Herbert Fritch – Chairman, President and CEO Kevin McNamara – EVP and CFO

Justin Lake – UBS Josh Raskin – Lehman Brothers Carl McDonald – Oppenheimer Nichol Le Smith [ph] – Wachovia Darren Miller – Goldman Sachs Gregg Genova – Deutsche Bank

Good morning, and welcome to this HealthSpring conference call, to review its financial results for the first quarter ended March 31st, 2008. The financial results were issued yesterday after the close of market trading. If you did not receive a copy of the press release, you may find a copy under the Investor Relations tab on the HealthSpring website, www.healthspring.com. Before we begin, HealthSpring wishes to express that some statements made in this call will be forward-looking statements, as defined in the Private Securities Litigation Reform Act of 1995. Actual performance of the Company may differ from that projected in such statements. Investors should refer to statements regularly filed by the Company with the Securities and Exchange Commission for a discussion of those factors that could affect the company's operations and the forward-looking statements made in this call. The information being provided today is as of this date only, and HealthSpring expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any changes in expectations. In addition, certain non-GAAP financial measures may be covered in this presentation. These non-GAAP measures are reconciled to the most comparable GAAP measures in the press release, or on the Company's website. At this time, I'd like to turn the call over to Mr. Herbert Fritch, Chairman, President and Chief Executive Officer of HealthSpring. Please go ahead, sir.

Thank you, operator. Welcome to the HealthSpring's 2008 first quarter earnings call. We are pleased to report a strong start to 2008, which should also drive positive momentum for the balance of the year. As we'll discuss in more detail on this call, the main drivers of the improvement in the quarter are increased revenue trends and contributions by our newly acquired Leon Medical Center Health Plans. With continuing confidence, we are pleased to be increasing our EPS guidance for the full year to a range of $1.85 to $2.00 a share. You will hear more on guidance later from Kevin. As we expected our MA membership is down albeit only slightly from year end, primarily because of the previously disclosed exits from counties and products line changes in Alabama and Tennessee. We are now seeing MA membership to eclipse year end levels and expect continued growth throughout the year particularly with the roll out of our Optima Care product for chronic care conditions. Enrollment in which is not limited by lock in. We have continued to be (inaudible) surprised by membership that (inaudible) PDP. Retention rates on a substantial increase in membership resulting from auto-assignments in New York and California have been better than expected and PDP membership continues to grow on a monthly basis. The biggest news in the quarter comes from our improving revenue trends. As detailed in the earnings release, our revised estimates of the final settlement of retroactive premium risk adjustment for 2007 added $12 million in additional premium revenue in the quarter, translating the $0.9 in EPS. We continue to improve our models and processes for estimating risk adjustments to premiums both for final settlements and in the year. And we believe that we will be in a position to more quickly and accurately…

Thanks, Herb. Before I discuss our results in detail, I want to add more color to Herb's comments regarding the additional premium and medical expense recorded during the first quarter of 2008, related to the 2007 final retroactive risk adjustment premium settlement. In addition to the significant work that has taken place in our operating groups, our actual and finance groups which have also extended a tremendous amount of time and effort in attempting to estimate and appropriately accrue for the effects of changes in our risk scores. In January 2008, we commenced monthly uploads of coding and claims information to CMS and the current quarter adjustments arise as a result of the data uploaded during the quarter. The next step in the evolution of our accrual for risk is expected in the July CMS payment report, but we will be notified of the actual amount of payments for our risk adjustment and which we believe will substantiate the validity of our estimation techniques. Our current guidance contemplates and gives effect to the impact on our current estimates of the risk accruals both for the year in the year as well as the 2007 and 2008 final payments, and we are hopeful that in the second half of 2008 and beyond material adjustments for risk accruals in a particular quarter will no longer be necessary and that our estimates will be refined on a monthly basis in a fashion similar to our current medial claims accrual process. Moving to the quarter's results, we were pleased with their performance including our reported quarterly net income of $21.1 million or $0.37 per diluted share, compared to 2007 first quarter EPS of $0.25. Significant factors impacting the 2008 first quarter results were the following. On the positive front, the previously mentioned $12 million…

Thank you. (Operator instructions) The first question is from Justin Lake from UBS. Justin Lake –: Good morning. First question around the MLR guidance change, obviously you talked a little bit about the flu not being as impactful, but I'm just curious to (inaudible) the guidance change between the better than expected revenues, ex the risk share versus may be the risk or payments and what your outlook is – a change in your outlook for medical cost beyond the flu for the rest of the year?

Good morning. First question around the MLR guidance change, obviously you talked a little bit about the flu not being as impactful, but I'm just curious to (inaudible) the guidance change between the better than expected revenues, ex the risk share versus may be the risk or payments and what your outlook is – a change in your outlook for medical cost beyond the flu for the rest of the year?

I think this change in MLR is primarily the impact of revenue but I think we are optimistic that if the flu gets behind us and we think it is that we'll see some improvement in the medical trends, but until we see them we are not building anything into the guidance. Justin Lake –: Okay. And then on the Part D side the higher cost, are you – as you look at the new auto-assignees that come into your book, are you seeing any difference as far as the D MLR that those tools are running versus the existing goals that you have right now, and maybe (inaudible) describe that (inaudible) changes in the different formularies that you have versus what they were on before?

Okay. And then on the Part D side the higher cost, are you – as you look at the new auto-assignees that come into your book, are you seeing any difference as far as the D MLR that those tools are running versus the existing goals that you have right now, and maybe (inaudible) describe that (inaudible) changes in the different formularies that you have versus what they were on before?

I think we have seen primarily with California and New York where we've got the new membership and I don't know that we fully understand the reasons but what seems like the new membership has more of a propensity toward brand drugs and generics and they are little different than the utilization we've seen with our existing membership. Justin Lake –: Can you give us a magnitude there, Herb?

Can you give us a magnitude there, Herb?

I don't have the exact number but obviously I think we are seeing it about 2% increase in our guidance on the MLRs for the year. Justin Lake –: Probably given your membership is up?

Probably given your membership is up?

Justin, all things being equal, we expect that the PDP that on an annual basis to still be performing about where we expected it to start of the year. The MLR – the deterioration in the MLR guidance is pulling you one way, and then obviously the membership on an annual basis will help you the other way. Justin Lake –:

– :

We are in a deep thought process of (inaudible) as we speak. Justin Lake –: Okay. And just last question on the 2009 rates. Obviously Miami got – had another Christmas present on Miami with significant rate increase there. I'm just curious given the structure of how the relationship with Leon works the 80% of the capitation, and can you just walk us through how we should think about how much of that rate increase flows, presume that the benefit there very rich and probably it all won't pass through. Can you give us an idea of just the economics of Leon and how you expect that to impact your financial statements next year?

Okay. And just last question on the 2009 rates. Obviously Miami got – had another Christmas present on Miami with significant rate increase there. I'm just curious given the structure of how the relationship with Leon works the 80% of the capitation, and can you just walk us through how we should think about how much of that rate increase flows, presume that the benefit there very rich and probably it all won't pass through. Can you give us an idea of just the economics of Leon and how you expect that to impact your financial statements next year?

Well, I would take part of that and Herb can get the other part, the benefit side of it. But on the mechanics of the Leon transaction, Justin we set a 80-point medical budget and then we share 50/50 up and down on a 5-point bend on that. So, we would both cheer in it, both up and down and obviously the mechanics of that rate increase got to be worked through the bid process and you've got to look at you benefits. I'll let Herb speak to that.

– : Justin Lake –: So, it's 50/50 within a 5% bend and then it's your full (inaudible) one way or the other?

So, it's 50/50 within a 5% bend and then it's your full (inaudible) one way or the other?

Right.

Correct. Justin Lake –: All right, Herb. Thanks a lot guys.

All right, Herb. Thanks a lot guys.

Moving on, we'll take a question from Charles Boorady from Citi. Mr. Boorady, your line open, please go ahead. Hearing no response, we'll move on to Josh Raskin from Lehman Brothers. Josh Raskin –: Hi, thanks there. Can you hear me?

Hi, thanks there. Can you hear me?

Yes.

Yes. Josh Raskin –: Okay. Great. Couple of quick questions. One, I think you sort of just addressed this, but I just want to touch a little bit more in the PDP MLR. You talked a little about the brand verses generic utilization preference and obviously in light of what we've seen from some of the competitors that it appears sort of heightened risk with program. So, I'm curious how you are sort of looking at selection issues understanding that you are virtually all through those items thinking that which really matters. But how do you avoid may be some of the pit falls and what are your thoughts in 2009, is this your way to experience something that's a little more concerning or do you think at the end of the day you are still interested in growing that to a population?

Okay. Great. Couple of quick questions. One, I think you sort of just addressed this, but I just want to touch a little bit more in the PDP MLR. You talked a little about the brand verses generic utilization preference and obviously in light of what we've seen from some of the competitors that it appears sort of heightened risk with program. So, I'm curious how you are sort of looking at selection issues understanding that you are virtually all through those items thinking that which really matters. But how do you avoid may be some of the pit falls and what are your thoughts in 2009, is this your way to experience something that's a little more concerning or do you think at the end of the day you are still interested in growing that to a population?

No, it's still a very profitable product as far as we are concerned and the margins are well within what we think are acceptable. We've always addressed it with close formulary and we continue to, we think that's the right approach for this population. It's just we have seen a little bit different utilization with this new membership but it's not that we feel like we are loosing through the (inaudible) it's just the margins are a little over on this new population and existing members. Josh Raskin –: Right. Okay. That's interesting. And then just similarly on the PDP, I guess EMLR [ph] was up a couple 100 basis points in the quarter. I think I would expect it to actually in light of the bigger mix, that's the bigger (inaudible) as well as the core towards (inaudible) would have actually expect to see a little bit more seasonality. So, were there any favorable sort of offset, was there anything positive in the PDP numbers?

Right. Okay. That's interesting. And then just similarly on the PDP, I guess EMLR [ph] was up a couple 100 basis points in the quarter. I think I would expect it to actually in light of the bigger mix, that's the bigger (inaudible) as well as the core towards (inaudible) would have actually expect to see a little bit more seasonality. So, were there any favorable sort of offset, was there anything positive in the PDP numbers?

I don't think so. Like I said it wasn't huge difference from our expectations but it was up a little bit and largely based on a little higher utilization of brands and the new members.

That's about it. You have to understand on a standalone PDP virtually 100% of that business is duals [ph] and always has been. Josh Raskin –: Right and I understand that. Okay. And then just last question. We got the MA rate for 2009 and obviously we talked about update already, but I'm just curious what are your expected overall yield for 2009 just based on you book of business right now?

Right and I understand that. Okay. And then just last question. We got the MA rate for 2009 and obviously we talked about update already, but I'm just curious what are your expected overall yield for 2009 just based on you book of business right now?

While just based on base rate tables, most of the other markets beyond date I think came in or around 3.5%, and I believe we are looking at budgeting about 5% increase with risk adjustment and recalibration and all the other things that went on in 2009. Josh Raskin –: Okay, okay. Thank you.

Okay, okay. Thank you.

Our next question comes from Carl McDonald from Oppenheimer. Carl McDonald –: I think just one question from me which was – how do you think the proposed CMS change to the risk adjustment factors that was discussed earlier this year would have impacted the (inaudible) rate, did you feel like you were significantly exposed in terms of having risk scores that were twice the industry?

I think just one question from me which was – how do you think the proposed CMS change to the risk adjustment factors that was discussed earlier this year would have impacted the (inaudible) rate, did you feel like you were significantly exposed in terms of having risk scores that were twice the industry?

We are still not certain of that. To my knowledge, one way or another I think we certainly thought there might be a chance in some of our markets, we've been in that category but a couple of markets Illinois and Florida were clearly excluded because they started later. But there were some we were a little concerned about that we find one or more of the markets in but now we feel it is a positive that they switch to methodology on that.

– : Carl McDonald –:

– :

That's where we are in the blind [ph] too. Carl McDonald –: Got it. Okay. Thank you.

Got it. Okay. Thank you.

We'll go next to Matt Perry from Wachovia Nichol Le Smith –: Hi, this is actually Nichol Le Smith [ph] in for Matt Perry. Just have a few questions, as you said in your comments, excluding the risk adjustment in your MA and premium PMPM basis was quite a bit. Just want to get a color on what was behind that, and then does that translate into continuously for the rest of the year or do you just see that as a onetime account [ph]?

Hi, this is actually Nichol Le Smith [ph] in for Matt Perry. Just have a few questions, as you said in your comments, excluding the risk adjustment in your MA and premium PMPM basis was quite a bit. Just want to get a color on what was behind that, and then does that translate into continuously for the rest of the year or do you just see that as a onetime account [ph]?

I'm not exactly sure of how to respond to that. Our risk scores are up for 2008 even excluding the positive impact of the final 2007 settlement and that will carry through all of 2008. That was the 12% that I think we referred to. Nichol Le Smith –: Okay. And then just a second question, looking at your SG&A ratio, would you say that the (inaudible) 4% is a good run rate?

Okay. And then just a second question, looking at your SG&A ratio, would you say that the (inaudible) 4% is a good run rate?

Well, the guidance is 11.5 or better. So, you could model on how do you think appropriately. Nichol Le Smith –: Okay. Thank you.

Okay. Thank you.

And we have a question from Darren Miller from Goldman Sachs. Darren Miller –: Good morning. Herb, I was wondering post lock-in if there's any markets where you feel like your products are better positioned and also if you can just remind me where are you going to be with your chronic snip products?

Good morning. Herb, I was wondering post lock-in if there's any markets where you feel like your products are better positioned and also if you can just remind me where are you going to be with your chronic snip products?

Well, I'll take the last one first, that's easy. The chronic snip products are everywhere except Florida. We didn't – we weren't involved in the bids, pre-acquisition and with the more (inaudible) we were unable to get those into Florida. Generally, we feel pretty good about the chronic snip capabilities in addition to being able market in our dual snip products that we've had historically and probably more than doubles our potential population to enroll and lock-in environment. So, we feel pretty optimistic about it and hopefully will start to see some growth from this point forward. Darren Miller –: Any compelling offerings from competitors in specific markets that you would be competed against, first lock in?

Any compelling offerings from competitors in specific markets that you would be competed against, first lock in?

I'm not aware of anything new we did. Last year we competed with the chronic snip product primarily in Texas that hurt our net growth there a little bit, but we think we are pretty well positioned to deal with that this year, and then the other markets I'm not aware of a lot of new snip products that have come into play in the other markets particularly. Darren Miller –: Okay. And the recalibration of the HCC model, you guys have a sense of what impact that has on you guys?

Okay. And the recalibration of the HCC model, you guys have a sense of what impact that has on you guys?

Not really, Darren. We'd rather not comment on that. Darren Miller –: Okay. And then Herb, just a quick update on the political environment and with the July 1 position fee cut coming up, what's your take?

Okay. And then Herb, just a quick update on the political environment and with the July 1 position fee cut coming up, what's your take?

Well, it's been tough been to predict, that's for sure. I know there is a focus on private fee for service, there's a focus on sales and marketing restrictions in methodologies I think. But I expect we will – I've always expect that I guess I was probably surprised, we'll see some rate cut probably won't go into effect now until 2010 but I don't expect it to be major. I think it's something at least we feel will be able to deal with pretty well. Darren Miller –: Right. Thank you.

Right. Thank you.

Our next question is from Gregg Genova from Deutsche Bank. Gregg Genova –: Hi, good morning. Could you spike out the revenue contribution from the end of the quarter and also if the accretion from Leon are the same still, I think you guys had said it was $0.15 for the year?

Hi, good morning. Could you spike out the revenue contribution from the end of the quarter and also if the accretion from Leon are the same still, I think you guys had said it was $0.15 for the year?

Well, we are not going to specifically carve out and talk line item by line item on Leon. What I encourage you to do Gregg is there obviously (inaudible) and you can get what you need out of that when we file it. Gregg Genova –: Okay. How about the accretion for the year, is that still a lot of the same expectation?

Okay. How about the accretion for the year, is that still a lot of the same expectation?

We haven't had any adjustments unless your guidance on accretion on that transaction. Gregg Genova –: Okay. Thanks. And just lastly, any direction on cash flow guidance for the full year?

Okay. Thanks. And just lastly, any direction on cash flow guidance for the full year?

I guess I can make the general comment. We get that comment a lot. We think will be some multiple of net income. We are still really trying to figure out what multiple is, whether it's o 1-2,1-3,1-4 we'll continue to try to work on that. I know you all are trying to get to that, but we are still trying to get our hands around that. Gregg Genova –: Okay. Thanks.

Okay. Thanks.

And it appears there are no further questions today. Gentlemen, I'll turn the conference back over to you.

Well, thanks a lot for your interest in attendance, so we look forward to next quarter call.

And that does conclude our conference today. Thank you all for your participation.