Humana Inc (HUM) 2008 Q3 法說會逐字稿

Good morning; my name is Katina and I will be your conference operator today. At this time I would like to welcome everyone to the Humana third-quarter 2008 earnings release 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 to Regina Nethery, Vice President of Investor Relations. Thank you. Ms. Nethery, you may begin your conference.

Good morning and thank you for joining us, particularly at this very early hour. Given market volatility over the past several weeks our team has worked together to ensure our financial results were released more quickly than we had previously anticipated, though with the same level of confidence and comprehensive detail that investors have come to expect from Humana. Previous scheduling commitments resulted in the unusually early time for the earnings release and conference call today, but we fully anticipate being back to our standard timing of a 6:00 a.m. release and a 9:00 a.m. conference call next quarter.

In a moment Mike McCallister, Humana's President and Chief Executive Officer, and Jim Bloem, Senior Vice President and Chief Financial Officer, will briefly discuss highlights from our third-quarter 2008 results as well as comment on our earnings outlook. Following these prepared remarks we will open up the lines for a question-and-answer session with industry analysts. Joining Mike and Jim for the Q&A session will be Jim Murray, our Chief Operating Officer, and Chris Todoroff, Senior Vice President and General Counsel. We encourage the investing public and media to listen in to both management's prepared remarks and the related Q&A with analysts.

This call is being recorded for replay purposes. That replay will be available on Humana's website, Humana.com, later today. This call is also being simulcast via the Internet along with a virtual slide presentation. For those of you who have company firewall issues and cannot access the live presentation, an Adobe version of the slides has been posted to the Investor Relations section of Humana's website.

Before we begin our discussion I need to cover a few other items. First our cautionary statement -- certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our most recent filings with the Securities and Exchange Commission. All of our SEC filings are available via the investor relations page of Humana's website as well as on the SEC's website.

Additionally, investors are advised to read Humana's third-quarter 2008 earnings press release issued this morning on October 27, 2008. This press release and other historical financial news releases are also available on our website.

Second, this morning's call and slide presentation include references to non-GAAP financial measures. The Company believes that these non-GAAP measures, when presented in conjunction with comparable GAAP measures, are useful to both management and its investors in analyzing the Company's ongoing business and operating performance since the non-GAAP adjustments relate to items that were primarily not related to the underwriting or servicing of our products.

Internally management uses this non-GAAP information as indicative of business performance as well as for operational planning and decision-making purposes. non-GAAP financial measures should be considered in addition to but not a substitute for or superior to financial measures prepared in accordance with GAAP. This slide details the reconciliations of GAAP to non-GAAP financial measures used in conjunction with this presentation.

Finally, any references to earnings per share, or EPS, made in this morning's call refer to diluted earnings per common share. With that I'll turn the call over to Mike McCallister.

Thank you for joining us this morning. As you know, today we reported third-quarter earnings of $1.09 per share. These results include realized losses of $0.40 per share primarily associated with other than temporary investment impairments. Excluding those investment losses our operating results were $1.49 per share in the quarter, at the upper end of our prior guidance of $1.45 to $1.50.

Because our investment portfolio is large, diverse and conservatively managed we were fairly well immunized against the negative effects of the world financial situation during the quarter. Jim Bloem will discuss the adjustments made to our invested assets this quarter in his remarks.

The quarter's major take away is that all our important operating metrics came in as planned. Moreover, with just two months left in the calendar year, the end of the PDP issue we disclosed in March is plainly in sight. Nothing in the third quarter caused us to change our view of the previously discussed impact of this issue on our 2008 full-year results. As I said on the last two calls, the situation was confined only to PDP, has no affect on our other operations and will not adversely impact our results in future years.

Turning now to 2009, in light of the favorable operating results noted above and our ability to correct our PDP issue, we anticipate solid EPS improvement next year. Earnings-per-share are forecast to be $5.90 to $6.10 for 2009, a return to our previous growth trajectory. I'll now review the quarter's company specific highlights, then make a few comments on the presidential election before turning to our prospects for 2009.

As we previously disclosed, our 2009 PDP bids were above the benchmark in all 34 regions. This will result in the loss of approximately 308,000 auto assigned seniors next year. Based on our analysis of our competitive positioning across all PDP offerings, we estimate losing a total of 650,000 to 750,000 PDP members which include the 308,000 auto assigned seniors I cited a moment ago. For 2009 we again filed our bids with CMS in line with our pharmacy claims experience.

On the Medicare Advantage side, our 2009 pricing was adjusted to give us the optimum balance between premium and benefits. As we have also discussed with you before, we bid appropriately based on our cost. We believe the introduction of member premiums in '09 will prove to be a prudent and successful contribution to our strategy of long-term sustainable Medicare Advantage growth.

The commercial segment produced in-line results. We're pleased to see growing interest by employers in our specialty and voluntary benefits business lines enabled by the acquisitions of KMG America and Comp Benefits. In addition, we saw a continuing shift to our preferred business mix, individual, small group, ASO and consumer plans.

Later in the fourth quarter we expect to close on our acquisition of Cariten which also enhances our provider network and our unit cost positioning in Tennessee. Cariten adds 120,000 new Medicare Advantage and commercial members, primarily in the eastern part of the state. And finally, we were pleased to welcome Marissa Peterson to our Board of Directors this quarter. Marissa's consumer-focused approach to operational leadership during her years as Executive Vice President of Worldwide Operations for Sun Microsystems makes her an ideal addition to our Board.

As we think about the upcoming election three points stand out with respect to its likely impact on Humana. First, we have successfully partnered with government for more than 20 years. During that time there have been Democratic presidents and Republican congresses, Republican presidents and Democratic congresses and so on.

There is no permutation we have not experienced or successfully managed, nor is there any aspect of government health benefits contracting, Federal Employees Health Benefits Plan, TRICARE, the Veterans Administration's Project Hero, Medicare and Medicaid that we've not undertaken, with good results, through each of these political environments. The same is true today.

Second, regardless of who is elected president the overriding health policy issue is cost. Working with Congress and the private sector, the new president must find a way to harness Medicare expenses. Traditional Medicare has no internal cost controls, no care coordination, no disease management, no data mining, and no health and wellness programs. Only Medicare bandage as the ability to control costs while improving health outcomes for our nation's seniors.

Finally, as a leader in this popular program, we're prepared to work with the new administration to solve once and for all this vexing public policy problem before the massive influx of retiring baby boomers which begins in 2011. In fact we don't see any path the government can reasonably take besides continuing to partner with the private sector. The only other alternatives -- cutting benefits for seniors or raising taxes significantly for every one -- won't solve the problem which is rising costs.

Since our investor Day is less than a month away I'll keep my remarks on our businesses brief this morning. Leaders in these areas will be reviewing our operations with you in much more depth in New York on November 20th.

Medicare for Humana next year is a disciplined execution story. We've told you in the past about our differentiated Medicare value proposition which includes wellness and guidance features like SmartSummary Rx, medication therapy management and Silver Sneakers. In the next two years we will be extremely focused on network development and further enhancing our clinical processes.

Our career sales force continues to be a strong competitive advantage for us, nearly 35% of our career sales agents have at least three years of Humana experience, many have been with us over five years and about 60 agents have been with Humana more than 10 years. These agents are supported by a well tenured team of telesales agents as well. I share these statistics with you today as we believe they are a testament to the loyalty of this team and, in light of our significant growth, their effectiveness.

Our utilization management and clinical programs continue to produce significant cost savings and improved health outcomes for our Medicare Advantage members. And our ahead of the curve network development efforts position us well for growth in increasingly popular PPO products and also for the new meta MIPPA mandated private fee for service network requirements that go into effect two years from now.

Turning to our Medicare bandage growth for 2009, we have guided this morning to net membership gains of 50,000 new members at the midpoint. This is, of course, lower than what we were able to do in prior years. This slide outlines one of the reasons. Although we are confident in our ability to continue to leverage our sales model to drive new membership, it is clear we have competitors that are being quite aggressive with both lower premiums and very rich benefits.

Let me take a moment to explain why is the positioning of our benefit designs and premiums are important this year from two perspectives. One, we have significant multi-year experience with Medicare Advantage products and are very confident that our medical expense assumptions are understood and accurately reflected in our premium benefit mix. Two, we have always known that these products would ultimately require a premium from the member to both reflect cost trends and government payment levels.

While we historically have had many counties with zero premium products, especially with the newer private fee for service offerings, 2009 becomes an important inflection point as we introduce member premiums across the country in preparation for the future and to reflect our cost.

We are also continuing our movement away from independent agents for distribution. We have never been deeply dependent on this channel, but it is clear that our use of the agent channel will be narrowly focused on agents who are exclusive to Humana and willing to offer our products based on total value to the senior population and not just price.

While I consider our approach to the market to be sound actuarially and smart strategically, given the current competitive environment we find ourselves facing a challenging sales season. The good news is that despite this environment we're positioned to achieve growth in net membership in 2009 that will produce our targeted 5% pretax operating margin for our Medicare business. We are also confident that this approach serves the long-term interest of our senior members in our government partners and is fiscally sound.

We have a strong track record of assessing the Medicare Advantage sales environment over the last few years and accurately guiding you to our net growth. I am confident that for 2009 we are doing so again. Our commercial segment continues to perform well with pretax operating margins -- pretax operating results up 30% year to date. Over the past three years commercial margins have risen from less than 2% to more than 4% as we've grown membership in our areas of strategic focus -- individual, small group, ASO and consumer -- while achieving a healthy balance between fully insured and ASO business.

Through a combination of our geographic expansion strategy enabled by our Medicare networking and our KMG America and comp benefits specialty product acquisitions we're now able to sell a full range of products in much of the United States, essentially transforming ourselves from a original competitor to a national leader as we've also done in Medicare.

In conclusion our business operations are firmly on track. As the overall health benefits market in both commercial and Medicare continues to evolve toward a consumer-focused approach, Humana is ideally placed to meet businesses, employees and seniors where they are and where they're going. With our operating metrics indicating solid progress we're confident in the growth forecast for 2009 we've given you today.

My colleagues and I look forward to seeing you all in New York on November 20th where we'll have the opportunity to discuss our prospects in more detail. With that I'll turn the call over to Jim Bloem.

Thanks, Mike, and good morning, everyone. As Mike mentioned, we're pleased that the operating performance from each of our business units continues to track closely with our previous guidance. So this morning I will focus my remarks on the following three items -- first, investment income in our portfolio; second, our capital and liquidity positions; and third, our 2009 earnings-per-share guidance.

Before beginning though I'd like to note that our fourth-quarter earnings per-share guidance of $1.00 to $1.10 includes a $0.10 per share impact from lower investment income and higher interest expense. The lower investment income results from much lower short-term rates of return on high-quality investments while the early October spike in LIBOR will be reflected in our fourth-quarter interest expense.

Turning first then to an investment income in our portfolio. The recent turmoil in the credit markets, especially in September, resulted in $108.3 million, or $0.40 per share, of realized investment losses. As we've detailed in today's press release, these losses primarily related to distressed financial institutions.

It's important to note that our previously disclosed holdings in Lehman Brothers, American International Group and agency preferred shares, including those of Fannie Mae and Freddie Mac, accounted for $76 million of the $108 million investment losses or $0.28 of the $0.40 per share. The remaining $33 million or $0.12 per share of realized losses was spread over 22 issuers in the financial services, mortgage and asset-backed municipal and corporate sectors.

The securities of these issuers were identified through the same rigorous process we employ quarterly to evaluate for impairment. This process is described in this morning's press release and in each year's Form 10-K. This quarter securities from 515 issuers were examined for other than temporary impairment. As you might expect, this was a significantly higher number than we've needed to evaluate in past quarters.

At the end of September we had approximately $254 million of unrealized investment losses reflected in our statement of stockholders' equity. After the first three weeks of October net unrealized losses were approximately $312 million. Importantly, this amount constitutes 4.8% of the portfolio versus 6% at September 30 prior to booking the third-quarter realized losses.

Our investment portfolio continues to benefit from broad diversification, high credit quality and short duration. That said, a well diversified $6.5 billion fixed income portfolio can be expected to have some or all of the issuers which resulted in our third-quarter investment losses.

In this morning's press release we've eluded a new statistics page, page S16, which both details our investment and securities lending portfolios by asset class and also gives each portfolio's average credit rating in duration. We trust this additional disclosure will be helpful in your assessment of our investments.

Moving next to capital and liquidity, we continue to have ample capital and liquidity to both meet all financial regulatory requirements and satisfy our obligations. This statement is supported by the following five points.

First, our business produces positive cash flows during periods of increasing enrollment because premiums are collected in advance of claims and other cash disbursements. Our year to date operating cash flows were $686 million and today we reiterated our full-year 2008 operating cash flow guidance of $1 billion to $1.2 billion.

Second, we have full availability under our $1 billion revolving credit agreement. Later in the fourth quarter we expect to draw $250 million of this amount to complete the pending Cariten Healthcare acquisition which we announced August 4th.

Third, based primarily on conditions in the credit markets on October 7, we terminated each of our interest rate swaps. These swaps had exchanged the fixed rate on our Senior Notes to variable LIBOR-based rates. As a result of the swap terminations, we received a total of $108.3 million in cash from all of our former counterparties. Coincidentally this is the exact amount of the third quarter realized investment losses. So the interest rate swap terminations enhance our cash position by the same amount as the predominantly non-cash investment losses.

Fourth, we continue to carry a significant level of aggregate excess statutory capital and surplus in our state regulated operating subsidiaries. We expect to maintain at least the level of aggregate excess capital in surplus in the subsidiaries when the third-quarter statutory filings are completed next month. This is true because our aggregate operating subsidiary earnings is a key to the investment losses that we realized during the quarter.

And finally, we continue to conserve our capital and liquidity in these uncertain times by lowering our 2008 capital expenditures forecast today by $15 million as well as refraining from share repurchases during the third and fourth quarters of this year. Our capital expenditures remain predominantly funded by our depreciation and amortization expenses. Potential share repurchase funding will be used to purchase Cariten by drawing on the revolver. We expect to repay this draw during the first half of 2009.

So now turning finally to 2009, our initial full year's earnings per share guidance range of $5.90 to $6.10 returns us to the earnings per share growth rate trajectory which we've been working on all year. Based on the consistent operating performance of both our government and commercial segments, we're pleased to be able to provide earnings guidance within this range.

While it's obvious that all companies, including ours, can expect the continuing challenges associated with the credit markets, our sound capital position and ample liquidity, together with our consistent operating performance, give us confidence in the forecast that we have shared with you today.

With that we we'll open the lines for your questions. We ask that you limit yourself to two questions in fairness to those waiting in the queue. Operator, will you please introduce the first caller?

(Operator Instructions). Matthew Borsch, Goldman Sachs.

Good morning. If I could ask a question about the Medicare Advantage competitive dynamics. It sounds to me like what's happening is you have adjusted your private fee for service offerings, taking a view of the 2011 Sunset and many of your competitors have not. Is that correct or in fact are you seeing offerings that are more aggressive for 2009 relative to what you saw last year or this year?

Matt, this is Mike. Well, clearly these are more aggressive than we've seen in the past, but I don't know that I would characterize it the way you did. Essentially what we've done is we looked at what our expenses are, we've got several years of experience with this, reflected what we needed to do relative to premium and those expenses and that's what our benefit structure looks like.

And I said it in my comments, it's very important I believe that there be premiums on these products because as we deal with payment changes in the future you're going to need to have that lever in the game as well as just the benefits themselves. So it was an important milestone for us to go to. So yes, we have a long-term view of this. Yes, it has long-term implications to put premiums in there, they're relatively modest but they're there because over the long term we think they're a part of all this.

So we're building networks quickly, you've already seen the data in terms of where we stand in terms of preparedness for 2011, we're well down that road. This is another step and I'll let the competitors speak for themselves as to why they're doing what they're doing and how that works for them. But this is going to be a very good year for us in terms of a couple of key things happening as well as I'd like to be growing more than 50 at the midpoint but it is what it is. We'd rather be disciplined than wrong.

Sure, sure. Absolutely. And if I could just shift gears to the follow-up question here on the commercial side of the business. Could you characterize what you think you're seeing in the commercial markets in terms of pricing going now into 2009 and how that might or might not differ from what you think you were seeing a year ago?

This is Jim Murray. We talked last time about the fact that we were beginning to see some more appropriate pricing in terms of the competitive landscape. I think we're continuing to see that. Obviously in certain markets you'll have a competitor that will do some things that you'll wonder why they're doing that, but generally speaking we've been increasing our pricing over the last several months and last several quarters with the thought in mind that it's going to be a lot more conservative in terms of the pricing environment and we're beginning to see that.

Great, great. Thank you and thanks again for moving up your earnings date.

You're welcome.

Even though it's seven o'clock.

Justin Lake, UBS.

Thanks. I just want to follow up on Matt's question as far as the benefit changes and PFFS. What you gave us is a great look at the absolute benefit right now. But when you look year-over-year -- I've gone back and looked at a few of your larger counties -- and it does look like you've increased the maximum out-of-pockets -- like you added a premium.

It looks like you are lowering benefits to some extent and I'm sure that's a rational approach. I'm just curious what's driving that specifically. Is it some view of cost trend in private fee for service that's increasing that we should be looking for? Or is it some view that margins maybe need to be expanded to make this product sustainable?

This is Jim Murray again. We looked at the costs that we experience month after month and we've also evaluated the premium that we get from CMS. And if you go back and you evaluate what the Medicare fee for service cost trends are, as you look at those as they ultimately pay themselves out over a number of years the fee for service environment experiences trends of 6% to 7% and, as many of you know, in the last several years our amount that we got from Medicare is more in the range of 4%.

And so, as we're implementing all of the cost savings opportunities, the network that Mike talked about earlier as well as the clinical programs, we're just trying to price our products and create benefit structures that take into account the premiums that we get and the costs that we're experiencing. And so as we look into 2009 we felt it was appropriate to make those two changes that you saw. You also will see a bit of a change in our inpatient benefit structures as well compared to last year.

Justin, this is Mike. I need to remind you too that this 5% operating margin that we've targeted has an impact on all that. So we only have four pieces -- the premium, the benefits, the SG&A and the profit and we start with 5% at the profit and we work around that. And so as we look at the balance, how do you get there, we know what the SG&A is going to be, you're going to adjust premiums or benefits around those two givens. And we have to make the right call as to whether you go with benefit reductions in light of the things Jim talked about or whether you put the premiums in or what the right balance is and that's judgment as much as anything.

Just as a quick follow-up, we're not seeing an acceleration in cost. As you look back over the last several years in fact, the Medicare fee for service cost trends are very, very stable in terms of what we can expect each year. And so we feel very comfortable with the benefits and premium position that we put on the table for '09 and we look forward to 2010 and some of the clinical programs that we've talked about for a number of months really starting to bear some fruit.

If you look at those premiums you're seeing out there for the first time, they're in the teens, they vary by market. But we've talked about this before, the way we look at that is our true competition is not the old Medicare program because no one ever goes back there. Our true competition is are they are going to be in a Medigap program, are they going to be in a private fee for service, are they going to be in a PPO? If you look at Medigap premiums, they're quite high. And so we have somewhere between zero and what a Medigap premium looks like to work with here. We're still really at the low-end of what premiums look like here.

That's helpful. And then just my second question is around the membership side. And if you can give us some color around the mix of membership of that 50,000, how do you see your membership changing between PPO, HMO and private fee for service? Maybe talk about the expectation for attrition versus news sales in '09 and '08? And then just maybe tell us how your PPO benefit now compares to private fee for service given what you've done in your private fee for service benefit, maybe compare that to '08 as well.

Sure, there's a lot in there, I'll try to hit them all. We've identified that we believe that we can sell on the low-end 300,000 new members and on the high end maybe as many as 350,000. And then if you look at what our net guidance is you can do the math around the attrition levels. The sales amount is down a little bit from last year and the terminations, as you might expect, are up from last year.

We hope that of the 300,000 we've targeted, at least 50% of those coming from network-based products. We're currently sitting at around 500,000 in HMO offerings, about 175 or thereabouts PPO, and about 700,000 in private fee for service. So if you take all of those data points that I just gave you -- you can get a sense that we're starting to see some amount of acceleration in the network-based plans that are going to be the thing of the future in 2011.

So we feel very good with the way that we've set up our what we call product continuum. And to one of your other questions, the best value that a senior can get would be with an HMO; the second best value would be with a local PPO; next would be a regional PPO; and then a private fee for service plan. And as we've gone market by market we've tried to create that type of product continuum so that people can understand that with the network-based options they'll get more value, lower premium, better benefits as they move up the continuum.

We're also, as we talked about in the past, creating Medicare supplement offerings in all parts of the United States so that we've got a full product continuum for the seniors that we represent. So we feel very good about how this is setting up. We've got two years to get the networks in place and we feel good about how we're positioning all of our products in the different markets and we think -- all for us it is now is, as Mike said earlier, an execution story.

And just quickly, the PPO you said is the second-best value. If I remember correctly, last year PFFS and -- or this year I should say, PFFS and PPO were approximately the same?

I'm sorry, you broke up as your question was being asked, I didn't get it all.

Sure. Just the PPO versus PFFS, was that similar in '08 and now PPO is actually better in '09?

We're starting to try to position the local PPO better than the regional PPO and that would be positioned better than the private fee for service. There may be some, I'll call them dislocations in certain markets because of cost structures and some of the rules you have to follow when you file bids. But generally what we try to do is to create that continuum of our benefit offerings.

Thanks a lot.

Josh Raskin, Barclays Capital.

Thanks, good morning. My question relates to the 2009 guidance around Medicare earnings. And I understand 5% is sort of the target range. But if I think about the guidance for '08 revenues and a 3.5% margin and the '09 revenues and the 5% margin I'm coming up with a difference in earnings of somewhere around $310 million, $320 million and that's obviously lower than what the PDP losses were this year. So is it fair to assume that sort of net net you're not looking really for earnings growth in aggregate when excluding the PDP losses year-over-year?

This is Jim Bloem. That's correct, when you think about the PDP losses that we talked about going back in March, the number that you just mentioned is very close to the number that the PDP losses were. So --.

That 350, is that still the number?

It's a little bit better than that now. As we said in the last call, we sort of come down toward the lower end of that initial range of 330 to 390 and then now we say we're sort of at the bottom or slightly below the bottom of that. And as we work through this new set of benefits, we're just giving you our initial guidance now to see, but it really is to reinforce the point -- the guidance point is to reinforce the point that 5% operating margin is what we are really striving for.

And all the remarks of Jim and Mike regarding what the benefit designs are and whether other people have zero premium or different benefit configurations. We took a proactive cost approach and we looked at the long-term viability and sustainability really of the Medicare program and said that 5% operating margin is what we're after.

Having said that, when we started the 2008 in our estimates for how we were going to do and then had to reduce that by the 350, we now are looking at next year where, although we incurred a loss of 350 on that PDP error, we're going to have 750,000 less PDP members next year. And our profit targets on the PDP business are similar in terms of the MERs that we anticipated year-over-year, but we won't have as many members for which to make that. So I don't know if I'm being clear, but there is going to be some profit improvement as a result of the MAPD business as well because we're losing 750,000 PDP members.

Absolutely, absolutely.

Sorry. I just wanted to make you clear on that.

Got you. And then I guess the second question, just confirmation. The unrealized losses that you spoke about, Jim, of $254 million at the end of September, is that the gross losses number or is that a net losses number? And if it is net, what is the gross?

The gross is 266, there's $12 million -- there's a meager $12 million of investment -- unrealized gains in there. But again, since people are focusing on what the loss position is, it's 266 minus 12, 254.

Got you. And the 312, the current number?

That's roughly the same, so generally the unrealized has moved up 58. And the reason for that is when you do this you have to do it on 930. If you look at when was the first day of a market in terms of the bond market, it's probably somewhere around the 15th of October. So now taking it through let's say last Wednesday or so which I think the day we did it, that's why you see that further deterioration.

But we're very happy overall with how this looks in terms of the government's decision to, A, make direct injections into the financial institutions and, B, the Fed's decision to start being a direct purchaser of commercial paper.

Okay, thank you very much.

Greg Nersessian, Credit Suisse.

Good morning. First question just on the commercial enrollment for next year, are you expecting the mix of business to remain relatively unchanged? When I calculate the yields they're coming in right around that 6% to 7% range, same-store range that you're projecting and I know there's some acquisition impact in there. But broadly speaking do you expect any change in the mix this like you had this year?

Very similar to what we've been seeing over the last several years. There will be more of a shift to individual HumanaOne small group and probably some reduction in members from large national accounts in certain areas. And so, as we guided, we think our membership will be generally flat but you'll see more coming from fully insured individual and small group very similar to what we've done over the last two or three years.

So the realized yields will end up being below the 6% to 7%?

Probably a tad, yes.

Okay. And then my second question was on the PDP outlook for next year. You obviously have made a decision here with respect to the dual eligibles, but I remember earlier this year you had talked about other issues with respect to the positioning of your co-pay levels this year as well as where you had certain drugs in the formulary. Wondering if you could just speak to if and how you may have adjusted both of those factors into next year. Or is it just simply a matter of no longer coming in below the benchmark?

Sure, this is Jim Murray again. First, we'll start with the standard plan. And as we've shared with you in the past, we found ourselves with what we were referring to around here as a doorbell of membership. We had a lot of members who were heavy utilizers and another large group of members who were lower than average utilizers. And unfortunately what we found was that the heavy utilizers were being supported by the low utilizing members that we also had.

So what we had to do based upon our cost trends -- when we priced our products we had no desire to go above the benchmarks, but what we did is we priced to the cost structures and the trends that we've been seeing over the last year or so. And when we developed that pricing based upon the trends that we saw we unfortunately did go above the benchmarks in all of the states that we did business.

So in addition to raising the premiums, as you referenced, we also changed some copayment levels and we also changed the fact that we had an open formulary. So those three changes we've been messaging our members, trying to share with them some of the changes that they might expect to see, and giving them some suggestions about where they might be able to get better benefits. So that will move me over to the enhanced plan.

That was the plan that we talked about last year where we got adversely selected against. There we had more modest premium increases, but we also changed our copayment levels and also went to a closed formulary, very similar to our competitors' closed formulary. In the standard and the enhanced last year we found ourselves as one of only two competitors that had an open formulary and that caused some of the problems that we referenced.

So we did all three of those fast and we feel pretty good about where we're at relative to the competition and our pricing and cost structures that we were seeing.

And I think that's really the way to look at it because our thing is not a decision to decide whether or not to attract or not attract the dual eligible and the auto assigns, it has to do with what the trends are and what drug costs are and then what the formula for the bids specify.

Frankly, as a result of doing what we did this year, it puts us in a better position to reconsider our bids for 2010 and our ability to compete for the auto assign membership that unfortunately we're going to lose this year.

Okay. And then Jim, just one last quick question. Could you just explain the difference between the 6.8 weighted average, 6.28 weighted average rate versus the 6.94 in the press release?

Yes, the 6.94, we have four issues of Senior Notes and if you blend them by their size you would have -- and you just took the coupon -- weighted by the size of each issue you'd get 6.94%. Now we used to have interest rate swaps that hedged each of those four issues. On October 7, when there was a tremendous spread between the amount we pay under the swaps and what LIBOR was, we surrendered our swaps and picked up $108 million in cash. And what that did was effectively lower that 6.94% to 6.28% on the [1.550] in Senior Notes.

Okay, thank you.

Charles Boorady, Citigroup.

This year March 12, you had to cut guidance unfortunately because you found the unexpected adverse selection in the PDP. And I'm just wondering, looking forward do we still need to beware the Ides of March in 2009 or can you talk about what changes the past seven months you've made to improve your ability to predict things like adverse selection bias going forward?

Sure. This is Jim Murray again. As you might expect I've spent a lot of time with our Medicare actuary. We've evaluated our processes and procedures. We've made a number of changes in personnel. We now have a new Vice President of Medicare Actuarial Services who just started with us a couple of weeks ago.

Again, we changed our processes and we are using the services of two well-known actuarial firms, outside firms, to assist us to create better processes for preparing our bids and also to assist us to be a little bit more analytical than we have in the past in evaluating costs and what have you.

And I feel very good about how all of that process, procedure, discipline and data aggregation is coming together to produce the 2009 bids and what it will do for us to be able to get even better prepared for 2010. So we've learned a lot over the last several months and I think we're better for the learning.

And in terms of -- related to that, you're imposing a member premium on Medicare Advantage whereas on the slide you show your competition generally is not. How would you take into consideration the potential for say a healthy person with low expected medical expenses to have a bias towards a free product or a zero premium product whereas a heavier user of medical care might be more willing to stick around and pay the extra premium? Or is there something else not on this slide?

There are a number of things that are on that slide. If you look at the benefit structures it would suggest that a healthier person would choose our benefits. You're right that the premiums that we have would suggest that somebody who's not a user of medical cost might be interested in going with the zero premium product. So there are a lot of dynamics on that slide, some of which argue against each other.

The other things that you have to step back and think about are distribution channels and what kinds of business different distribution channels create for you as a company. And we believe that our distribution model is a lot better in terms of working with seniors and identifying with the seniors the products that they need and sitting across the table and discussing those things with them.

So there are a lot of dynamics that go into figuring out healthy risk versus unhealthy risks and we've evaluated where we're at and we feel pretty comfortable about what 2009 might look like for us in terms of our benefit designs and our distribution model.

I go one step further, Charles. We've done a fair amount of research with seniors on what they expect and what they need and what they want from all of this. And as we've seen in the past, there are subsets out there that move around, there are certain types of buyers. But the core of this population, these folks are looking for -- and this term is thrown around rather casually -- but they are looking for a total value proposition in terms of this relationship.

They're not interested in bouncing around and I think you've seen some of the things we do with these people and for them, everything from the statements we send out, which have been a spectacular success in terms of really driving that concept of value for them. So at the end of the day there are a number of ways to compete. You can throw price, you can throw benefits, you can do what we're doing which I think is basically deal with them long-term, plan on having them long-term and deal a with fundamental core value proposition is what we offer.

So in putting this guidance together for '09, have you already gone through this competitive analysis bottoms up throughout the geographies that you're doing business in (multiple speakers)?

No, no; we've analyzed every market that we do business. If I showed you all the books that we've gone through in terms of where we're positioned and we're cautiously optimistic that in light of what we're seeing out there that we've got the right products in I'll say 80% of our markets. Obviously there are a lot of markets that are really strong markets where we feel very good.

There are other markets where we have some membership that we're a little bit concerned about. And so when we look through each and every place that we do business and we evaluate whether our lead product is going to be a private fee for service or a local PPO or a regional PPO or an HMO, and we step back and we think about it, we feel pretty comfortable with what we've put out there in terms of our guidance.

There's another aspect of our distribution model that I don't know that it's well understood. We haven't really teased it out in great detail, but in terms of how they're compensated. They do receive a base pay, they have -- as career agents they have commissions. But then they also receive monthly a small stipend for every member that they have brought in.

So they have sort of a book of business that is Humana customers but is also sort of theirs to care for and take care of. And there are some relationship implications here between the seniors and the folks that they've dealt with on making these choices. There are all sorts of little things here and there that represent some piece of the total value chain here that have the potential to overcome some sort of a frontal attack by virtue of just price.

Mike just made an important point that I'll build on a little bit. Our Market Point agency and the 2,000 career agents that are a part of that have been working with their books of business over the last several months, which is different than some of our competition in terms of all of a sudden it becomes the selling season for these particular products and the outside agents now spend their time thinking about that while the rest of the year they're selling the other products that are more seasonal in nature.

And so we feel very good about our seniors understanding exactly what it is we're doing and, as Mike said, the different value propositions that we bring to the table. And that's a big part of why we think that our retention levels will be what we are estimating.

Great. Thank you and thanks again for pulling this date forward and for having detailed '09 guidance for us.

Scott Fidel, Deutsche Bank.

Good morning. First question, if you could maybe give us some insight into how you expect first-quarter commercial membership to look, whether you expect that to be down or flat. And within that, what you're expecting for your ASO business. And then just remind us how much of your commercial business renews on January 1.

This is Jim Murray. I would estimate, the guidance that we've given is we'll be generally flat. I would estimate that in the first quarter we're going to be down somewhere around 50,000 or so members. That's an estimate; I haven't stepped back and tried to analyze that exactly, so I'll throw that out as an estimate.

Most of the reduction would be from self-funded or ASO customers. We break our membership into various pieces and I would say that 60% of our large group membership renews on January 1 and that was what would cause the reduction of some of those larger self-funded or ASO accounts. And then as the year progresses, the individual net growth that we've been experiencing over the last several years and the small group net growth that we've been experiencing will begin to take hold and we'll get back to that flattish for the full year.

Okay. Then just a follow-up just on investment income. It looks like for '09 you are expecting an uptick in that even when you back out the realized losses that you're expecting in the back half of this year. And maybe if you could help us think about what the anticipated drivers of the higher investment income are for '09. Do you expect higher cash balances and also what type of portfolio yields you're building in for '09 relative to '08?

Yes, that's generally it, Scott. The main thing is the average invested balance will be higher because of the cast flows that we're forecasting. Rates -- we don't give public guidance on prognostication of rates, but I'll just say to you we're not expecting a lot in rates given what's happened, so it's basically all driven -- the improvements driven by putting back the investment losses and then having a higher invested balance.

And then just one last question, just getting back to the Medicare competitive environment. And one, just interested in terms of on the commission side how aggressive things look for '09 relative to '08. I would have thought that with some of the focus there in '08 and with some of the CMS marketing guidelines that we would have maybe seen some easing in commission competition, but it doesn't sound like we're hearing that in the, marketplace. So your views on commissions?

And then just also relative to the private fee for service products, you gave the example there and how widespread are the still intense competitive products within private fee for service, just thinking too around the enhanced product. We know WellPoint is exiting that market, but clearly we saw one of your competitors with significant issues there last week. So are you still seeing a very wide range of highly competitive richer PFFS products out there?

I'll start with the commission fees. First of all, all bets are off on commissions because CMS withdrew their regulatory structure for that last Friday. So they're supposed to issue something new this week and we will wait for that to come out. There is a significant focus on commission levels because some of the early indications, and which has resulted in this action on their part, would reflect some pretty interesting things being done by companies relative to how they pay out under the new regulations.

So news at 11 relative to commissions. The good news is it's not a real driver for us one way or another because of our career agent environment. So we do work with a few independent agents, but not many. So again, news at 11 on that one.

As with respect to your second question, we've looked at our HMO offerings in the states that -- in the cities that we do business and we've looked at our local and regional PPO offerings and we feel very good about how those are generally positioned. But to your point about the private fee for service, there are a couple of competitors throughout the United States that seem to have created a lot of zero premium products with benefits that are richer than ours.

And as Mike said earlier, we understand -- because we've been in the private fee for service business for five years, we understand what our cost structures are and we created our benefit design and premiums to react to the cost structures and that's why we're giving the lower net growth guidance because if those competitors continue to market those products it may impact us.

Just one last comment on the commission side of things, to me that's a loser's game. Commissions are easy to copy, it can be done in 10 seconds. And if that's the way you're going to compete, it's interesting but I don't think it's sustainable.

And Mike, just on that --.

Scott, it's Regina. I'll let you ask this one last follow-up, but we do still have a number of people in the queue, so if we could wrap up with this question.

Understood, sure. Just quickly, on the commissions that changed at 11 last week, where would you say that decision to change or pull back on some of the commission rules came more from? Was that more pill driven or more from commentary from the industry or within CMS themselves?

It came from virtually everywhere. There were a fair number of politicians that were becoming quite aware of it and they started up and there was some industry angst and it was a little bit of everything.

When we looked at what was happening we didn't think that it was what CMS had intended when they came out with their guidance.

I mean, the intent was really straightforward from CMS. They were trying to eliminate these high payments in the first year and then drastic reductions in year two because it clearly sets up a churning scenario. So they were trying to flatten out commissions so there was more stability for seniors and less motivation for agents to do things that maybe they shouldn't.

And so essentially what some did was they decided to make the high commission first-year be the renewal as well, which just generates an awful lot of potential for confusion and churn and a lot of other things. So I expect a much more rational regulatory structure to come out this week that will bring it back to the original intent which was to protect seniors from being moved around by commission schedules.

Okay, thank you.

Carl McDonald, Oppenheimer.

Wonder if you could give any color on what your internal agents can do within the construct of the new Medicare marketing rules to try and send seniors towards the PPO? Is it purely just the benefit design and that's it or are there other things that these agents can do?

No, as I said earlier, we just sit across the kitchen table from the seniors and talk to them about their benefits of the different offerings and their particular needs and what makes the most sense for them and what they can afford. Obviously with a network-based product there's a possibility that there will be less providers in that network and we just have to make sure the senior's aware of all those things and whatever then works for the senior is where we'll go.

And the second question is it looks likes the Company has become a little bit more reliant on the use of multi-year rate guarantees on the commercial business. So could you walk through the structure of when you'll give a multi-year rate guarantee, sort of what the general cost trend guarantee looks like?

Sure. We have created a pilot program that's called Smart Results. I think we've sold about 20 customers and it's a self-funded offering, or ASO offering, and so we don't have any insurance risk but we do charge an admin feed to those customers. And what we've tried to do around this whole idea of consumerism is to, not demand, but suggest to them if those customers do certain things -- if they have their associates prepare HRAs, if they have their associates work with our personal nurses, if they had their associates give us their phone numbers, if they had their associates give us their e-mail addresses, if they talk to their associates about our disease management programs.

If they do a number of things we're willing to guarantee trend levels because we found as we've studied what are called our SmartSuite products that if these companies do some of these things to enhance engagement it has a significant impact on cost. So this 20 or so sample pilot, whatever we want to call it, of groups, we've gone out with those kinds of programs and we're in the process of evaluating those as we speak. I think if you come to the presentation in New York we'll share some information about what we found with those and I think you'll be pleased with what you see.

So the multi-year rate guarantees then aren't becoming more prevalent on risk products?

No, I would say -- I watch the TV like some of you may do. Assurant of late is one of our competitors and they have a two-year guarantee for their individual products. We see that in the market place, but we don't see a lot of multi-year guarantees out there.

Thank you.

Particularly on insured product.

Ana Gupte, Sanford Bernstein.

Thanks, good morning. So I was again following up on the sources of growth for MA in '09. And particularly, I was trying to understand how much of this is related to the competitive dynamic that you describe on product design relative to intrinsically the growth slowing down in the segment.

So, for example, on the existing over 65s are you targeting more on the retail side or the group decided? Similarly, on the agents are you putting together products to motivate early retirees as they are aging in to stick with Humana?

The third point I had was around GM, for example, they recently talked about moving to defined contribution. So in addition to all of the retail sales that you make, are you looking for additional sources of growth, and may those be more high growth than what you are targeting right now?

Try to break that question into a lot of pieces. I will say a few things and then we can figure out how I have done. Our sales levels will remain high in 2009 on the MA. What we are concerned about is the possibility that we will terminate more than we have in the past, so that would be one data point.

In addition to the competitive landscape that we are experiencing, another factor that we have thought about as we are thinking about what our net growth might be is some of the changes that were made by HR 6331 that CMS promulgated, which doesn't allow us to make any outbound calls. And it also changes what we used to refer to as our referral model. When we would have a discussion across the table from seniors, we'd talk to them about whether they knew of anybody else who might be interested in our products.

Well, CMS now have eliminated that, and every contact that we have with a member must be initiated by that member. So we are trying to evaluate the impact that that might have on our growth, and we have tried to be conservative in that regard.

To another question that I heard in there, we are doing a lot more. As Mike has talked on many occasions about the agent opportunity, we are trying to go downstream if you will and start to create products that might attract and create a relationship with the 50- to 64-year-olds so that they age in to our MAPD products. That will be more longer-term.

We will talk about some of those when we are in New York in terms of some things that we are doing around our HumanaOne offering and some other kinds of products that we are creating, so that we can create that relationship with the seniors so that we can then have a discussion with them sometime in the future about MAPD and PDP offerings that we will have.

Okay, thanks. I have one more question. So the second one relates to you speak about the total cost issue being fundamental to the future of the Medicare program. And I was curious to see if you had a roadmap on your efforts underway around moderation of the underlying cost trend. So you still have the 5% operating margin. You are roughly 10% on the admin ratio. While you're not directly competing with the fee-for-service product, they are at 3%.

So as you start to make that business case to Congress, how are you looking at closing the gap overall on your cost structure relative to what the government could do on their own?

Well, in prior calls -- and we will do a little bit more of this in New York this month -- we really are beginning to shine a light on clinical management things that we do. Because at the end of the day, you are exactly correct; for there to be value here long-term as part of the private sector's role in Medicare, we have to find ourselves to a place where we're really reducing actual medical spend and in an amount that covers the cost of having done so.

Essentially, the reason the traditional program has low administration is they don't do much. Basically, it's a claim paying system, and so admin is low and it should be. The question is if you are going to start investing in clinical coordination and management and doing all of the things that we have been doing for decades on the other side, in the commercial side of the business, there are costs associated with that which at a minimum you have to cover those with your result.

So I think it is a work in progress. We have an awful lot of confidence at this point that if the standard is to be able to take what is essentially we need to get about 11% or 12% out of the Medicare spend to sort of make this all work given the admin and the margin that we have, the profit margin. I mean, the question is if you can't get 11% efficiency and effective as on Medicare, then maybe we shouldn't be here.

And I think the answer is yes, we will. That whole model is completely broken. The trends are out of control and have been for a very long time, and that is the standard against which we have to execute and perform. And we are pretty comfortable that based on everything we have done, that it is quite doable.

Thanks, Mike, appreciate it.

Matt Perry, Wachovia Capital.

Good morning. A couple of questions. First on Medicare Advantage, the growth guidance in '09 obviously lower than in recent years. And then kind of dovetailing that with what CMS might do to commissions, what is a higher correlation for enrollment growth; the level of benefits offered or commission levels offered by the companies? And I guess ultimately what I am asking is if CMS puts some kind of stronger restrictions on commissions, is it possible that your growth in '09 might be a little bit better than you are thinking right now?

This is Jim Murray. I would say that the more impactful decision or issue impacting our growth would be premium investment levels, but an equally important, perhaps not as strong as benefits and premiums, would be the commission levels. And I will just say this, the higher the commission levels, the more likely it is that some folks who are compensated in that manner might be willing to move business around.

And if you take away that incentive, I think it creates more stability. And I'm just trying to be as honest as I possibly can. So I just think that we were getting ourselves set up for the possibility that people would move business just because the historical retention payments that we made for renewables was going to be significantly lower than what the new sales commission levels were going to be. And it just created an unhealthy environment, in our opinion.

Remember that in the first year, we did use a fair number of independent agents. There was a huge rollout. If you recall, the numbers were off the charts in terms of the number of seniors that joined all these programs, and they were a bigger piece of our distribution model back then than they are today. So, as a result, we do have business sitting out there that came through that channel. And that commission scenario is placed at some level of risk if you believe people can and will move business for commission.

So all of that has been baked into our thinking about this, and we have sort of settled on the 50 midpoint as where we think we are going to end up.

Just a second question for Jim. Cash flow from operations next year, midpoint I think $1.3 billion. Any view on how much of that will be sent up to the parent company?

Not yet at this time, but we will be -- again, last time we had said that based on our 2008 results that by the second quarter of next year, we would probably be able to move 500 after consultation with the rating agencies and with the states. So again, we are still -- that is still very much in our thinking.

Obviously, the credit markets and everything else, it will be interesting to see what everybody's reaction. But if they use the same rules, we feel comfortable about the 500. But then as we get into 2009, again, our initial estimate that we always give at this time of year basically is runoff of very few differences and variables. Generally speaking, the cash flow for next year is based on the change in net income round numbers that we expect for this year. Then if you look at the two years, that is the difference in the cash flow guidance.

Okay, thanks.

Doug Simpson, Merrill Lynch.

Thanks, good morning. One question just to be clear, the [diamond] pressure that you are talking about in Q4 for investment income, that has been factored into the outlook for next year. And if you didn't see that pressure, can we just extrapolate that number would have been $6 plus another $0.40?

$0.40 might be a little high, but first of all, to answer the first part of the question, yes, it is factored in. Generally speaking, as I said, on investment income there is not a lot built in in terms of rate changes, because the rates are very unsteady and they have in terms of investment income fallen substantially, particularly since September for the rest of the year. That is baked into the rest of going into next year.

The other thing, though, is when we look at it, we look at the net of interest expense and investment income. And interest expense will be higher next year because again, the uncoupling of LIBOR from Fed funds. This morning's yield on three-month bills is less than 1%, but the three-month LIBOR is I believe around 3.25%. So those used to be within 100 basis points, within 50 basis points of each other. Now they have really spread out.

So next year's investment income, net investment income -- that is investment income less interest expense -- is fairly flat when you look at both guidance points.

Okay. Then maybe could you talk a little bit about specific competition on the M&A side with respect to the smallest players? Some of the [land grant] plays that were laid out in '06, '07, are you starting to see them exit or look for partners? Just can you give us a sense how many of those smaller players are still out there?

Well, it is going to be challenging to be in Medicare as a small player over the long term. So it may be reasonable to think that some of the smaller companies would be looking for a home, but I don't really have anything to share with you today. It is something that we will look at when they pop up as opportunities.

We've picked up a couple of little things here and there that were pretty tiny that had some Medicare business baked in them. But I don't see any sort of sweeping consolidation that is likely to happen in the short term, but it is inevitable that there will be some of it.

But there is no real change in the last 6 to 12 months?

I don't think we have seen anything yet that has really shifted.

Okay, thanks.

Peter Costa, FTN Midwest Security.

I apologize if you covered some of this already before; I had to jump off. But regarding Medicare Advantage membership, do you expect since it's terminations that's causing the relatively lighter guidance, do you expect to see even declining membership in 1Q or January 1 in Medicare Advantage?

Then as far as Group Medicare, do you expect that to have really no growth this year because of the requirement for that to be networked products going forward?

Then thirdly on the same topic, in terms of the migration to PPOs for Medicare Advantage membership, that seems like that is going to happen relatively slowly until 2011. How will you gauge your successfulness of your networks if the membership doesn't migrate until 2011?

This is Jim Murray. A lot of questions in there. We don't anticipate that we are going to have a net reduction in membership in the first quarter. We will have a nice number of sales to offset the conservative termination number that we have developed.

We are pleased with the fact that Group Medicare will ultimately have network-based options. Mike has talked with you and we'll share more and more in New York with you about where we are going to have networks in the future. But we're going to have a significant number of network options throughout much of the United States.

So it will be a good opportunity for groups to give us some consideration in terms of some of the products and services that we have had out there. I think when groups begin to realize -- for a while they've, I think, been somewhat concerned about the private fee-for-service business and whether or not it was more long-term. I think when we get to the point where a lot of shifting goes to the network-based options, I think the groups will feel more comfortable when putting some of their retirees in those kinds of programs.

So sometime in the future, I would expect more and more growth? And there is some increasing interest that we are seeing with our discussions with Group, but nothing in terms of a sea change for 2009.

Your last question, I think over the next several quarters and next several years you're going to see some nice migration to the network-based options, because the seniors will be able to see more value, less premiums, more benefits in those kinds of products. And we will feature those when we talk with seniors, when we have that discussion across the kitchen table, and try to demonstrate to them that there is not a significant reduction in the networks that they're going to be looking at.

And I think as seniors understand that, there will be more and more acceptance of those products going forward. I don't expect that in 2011, there will be a huge shift from private fee-for-service to PPO or HMO or regional PPO. I think it will be more of a gradual shift over the next several quarters and next several years.

Let me go one step further, though. And we visit with you all quite a bit, and I have talked about this a lot, but I'm not sure I am getting through completely, so let me try it again. This is a retail consumer business. These folks make their decisions one person at a time. They do it every year between November 15th and the end of the year, and they are going to be doing that for the foreseeable future.

Effectively, what they do, and we have watched them and they act in their best interest all of the time; they sit down, they look at all of their options, they consider everything and they make their choice. That is totally different than the rest of the commercial business we have in health insurance as we think of it.

The implications of that is that whenever that period comes -- in this case, it will be November 15 of 2010 through the end of that year -- they will be sitting down evaluating PPO products, traditional Medicare, Medigap and whatever is available to them in terms of choices at that time.

What they are going to find at that time is their PPO offering is likely to be their best choice. Going back to traditional Medicare will not be a great choice. Medigap is quite expensive. This is going to fall right in the middle there somewhere and be quite attractive. So I don't wake up every day worrying whether people are rushing to the PPO prior to 2011.

There will be nice movement there as Jim has indicated, but they're going to make that decision November 15th of 2010. And I think at the end of the day, they will choose this path because it will be the best value in front of them at the time.

Great, thank you.

Brian Wright, Banc of America Securities.

Thanks, good morning. Can you remind me how many internal sales agents does the Company have right now, and how does that differ from the beginning of the year?

I assume you are referencing the Medicare, and there is about 1700 market point agents that will go out and sit across the table from seniors. And then we have a force of telesales agents that will take calls from seniors that see advertisements and set up appointments with them. And there's about, I would guess about 800 of those folks that are located in Florida. So we feel very good about our model in terms of execution.

Then can you give us the size of Cariten's cash and investment portfolio?

I don't have that right at my fingertips.

Okay. Maybe off-line we could get that then?

I will look and see what is in their latest statutory filing and see if we can get you some frame of reference that way.

That is where we would refer you.

Okay, thank you.

At this time, there are no further questions.

Thanks for joining us this morning. Again, I am pretty pleased with where we are. This was a good quarter. I think we are set up nicely for next year. We clearly have to deal with the implications of a change in leadership in Washington. I think we are prepared to do that. I think there is significant value in the private sectors involved in Medicare, and I think that will become quite clear to people as they start to understand what we do.

With that, I would like to thank all of the Humana associates who are on this call for making these results possible. Thank you very much.

Thank you for participating in today's conference. You may now disconnect.