Elevance Health Inc (ELV) 2005 Q3 法說會逐字稿

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 26, 2005.

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 products or changes in membership including the loss of either the New York City or the New York State account; 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; and the outcome of litigation.

For a more detailed discussion of these and other important factors that may materially affect WellChoice, please see WellChoice’s filings with the Securities and Exchange Commission, including but not limited to Annual Reports on Form 10-K for the year ended December 31, 2004 and Quarterly Reports on Form 10-Q for the reporting periods of 2005.

At this time, I would like to welcome everyone to the WellChoice third-quarter 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 session. (OPERATOR INSTRUCTIONS).

I would now like to turn the call over Ms. Deborah Bohren, Senior Vice President of Communications.

Thank you, and welcome, everybody, to WellChoice's third-quarter 2005 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 performance, as well as discussing some current issues that we know are of interest to you.

John will then discuss our financial results in more detail, after which we will go to questions.

On today's call, we will be making some forward-looking statements.

Listeners are cautioned that there are factors that could cause 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 and 2005 quarterly reports on Form 10-Q, including the Form 10-Q filed this afternoon for the period ended September 30, 2005.

In connection with the merger, WellPoint and WellChoice expect that a registration statement, which will include a proxy statement/prospectus, will be filed with the SEC.

We urge listeners to review the registration statement if and when it becomes available, because it will contain important information about the merger.

Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation will be set forth in the proxy statement/prospectus when it is filed with the SEC.

You can obtain, free of charge, documents filed with the SEC by WellPoint or WellChoice by visiting the SEC's website at SEC.gov, or by contacting the investor relations department of WellChoice or WellPoint.

In addition, please note that our discussion will include non-GAAP financial measures, such as comparable- basis measures as defined under the SEC rule.

As required by these rules, a reconciliation of those measures to the most comparable GAAP measures is available on our website under the quarterly financial reporting and supplemental data section of the financial reporting tab at www.WellChoice.com/investors.

And with that, I would like to turn the call over to Dr. Stocker.

Good evening, everybody, and thank you for joining us on our third-quarter 2005 earnings conference call.

I suppose the topic of the moment is the merger with WellPoint, and we are very excited about that.

As they had said on their earnings call earlier today, the regulatory review process is moving forward.

We expect to file the proxy by opening of market tomorrow.

We're pleased to report that WellChoice continues to deliver strong financial performance.

For the third quarter 2005, reported net income was $75.7 million or $0.89 per diluted share.

This is $0.01 above the top end of our guidance and $0.02 above First Call consensus.

We are raising our full-year 2005 earnings per share from a range of $3.37 to $3.43 per diluted share -- that's based on 85 million average shares outstanding -- to a range of $3.41 to $3.45 per share.

For the fourth quarter of 2005, we expect earnings to be in the range of $0.80 to $0.84 per fully-diluted share.

We are reaffirming our 2005 core Commercial Managed Care membership guidance in the range of 5 to 6%.

In fact, we anticipate that we will be at the upper end of that range by year end.

Because of the pending merger, we are not providing any guidance at this time for 2006.

I would like to talk a little bit now about key enrollment gains for the third quarter and for the first nine months.

Enrollment in our core Commercial Managed Care products -- that excludes New York City and the New York State accounts -- was 2,657,000 at the end of the third quarter.

This represents an increase of 118,000 members or 4.6% over third quarter 2004.

It's also an increase of 99,000 members or 3.9% since December 31, 2004.

Overall corporate enrollment membership increased 1.4% during the first nine months of the year.

As you may recall, on our last call, we announced the award of the Suffolk County contract.

This will add 45,000 core Commercial Managed Care lives effective November 1st, and we are moving forward with the implementation of this contract.

Membership in the entire Commercial Managed Care segment, which includes the New York City and New York State accounts, increased by 3% to 4,485,000 compared to the third quarter of 2004.

This is an increase of 104,000 members since year end 2004.

For the quarter ended September 30, 2005, our administrative expense ratio was 14.2% on a GAAP basis, as compared to 15.9% for third quarter 2004.

Converted to a premium equivalent basis, our administrative expense ratio for third quarter 2005 was 8.6% compared to 9.5% for the same period last year.

Some financial issues -- at the last call, we announced the installation of My Health Record on 3.6 million of our members.

That's a relatively dense health record that's made up of claims, pharmacy and lab data that our members can access.

I'm happy to say that 30,000 members in this three-month period of time have accessed their records.

Interestingly enough and hopefully enough, several of them, not a large number of our members, who were caught up in Hurricane Katrina accessed the records when they were unable to get records, either because they were destroyed or they could not get access to the records.

And it helped to prove the utility of having an online personal health record available to our members.

In this quarter, we have installed the ability for our members to download this information to their doctors or to an emergency room.

For our members who use the Internet, the most highly desired feature that we can provide to them is the ability to talk to their doctors online, have access to their medical records and download those records as they wish.

Remember that in September we announced that WellChoice was selected as the vendor of choice for the prescription drug contract for the New York State account.

Under this contract, we will collaborate with Caremark, our pharmacy benefit management provider, to provide prescription drug benefits to the approximately 998,000 employees, dependents and retirees currently covered under the Empire plan for hospital contracts for whom we provide hospital coverage.

We anticipate that we will receive between $1.3 and $1.5 billion in revenue from this contract, a portion of which will be paid to Caremark for the services that they provide.

Since our announcement in September, we have engaged in negotiations with the New York State department of civil service, and are moving forward for a January 1, 2006 effective date.

With that, I'm going to turn the call over to John.

I think, as you look at our numbers, you'll see that we have had a very strong fundamental quarter in all respects.

We reported net income for the third quarter of $75.7 million or $0.89 per fully-diluted share.

This is $0.01 higher than the high end of our guidance and $0.02 over the First Call consensus estimate.

This brings our earnings to $2.61 per diluted share for the nine-month period, an increase of $0.38 or 17% per fully-diluted share over the prior year.

For membership, our core Commercial Managed Care membership, excluding the New York City and State PPO accounts, grew by 3.9% to 2.7 million members as of September 30th, compared to the prior year end.

Strong small group and middle-market and national account membership growth continues to drive these increases.

Compared to year end 2004, membership in the Commercial Managed Care segment as a whole, which includes the City and State accounts, grew by 2.4% to 4.49 million members.

Since year end, total corporate membership grew by 1.4% to 5,024,000 members.

Members in our Other Insurance Products and Services segment continued to decline and declined by 6.1% to 539,000 members.

National account membership continued to grow, and is now 1.3 million members, a 3.2% increase since year end.

Our small group and middle-market membership grew to 499,000 members, a 5.7% increase.

And this has continued to be driven by strong HMO growth.

Self-funded membership increased by 1.9% to approximately 2 million members, and now represents 39.6% of our total membership compared to 39.4% in December.

Sequentially, core Commercial Managed Care membership increased by 26,000 members or 1%, due to continued strong growth in small group and middle-market membership.

For revenues, total corporate revenues were $4.9 billion for the nine-month period, an increase of approximately 12.2% over the prior year.

Total revenues in our Commercial Managed Care segment were $4.2 billion, an increase of 14.2%.

Total revenues in our Other Insurance Products and Services segment increased by 1.1% to $681.1 million.

Insured premiums for all segments increased to $4.4 billion for the nine-month period, an 11.9% increase from a year ago.

Premiums for our core Commercial Managed Care business grew 14.3% over the prior year, while premiums for our Managed Care business, including the City and State accounts, increased by 13.8% to $3.8 billion.

Premiums for Other Insurance Products and Services segment for the period were fairly flat when compared to a year ago.

Service fees totaled $421.8 million for the nine-month period, a 12.9% increase compared to last year.

As you look at our corporate medical loss ratio for the nine-month period, it was 86.6%, a 50 basis point increase from the same period last year.

After eliminating the impact of the pool refunds and the litigation adjustments which we reported last quarter, the core Commercial Managed Care medical loss ratio for the nine months was 83.6%, a 90 basis point increase from the prior year and well within our expectations.

Our guidance for the year was 83 to 84%.

For the third quarter, core Commercial Managed Care medical loss ratio was 83.8% and has trended fairly stable since the fourth quarter of 2004.

On a year-to-date basis, the premium yield for our core Commercial Managed Care book was 8.5%, and the change in claim costs per member per month year over year was 9.8%.

Now, I'd like to stop when I give you that and say that we price to trend.

As you know, when you price to trend, the loss ratio -- the claim amount never constitutes 100% of your premium, so you're libel to creep up a little bit in your MLR.

But from a financial point of view, I'd like to point out that in 2002, our underwriting margin was 3.6%.

It increased to 5.2% in 2003, 5.6% in 2004, and has now moved to 5.9%, a 30 basis point increase year over year.

So this shows that our pricing discipline is good and that our methodologies have worked.

On a component basis, we experienced a per member per month claim cost increase for inpatient services of 11.6%, 14.2% for outpatient services and 7.7% for medical.

Drug continued to go at double digits, at 11.1% for the nine-month period.

We continue to develop our premium rates, considering medical trends in the 11 to 13% range, depending on the product.

As we noted in our press release, we experienced $600,000 of net positive prior-period development during the quarter, which is a good thing.

And our days claim payable was 55.2 days, which is an improvement of 1.6 days -- an increase of 1.6 days more than the 53.6 days reported in the prior quarter.

This is a good fundamental change.

For our third quarter administrative costs, we continued to achieve improvements in this, just as we saw in the prior year, through a combination of continued expense discipline and improved operating efficiencies.

As reported, our administrative expense ratio for the nine-month period was 15%, an 80 basis point reduction from the prior-year nine months.

Excluding the second-quarter litigation charge of $20 million, our administrative expense ratio for the nine-month period is 14.6%, a 120 basis point reduction from the prior-year nine-month period.

For the quarter, our administrative expense ratio was 14.2%, a 170 basis point reduction from the third quarter of 2004.

We are proud of the premium equivalent ratio, which continues to show improvement.

Premium equivalents are the sum of the premium, service fees and paid claims attributable to our self-funded business, for which we provide a range of services, as you know.

On a premium equivalent basis, the administrative expense ratio for the nine months, excluding the litigation charge we mentioned previously, showed a 90 basis point improvement and is now 8.8% compared to 9.7% for the prior year.

Cash flow for the nine-month period was very strong, and totaled $482.5 million.

Total shareholders' equity was $1.9 billion as of September 30th, an improvement of $229.3 million or 13.6% from year end.

WellChoice continues to have no debt on its balance sheet.

As of the end of the quarter, total investments and cash and cash equivalents at WellChoice, the parent holding company, totaled $828.5 million.

All other components of the standalone condensed balance sheet of WellChoice are provided in the liquidity and capital resources section of our quarterly report on Form 10-Q, which we filed earlier today.

Investment income and realized gains increased by $13.8 million for the nine-month period and totaled 64.6 million compared to last year.

This concludes our overall review of the third quarter of 2005's operating results.

Now, I will discuss guidance for a couple minutes.

For the full year, as Mike pointed out, we are raising our guidance.

We now expect earnings per share of $3.41 to $3.45, based on 85 million average diluted shares outstanding.

For the fourth quarter, we expect fully-diluted earnings per share of $0.80 to $0.84.

For the full year, we now expect cash flow in the range of $600 million.

And we are confirming our membership growth to be in the range of 5 to 6% for our core Commercial Managed Care business, 2 to 3% for the total corporation.

And with that I will return it to Mike for a summary comment.

Thanks, John.

We are ready to take questions.

(OPERATOR INSTRUCTIONS).

Christine Arnold, Morgan Stanley.

Could you talk about new account flow going into 2006 and how it compares to 2005?

And if you are not giving specific number type information about '06, can you give us some qualitative data?

Christine, I want to make sure I -- when you said new account for 2006 --

Yes, like the Blue Card, the self-insured memberships, some qualitative idea of kind of whether you are seeing more flow, less flow, whether it is accounts out to bid, or what you are seeing.

Actually, we have said this on previous calls.

It's good.

If I say any more, I'm going to actually get into specific numbers, which I don't really want to do, but it's good.

My follow-up relates to the New York State drug plan and the fact that you're going to be picking that up.

You've talked about the revenue, but I think there's a wide range of kind of earnings expectations for that and shares for you versus Caremark.

Can you comment on how we should think about that?

I would think about that the same way as you think about the City and State account currently.

We haven't provided any guidance on the profitability of it, but I think it's a large account; it's over 900,000 members.

We have estimated the revenue in the $1.3 billion to $1.5 billion range.

And I think, as far as profitability, it is certainly within our expectations and certainly what we had anticipated, and it's going to be at the same level of profitability as you would think the current City and State accounts are.

So can I take the same kind of operating margin irrespective of Caremark, or then do I have to make an assumption that that's split between you and Caremark after I have taken the margin that I look at for City/State?

Well, I don't want to go that much further than I already have, because now we're getting into the detailed guidance for next year, but it's a really solid account and we are really pleased to have it.

Carl McDonald, CIBC.

It sounds like the components of cost trend ticked up for each component, third quarter relative to what you had talked about last quarter.

Could you just walk through and give us a sense for whether that was unit-cost-driven, utilization-driven?

Yes, I'll do that.

But I think we've seen the medical costs be fairly stable.

We haven't seen a whole lot -- what it changes is a lot -- is year over year.

If we look at the cost trends, we are seeing overall cost trends of about 9.8%.

If you break that down, we are seeing inpatient at 11.6%, and we split inpatient utilization of 0.9% versus 10.5%, 10.6% from cost.

So that's a unit-cost-driven event.

For outpatient, it's -- outpatient we do not split between units -- or between utilization and unit costs, primarily because there's no really clear way to do that.

But that continues double digits at 14.2%.

Medical at 7.7% with 7% of that, the 7% being utilization and a little -- around 0.5 points for unit costs.

Drug, at 11.1, with 3% for utilization and 7.8% for cost.

And remember, when you're comparing the numbers year over year and you're looking at quarter to quarter, I always think quarters jump around.

They jump around a lot.

If you go back to 2004, you'll see there was some really shifting in the first to second quarter of 2004 that evened out over the six-month period.

So for this year, in the medical trends, we see it no different than we saw before, running at about 9.8%, fairly stable.

And just to follow up on the New York State pharmacy contract, the $1.3 to $1.5 billion in revenue that you talked about -- as we model that out for 2006, should we assume that's the amount of revenue that you will recognize on the financial statements?

Or is that the total amount of revenue, a portion of which is then going to go to Caremark?

Well, as we point out, that's the total amount of revenue.

We will recognize that, and whenever we pay to Caremark on a fee basis we will pay.

So that will flow through from an expense perspective?

That will flow through our financials, yes.

Matthew Borsch, Goldman Sachs.

I had a follow-up question on the Empire plan, as well, which is -- and maybe you covered this before.

But it looks like, with the member count and the revenue, that the PMPM looks extraordinarily high for what you'd expect from a pharmacy account.

Can you just straighten me out on that?

Yes, there's a large segment of retiree population in that, and that always will skew a drug plan.

So that's what is really driving the PMPMs.

Oh, got it.

Okay, that makes sense.

And maybe, to ask a question on a different topic, which is on medical cost trend -- if I got the gist of your comments, it was really that cost trends have sort of neither moved up nor down for most of this year.

If we sort of step back and look at it on a multiyear basis, is it fair to say that in this region, what you guys saw was cost trends step down in the period after September 11th, and then it pretty much remained stable since then, that you haven't seen the kind of deceleration that has been talked about in some other markets?

Yes, I don't think we've seen a deceleration.

I think what we've commented on before is, subsequent to 9-11, you saw a big falloff in elective activities -- elective surgical activities, especially -- that never came back.

And then, it started just normalizing into 2004, and everybody started saying, well, you had all that positive PPD in 2004 because of all the breakdown that started being recognized in 2002 and 2003.

This year and last year, I think we've been very stable and very consistent.

The only thing that we look at very closely is the outpatient.

You see a little movement in the outpatient.

We have done a lot of stuff with that, as far as looking at site of service and programs for imaging and and Ambulatory Surgery - things of that nature -- physical therapy.

And outside of that, it has been fairly consistent.

And maybe just sneak one last one in here -- since it may be my last chance -- on competitive conditions versus last quarter?

You mean competitive conditions in the local markets?

Yes.

I have to say -- it sounds boring, but we don't see irrational pricing, and the market seems -- it's competitive, but it doesn't seem irrational.

And the market seems -- honestly, the level of competition seems pretty much the same as it was this time last year.

(OPERATOR INSTRUCTIONS).

Patrick Hojlo, CSFB.

A question on the investment income number -- last quarter, you suggested we were at roughly a run rate number.

It actually ticked up by about $3 million this quarter, sequentially.

Something one-time in there, or is that a reasonable run rate at this point?

No, that's pretty reasonable.

That's a tickup in two things.

Strong cash flow -- our cash flow this year, you see, is very strong.

And we have increased the guidance about $600 million.

And the second thing is interest rates.

When you have a lot of new cash coming in at a marginally higher rate, that's what it does.

So actually, realized gains have been fairly consistent year over year, so there's nothing unusual in that.

That's just pure fixed income both with strong cash flow and an uptick in interest rates.

What is the duration of your portfolio?

How rapidly could you turn it over?

The health-care expenses is pretty short-tail, so you have a pretty small duration.

I don't have that number off the top of my head, but I'd say that our claims mature rather fast, at six to nine months.

So we don't go out that far, in terms of the duration of our investment portfolio.

What is left to be done with the New York State pharmacy contract?

Is there any onetime spending or CapEx to be anticipated, that we should anticipate next quarter or the following?

Or this current quarter or the following, I should say.

No, not really.

The way this is traditionally done, we are still negotiating the final details of the contract, but we are also going ahead with implementation.

We don't expect any one-time charges.

John Rex, Bear Stearns.

First, on medical costs and kind of an interrelation with revenues and everything, first, thinking about the experience-rated account, the New York City/New York State account, was there unusually high claims volume flowing through this quarter from what you would normally expect for 3Q?

I know Q2 is normally quite big, and we usually expect it to step down a bit in Q3.

Was that somewhat higher?

Was that impacting your consolidated --?

Clearly, it was impacting your consolidated MCR, but --

No, I didn't see anything unusual in what we would have expected.

We were right in target, as far as our projections.

No, I didn't see anything unusual coming in claim costs on City and State accounts.

So, it wasn't a higher number?

Typically, you have talked in the past that it is seasonally high in 2Q, in terms of claim costs that flow through there, and we've often seen a step-down when you go to the 3Q.

It didn't appear that we saw that step-down this quarter.

I was just wondering if there was -- on that experience-rated account, if there's anything else going on there?

No.

Be careful with last year.

Last year, the second quarter was higher because of the negative PPD.

So this year in the third quarter -- well, what we're saying is the first and third quarter tends to be the strongest.

And the third quarter operated -- I didn't see anything unusual in claim costs or anything else in the third quarter.

And then, if we adjust 2Q Commercial Managed Care MCR after New York City and New York State for the settlement costs -- for fixed costs that were running through last quarter.

It looks like -- is it correct there was just a slight uptick in that adjusted level sequentially?

Maybe 30 basis points or so, it looks like?

Actually, if you look at the third quarter -- if you adjust the second quarter for the numbers we gave out for the Reg 146 pool numbers, the second quarter comes out to 83.5, and the third quarter is 83.8.

So it did step up about 30 basis points, then?

Yes, it did.

But it's sort of what we expected.

You're going to see some bounce in that quarter to quarter.

We still feel strong that we are going to be in for the year.

And don't forget to notice -- in terms of the way you look at the fundamentals, don't forget to notice that we are very consistent and very conservative on the reserving, and that our days claim payable for the third quarter is up 1.6 days.

Good point.

-- with the same number of processing days as you have in the second quarter.

So I like to keep the reserves very conservative, especially when you continue to see strong growth in the small and middle-market, especially in HMO.

And then, just on operating cash flow for the quarter, any kind of adjustments we need to make to normalize that?

Yes, a couple of things about the cash flow.

In the third quarter, the way the days fell on a weekend, you wound up with a fourth CMS payment.

And that's worth about $45 million, so that brings up the quarter.

The other thing we consider, when we give you the guidance on our annual cash flow, is anticipation of withdrawals or dividend requests from the state, as the state amasses a surplus in its account and then can draw down on that.

And they have not drawn down on any of their surpluses this year, and they have built it up considerably since last year.

So that's also a positive in the cash flow.

But the big thing that's discriminating about the third quarter would be the additional CMS payments.

Charles Boorady, Citigroup.

I understand you can't, for legal reasons, give us guidance on '06.

I wonder if you can give us some actuals on where you stand today with respect to new accounts booked with a 1/1 effective date, and any accounts you're losing with a 1/1 effective date?

Other than what I just said previously, I really can't.

Even actuals to date without really giving any guidance for next year?

Is that for legal reasons, deal-related as well?

Or is it --?

That's the reason.

Also, especially for national accounts, we are right in the middle of open enrollment for a large number of accounts.

But the real reason is that, other than what I just said, it looks good, and I don't feel like I can go any further than that.

The Medicare Advantage -- I know you launched some new products since September, and I'm wondering what your -- if the growth is meeting your expectations, and when you might expect to see a pickup in Medicare Advantage.

I haven't seen very aggressive marketing in this market.

Is that a product that you're pushing aggressively, or waiting to see how Part D pans out?

We're optimistic about that business.

As you know, there's a lot of product changes that start January 1st.

But in general, we're optimistic about the business and feel good about it.

I don't know how else to answer you.

Can you say roughly what your marketing budget is, and how it's been trending for Medicare Part D and Medicare Advantage?

We haven't really commented on the marketing, budget for that stuff.

But others have pointed out they are spending a lot of money on it.

We are primarily downstate in our area.

We don't have a large amount of dollars that we are spending in marketing these programs.

It's not material to us.

Just a final numbers question on how much of the -- you gave cash flow guidance for the year, and you gave your free cash at the parent for end of third quarter.

What is your sense of how much the additional cash you're generating can make it up to the parent, or what a year-end free cash at parent number might be?

Well we said pretty consistently that we have sufficient resources in our subsidiaries that we could dividend 100% of our earnings up to the parent company.

That would bring it around $1 billion.

Carl McDonald, CIBC.

Is $0.20 a reasonable number to think about for options expense next year?

Carl, we haven't said that.

We haven't put out any guidance on that.

But it's a nice estimate.

Are there any changes to the options program, relative to what you're doing this year, that you anticipate for next year that would make the options expense we have seen so far this year any different next year or significantly different?

No, we are not changing anything.

We haven't changed anything.

How many lives do you outsource to Magellan for your behavioral health contract?

I don't think we've ever -- Mike you want to comment?

I don't think we ever (multiple speakers).

You know, first of all, I'm not certain of the answer.

And second, I don't think we've ever commented on that before.

And is there anything special in your --

Hold on.

We're actually -- thank you for asking this question.

We are talking about it.

Okay, and what is it?

It's in the Q. It's about 800,000 lives.

And is there anything special, in terms of your arrangement with Magellan, that would be different than a normal outsourced contract, in terms of risk sharing or anything along those lines?

No.

We haven't changed -- that contract has been unchanged for a long time.

We were satisfied with the performance of Magellan.

The only thing we ever commented on before was when Magellan has a problem, we were holding reserves, so there wasn't any financial issues.

But no; there's nothing unusual about it.

And, ladies and gentlemen, this does conclude our WellChoice third-quarter earnings conference call.

We appreciate your joining.

You may now disconnect.

ADDITIONAL INFORMATION AND WHERE TO FIND IT This communication is being made in respect of the proposed merger transaction involving WellPoint and WellChoice.

In connection with the proposed transaction, WellPoint and WellChoice will prepare a registration statement on Form S-4, containing a proxy statement/prospectus for the stockholders of WellChoice to be filed with the SEC and each will be filing other documents regarding the proposed transaction with the SEC as well.

BEFORE MAKING ANY VOTING OR INVESTMENT DECISION, INVESTORS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS REGARDING THE PROPOSED TRANSACTION AND ANY OTHER RELEVANT DOCUMENTS CAREFULLY IN THEIR ENTIRETY WHEN THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION.

The final proxy statement/prospectus will be mailed to WellChoice's stockholders.

Investors and security holders will be able to receive the registration statement containing the proxy statement/prospectus and other documents free of charge at the SEC's web site, www.sec.gov, from WellPoint Investor Relations at 120 Monument Circle, Indianapolis, Indiana 46204, or from WellChoice Investor Relations at 11 West 42nd Street, New York, New York 10036.

PARTICIPANTS IN SOLICITATION WellPoint, WellChoice and their directors and executive officers and other members of management and employees may be deemed to be participants in the solicitation of proxies in respect of the proposed transaction.

Information regarding WellPoint' s directors and executive officers is available in WellPoint's proxy statement for its 2005 annual meeting of shareholders, which was filed with the SEC on April 8, 2005, and information regarding WellChoice's directors and executive officers is available in WellChoice's proxy statement for its 2005 annual meeting of stockholders, which was filed with SEC on March 28, 2005.

Information regarding the persons who may, under the rules of the SEC, be considered participants in the solicitation of WellChoice stockholders in connection with the proposed transaction will be set forth in the proxy statement/prospectus when it is filed with the SEC.