP, CFO
We will follow up on that, but we have had no information at all.
Dr. Michael A. Stocker - President, CEO, Board Member
I had not heard that, and you would think that we would.
But we will follow up.
We are surprised.
John Rex - Analyst
A number of companies brought down cash flow for the year on that.
Operator
(OPERATOR INSTRUCTIONS).
Ladies and gentlemen, we have time for one final question.
Eric Veiel, Wachovia Securities.
Eric Veiel - Analyst
I'll be very quick, just two quick points.
One, can you guys give us Medicare+Choice enrollment guidance for 2005?
And secondly, just to maybe put a final point on the cost and price trend discussion, an MCR guidance number or range for 2005 would probably be a --
John Remshard - SVP, CFO
Medical loss ratio -- we have not provided guidance with that yet.
We will probably do that when we do our detailed conference guidance as part of year end.
For Medicare+Choice, we don't put out membership numbers on individual products.
Operator
Ladies and gentlemen, this does conclude today's WellChoice quarter three earnings conference call.
You may now disconnect.
COMPANY DISCLAIMER Some of the information in this transcript could constitute forward-looking information relating to WellChoice's future financial or business performance and reflect management's views as of October 27, 2004.
Forward-looking information is based on management’s estimates, assumptions and projections and is subject to significant uncertainties and other factors, many of which are beyond the company’s control.
Important risk factors could cause future results to differ materially from those estimated by management.
Those risks and uncertainties include but are not limited to: our ability to accurately predict health care costs and to manage those costs through underwriting criteria, quality initiatives and medical management; product design and negotiation of favorable provider reimbursement rates; our ability to maintain or increase our premium rates; possible reductions in enrollment in our health insurance programs or changes in membership; the regional concentration of our business in the New York metropolitan area and the effects of economic downturns in that region or generally; future bio-terrorist activity or other potential public health epidemics; the impact of health care reform and other regulatory matters; the outcome of litigation; and the potential loss of our New York City account.
For a more detailed discussion of these and other important factors that may materially affect WellChoice, please see the company’s filings with the Securities and Exchange Commission, including the discussion of risk factors and historical results of operations and financial condition in its Annual Report on Form 10-K for the year ended December 31, 2003, as amended, its Quarterly Report on Form 10-Q for the period ended March 31, 2004, as amended, its Quarterly Report on Form 10-Q for the period ended June 30, 2004, and its Quarterly Report on Form 10-Q for the period ended September 30, 2004.