Sanford C. Bernstein Twenty-Second Annual Strategic Decisions Conference 2006 May 31, 2006 Larry C. Glasscock Chairman, President & Chief Executive Officer
Safe Harbor Statement Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: The statements made during this presentation that are not historical facts are forward-looking statements within the meaning for the Federal securities laws, and may involve a number of risks and uncertainties. Factors that could cause actual results to differ materially from expectations include, but are not limited to, the risks discussed in the Company s most recent filings with the SEC, including its Annual Report on Form 10-K for the year ended December 31, 2005, and its Quarterly Report on Form 10-Q for the quarter ended March 31, 2006. 2
Basis of Presentation Unless otherwise indicated, results of the former WellPoint Health Networks Inc. are included for periods following November 30, 2004. Periods prior to November 30, 2004, only include results of the former Anthem, Inc. Unless otherwise indicated, results of the former WellChoice, Inc. (WC) are included in 2006 income statement and operating cash flow estimates, however WC results are not included in income statement and operating cash flow results for 2005 and prior. WC is included in balance sheet and membership information as of December 31, 2005, and beyond. However, WC is not included in balance sheet and membership information prior to December 31, 2005. Estimates for 2006 include the estimated impact of FAS 123R. However, amounts reported for 2005 and prior do not include such an impact. All per share amounts presented reflect the Company s 2-for-1 stock split on May 31, 2005. Certain prior period amounts have been reclassified to conform to current year presentation. 3
Agenda WellPoint Profile Superior Value Proposition Revenue Growth Opportunities 15%+ EPS Growth Target Investment Considerations 4
Health Benefits Leader Medical Members ~ 34 million Market Capitalization ~ $45 billion 2006E* Operating Revenue ~ $57 billion Pre-Tax Margin ~ 8.5% Operating Cash Flow > $4 billion BC or BCBS licensed plans UniCare > 100K members UniCare < 100K members Note: Membership as of 3/31/2006 and market capitalization as of 5/10/2006; * Estimated based on projections as of 4/26/2006. 5
Diverse Membership Base State Sponsored 2.0M Senior 1.2M Individual & Small Group 5.6M National Accounts 5.2M Fully Insured ~ 50% Large Group 16.0M BlueCard 4.2M No commercial customer represents more than 2% of earnings Self-Funded ~ 50% Note: Membership data as of 3/31/2006. 6
Broad Product Portfolio Cost Medical POS HMO Hybrid PPO Indemnity Specialty Pharmacy Benefit Mgmt. Specialty Pharmacy Behavioral Health Life & Disability Dental Vision Flexibility Infuse consumerism throughout portfolio Administrative Claims Processing Network Rental Medical Cost Mgmt. 7
Strong & Profitable Enrollment Growth Year-End Medical Membership (in millions) 10% Same-store CAGR 27.7 33.9 ~ 34.8 Acquired membership 6.3 7.3 7.9 11.1 11.9 Same-store membership 1999 2000 2001 2002 2003 2004 2005 2006E* * Estimated based on projections as of 4/26/2006. 8
Agenda WellPoint Profile Superior Value Proposition Revenue Growth Opportunities 15%+ EPS Growth Target Investment Considerations 9
Brand Strength Blue Cross Blue Shield is the most recognizable brand name in the industry Unaided Consumer Awareness 100% 75% 50% 25% 0% BCBS Company A Company B Company C 2003 2004 2005 Source: Blue Cross Blue Shield Association: Brand Strength Measure Survey, Synovate, Inc., Interim 2005 Results. 10
Strong Local Presence WellPoint market shares 60% 50% 40% 30% 20% 10% 0% CT VA NH ME GA MO IN KY CA OH NY WI CO NV Source: Company estimates as of September 2005. 11
Proven BlueCard Advantage Extensive and cost-effective provider network is valued by employers and consumers BCBS National Provider Network: Approximately 85% of all physicians More than 95% of all hospitals Deep network discounts BCBS Customers: 1 of 3 Americans (94 million) 75 of Fortune 100 companies WLP is a BC or BCBS licensee in 14 states that represent 40% of the U.S. population Sources: Blue Cross Blue Shield Association, U.S. Census Bureau, Company estimates. Data as of 2005. 12
Care Management Strategies Increasing Health Risk % of WellPoint Members 70% 25% 5% Well Members 10% % of Health Care Costs Low Risk Members Moderate Risk Members High Risk, Multiple Diseases 38% 52% Complex & Intensive Care Health and Wellness Disease Management Advanced Care Management Radiology Management Specialty Pharmacy Hospital and Physician Quality Programs/Pay for Performance Centers of Excellence Network Contracting New Technologies and Pharmacy and Therapeutics Processes Source: Company estimates based on data for Blue Cross of California, October 2004 September 2005. 13
Disease & Care Management Reduces Cost, Improves Health Large, controlled studies demonstrate clinical and financial value of management programs Disease Management ASO groups who purchased disease mgmt. (study group of 76,000) and those who did not (control group) Chronic disease (diabetes, asthma, coronary) Savings of 11% for those enrolled in program ROI of 2.8:1 Advanced Care Management Prospectively controlled study of 12,000 members (control of 4,134, intervention of 7,797) Multiple chronic diseases with average annual cost of $24,000 Savings of 13% ($3,500/year) for members enrolled in program ROI of 4:1 14
Longer-Term Impact of Imaging Utilization Program Quarter 2Q01 3Q01 4Q01 1Q02 2Q02 3Q02 QoQ Utilization Growth (in advanced imaging) 33% 26% 24% 17% 1% 4% Pre-Program Trend = 23% 4Q02-2% 1Q03 2Q03 3Q03 0% 1% 3% Post-Program 2 Year CAGR = 1% Prior Consultation Program Implemented 4Q03-1% 1Q04 7% 2Q04-3% Expanding Program Across Nation Note: Data represents results for Anthem BCBS - Colorado. 15
Agenda WellPoint Profile Superior Value Proposition Revenue Growth Opportunities 15%+ EPS Growth Target Investment Considerations 16
The Choice for National Accounts National Accounts Membership * (In Thousands) 7,778 8,691 9,333 Increase of more than 1.5 million members, or 20%, over last 5 quarters (comparable basis) BlueCard membership Control Accounts 12/31/04 12/31/05 3/31/06 * Data includes both WellPoint, Inc. and the former WellChoice, Inc. for all periods. 17
Demonstrating Value to Customers National Account Group Anthem National Accounts Value Summary January 01, 2005 Through December 31, 2005 Report 1.3 1.3 Anthem National Accounts Value Administrative fees PEPM Anthem National Accounts Value Administrative fees Total Paid Anthem National Accounts Savings on Services Provided Basic Administrative Fees TPA services Claims cost and Provider management services Basic Administrative Fee Total Medical Management Fees $ 19.50 $ 611,900 $ 17.39 $ 527,960 $ 14,362,818 $ 36.89 $ 1,139,860 $ 14,362,818 Provider Management Savings Provider Discounts, Claims Check, Provider Review, Precert Medical Management Savings IRIS Patient Safety $ 2.00 $ 62,759 $ 390,632 Disease State Management Programs Primary Nurse/Health Advocate $ 3.00 $ 94,138 $ 310,657 $ - $ - $ - Other Programs -- Interventions by Anthem (Baby Benefits, etc.) Other Programs -- Employee Initiative Programs ( 24 hour Nurseline, HRA, Web Site, Worksite wellness, Intune) Total Medical Management Administrative fees $ 5.00 $ 156,897 $ 701,289 Total Med Mgmt Savings Grand Total - All Administrative Fees, except TPA services Provider savings are net of access fees from other Blue Plans directly charged to the account Total ROI per $1 in Provider Management fees 27.2 Total ROI per $1 in Medical Management fees 4.5 Total ROI per $1 in Provider and Med Management fees 22.0 $ 22.39 $ 684,857 $ 15,064,107 Total Savings The National Account Group saved $22.00 for every $1.00 of Provider and Medical Management fees invested in 2005. This included an estimated $ 27.20 in savings for every $1.00 of Provider fees invested, and an estimated $4.50 in savings for every $1.00 of Medical Management fees invested. * Any network access fees are subtracted from provider savings. Total ROI per $1 in Provider Management Fees Total ROI per $1 in Medical Management Fees Total ROI per $1 in Provider and Med. Mgmt. Fees 27.2 4.5 22.0 18
Room for Continued National Accounts Growth National Account Membership * (in millions) 23.7 5.2 Penetration at 3/31/06 Potential Market * Data excludes BlueCard membership. Potential Market represents accounts with 5,000+ employees in WLP Blue branded service areas. Source: Company estimates. 19
A Leader in Consumer-Directed Health Care 75% of 1/1/06 National Account RFP s requested CDHP options 12 new 1/1/06 account wins were joint sales with Lumenos 665,000 CDHP members at 3/31/06, an increase of 31% since 12/31/05 20
Empowering Consumers 21
Selected Lumenos Customers Staples National Office Supply Company Nokia Fortune 100: Global Technology Company Now expanding CDHP offerings to smaller-sized groups 22
Uninsured Americans: A Growth Opportunity In 2005, approximately 378,000 new WLP enrollees were previously uninsured Community resource centers BasicChoice DirigoChoice Low-tomoderate income ~ 16M Eligible for public programs ~14M Enrollment vans Select HMO & PPO Household income > $50,000 ~ 16M Blue Access Economy BeneFits Tonik Sources: Blue Cross Blue Shield Association, U.S. Census Bureau, August 2005. 23
Product Innovation 78% of applicants previously uninsured www.tonik.com 24
Addressing Multiple Populations 25
Expanding Senior Market Projected U.S. Population, 65+ Years of Age (in millions) 80 60 40 20 Number of Seniors expected to increase by 19 million by 2020, and to double by 2030 0 2000 2010 2020 2030 Source: Federal Interagency Forum on Aging-Related Statistics 26
WellPoint Senior Business 500 400 Medicare Advantage Membership ('000) 1,200 Medicare Supplement Membership ('000) 300 800 200 100 400 0 2005 2006E* 0 2005 2006E* 2,000 1,500 1,000 500 0 Medicare Part D Membership ('000) ** Estimated to be $1.4B revenue opportunity in 2006* 1,500 2,000 2005 2006E* Future Opportunities: Increased options for employer retiree benefits Long-term care Final expense * Estimated based on projections as of 4/26/2006; ** Includes auto-assigned, stand-alone, Medicare Advantage, Group waiver and external PBM members with the PDP benefit. 27
Medicaid Opportunity Nation s Largest Medicaid Managed Care Operation 2,000 Membership * (in thousands) 1,600 1,200 800 400 0 WLP UNH AGP MOH States Expanding Medicaid Managed Care Colorado Florida Illinois Indiana Nevada New York Ohio South Carolina West Virginia Wisconsin * Amounts as of March 31, 2006. 28
Demonstrated Medicaid Results 14.0% WellPoint Medi-Cal vs. National Commercial Plan 12.0% 12-Month Rolling Cost Trend 10.0% 8.0% 6.0% 4.0% Cost Savings Initiatives Accelerated 2.0% Medi-Cal Commercial 0.0% Jan-03 Apr-03 Jul-03 Oct-03 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Apr-05 The commercial plan trend reflects a $250 deductible, 80/20 coinsurance, $20 OV copay, $10/$20/$35 Rx copays. Commercial Data provided by Milliman Health Cost Indx 2Q05. 29
A Win-Win Win-Win Proposition WellPoint State Sponsored Business vs. Primary Care Case Management (PCCM) in Northern Virginia 800 700 +32% Units per 1000 members 600 500 400 300 200-64% -9% +31% +136% +13% WellPoint PCCM 100 Inpatient Days ER Outpatient (non-er) Specialist Child Prev. Care Durable Medical Equip. Note: Data reflects 2003 utilization data. 30
Agenda WellPoint Profile Superior Value Proposition Revenue Growth Opportunities 15%+ EPS Growth Target Investment Considerations 31
WellPoint Growth Model Profitable Enrollment Growth Effective Use of Cash Flow EPS Growth 15% + Disciplined Focus on Underwriting Specialty Penetration SG&A Ratio Reduction 32
Significant Growth Opportunities 33
WellPoint Growth Model Profitable Enrollment Growth Effective Use of Cash Flow EPS Growth 15% + Disciplined Focus on Underwriting Specialty Penetration SG&A Ratio Reduction 34
Actuarial Structure Strong Corporate Controls SBU President Chief Actuary Local Connectivity 5 former Chief Actuaries SBU Actuaries Corporate Actuaries 2 former Chief Actuaries Actuarial Practice Councils: peer review & best practices Over 100 credentialed actuaries (FSA, ASA, MAAA) Approximately 100 actuarial students 35
Technological Advancement Current Year Medical Claim Payments as a % of Current Year Incurred Medical Claims * 90.0% 87.0% 84.0% 81.0% 78.0% Today, we get more accurate data, and we get that data more rapidly, which enables more accurate pricing 75.0% 2000 2001 2002 2003 2004 2005 * Amounts have been adjusted for the effects of acquisitions - refer to the Company s fourth quarter 2005 earnings press release at www.wellpoint.com. Amounts for 2001 and 2000 have not been restated to conform to the reporting format used for years 2002 through 2005. 36
Pricing Flexibility 50% 40% 30% 33% 28% 20% 21% 10% 7% 11% 0% Q1 Q2 Q3 Q4 Flexible * * Flexible renewals include individual and small group products in certain states where rates can generally be changed with 30-60 days notice. Note: Patterns calculated as of 3/31/2006. 37
Stable Benefit Expense Ratio 100% 80% 60% 40% 20% 0% 2000 2001 2002 2003 2004 2005 2006E* Benefit Expense / Premiums * Estimated based on projections as of 4/26/2006. 38
WellPoint Growth Model Profitable Enrollment Growth Effective Use of Cash Flow EPS Growth 15% + Disciplined Focus on Underwriting Specialty Penetration SG&A Ratio Reduction 39
SG&A Ratio Reduction 540 basis point reduction 25% 21.4% 19.7% 19.4% 18.9% 17.1% 16.6% 20% 15% 16.0% 10% 5% 0% 2000 2001 2002 2003 2004 2005 2006E* SG&A Expense / Total Operating Revenue * Estimated based on projections as of 4/26/2006. 40
Leveraging Technology Process around 240 million medical and specialty claims per year Auto-Adjudication Rates EDI Rates 79.0% 77.0% 77.2% 80.0% 78.0% 77.5% 75.0% 73.0% 72.8% 76.0% 74.0% 74.4% 71.0% 72.0% 69.0% 1Q05 1Q06 70.0% 1Q05 1Q06 Note: Data excludes pharmacy benefit management and Medicare-processing operations. Data also excludes the former WellChoice, Inc., except for the auto-adjudication and EDI rates in 1Q06. 41
Becoming More Efficient Membership Served Per Employee 800 750 777 700 650 600 550 471 500 450 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03 12/31/04 3/31/06 42
Integration Synergies (Pre-Tax) Anthem-WellPoint ($250 million): Achieved 2005 goal of at least $150 million Expecting incremental $100 million in 2006 * WellPoint-WellChoice ($125 million): Expecting $25 million in 2006 * Ramping up by $25 million each year to $125 million by 2010 * WC PBM contract runs through December 2008 WC dental contract runs through December 2008 WC behavioral health contract runs through December 2007 * Estimated based on projections as of 4/26/2006. 43
WellPoint Growth Model Profitable Enrollment Growth Effective Use of Cash Flow EPS Growth 15% + Disciplined Focus on Underwriting Specialty Penetration SG&A Ratio Reduction 44
Full Array of Specialty Products PBM: Largest health plan-owned PBM in the nation, based on prescription volume Specialty Rx: launched in 2005 and rapidly growing Behavioral Health: 3 rd largest health plan-owned behavioral health company, based on membership Life: # 1 in the <100-life group market, based on number of accounts Dental: 7 th largest in the nation, based on membership Vision: Access to one of the largest provider networks Note: Company estimates as of 2004. 45
Complementary Products Provide Incremental Value Integrated with medical benefit and provide value by: Improving quality of health care outcomes Medical Products Optimizing cost of care 46
Segment Breakdown First Quarter 2006 Operating Revenue Operating Gain 6% 10% 94% Health Care Specialty 90% Note: Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment. Operating gain is defined as operating revenue less benefit expense, SG&A expense and cost of drugs. Operating gain is used to analyze profit or loss on a segment basis. Consolidated operating gain is a non-gaap measure. 47
WellPoint Growth Model Profitable Enrollment Growth Effective Use of Cash Flow EPS Growth 15% + Disciplined Focus on Underwriting Specialty Penetration SG&A Ratio Reduction 48
Strong Cash Flow Operating Cash Flow vs. Net Income (in billions) $4.0+ $3.1 $3.0+ $2.5 $0.5 $1.0 $0.8 $1.1 $1.0 $1.1 2002 2003 2004 2005 Net Income Operating Cash Flow 2006E* * Estimated based on projections as of 4/26/2006. 49
Market Value as a Multiple of Free Cash Flow Comparison to selected companies ($ in millions) WellPoint Wal-Mart Time Warner 2005 2006 2005 Cash flow from operations $3,136 $17,633 $4,965 Capital expenditures & other operating investments (152) (14,183) (3,246) Interest expense, net of tax 143 780 899 "Free cash flow" $3,127 $4,230 $2,618 Market capitalization as of 5/10/2006 $45,257 $199,110 $73,820 Long-term debt 6,325 26,429 20,238 Market value as of 5/10/2006 $51,582 $225,539 $94,058 Market value as a multiple of free cash flow 16.5x 53.3x 35.9x 50
Cash Flow Strategy Reinvest In Our Business New Products & Enhanced Service Acquisitions Debt Repayment Merger Undertakings Return to Shareholders $1.9B repurchased in 1Q06 51
Agenda WellPoint Profile & Success Superior Value Proposition Revenue Growth Opportunities 15% EPS Growth Target Investment Considerations 52
Healthcare Is Growing National Health Spending as a Share of GDP 20% 15% 10% 5% 0% 1970 1980 1990 2000 2002 2004 2010E Source: Centers for Medicare and Medicaid Services; Office of the Actuary. 53
Era of Consolidation Medical Members (in millions) 224 245 27% 51% 73% 49% 1995 2005 Ten largest health plans in each year Source: Company estimates, Bear Stearns, Centers for Medicare & Medicaid Services, Office of Actuary, U.S. Census Bureau, and public company reports (2005 information as of 12/31/05 or latest available public information prior to 12/31/05). 54
Disappearance of the Underwriting Cycle 8% Underwriting gain (loss) as a percent of revenue * 4% 0% -4% -8% 1960 1962 1964 1966 1968 1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004* Data represents all Blues plans 1960-2004 Source: Blue Cross Blue Shield Association, 2005; * Underwriting gain (loss) is calculated as revenue minus claims expense and administrative expense. Beginning in 2004, revenues and claims expense are reported gross of administrative services only amounts, however prior periods have not been reclassified to conform to this reporting change. 55
Excellent Financial Results WellPoint has met or exceeded EPS guidance every quarter since IPO 23% CAGR $3.94 $4.63 $1.65 $2.26 $2.73 $3.05 2001 2002 2003 2004 2005 2006E* GAAP Diluted EPS * Estimated based on projections as of 4/26/2006. 56
Compelling Value Proposition Wide-reaching, cost-effective provider networks Excellent financial performance Large local market shares with revenue diversity Leading brand in the sector Positive cash flow in excess of net income Outstanding management team Integration discipline and success for M&A Nation s largest health plan membership Tremendous industry with growth opportunities 57
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