Ladies and gentlemen, thank you for standing by. And welcome to the WellPoint Inc. quarterly results conference call. (Operator Instructions). I'd now like to turn the conference over to the company's Management. Please go ahead.

Good morning and welcome to WellPoint's first quarter Earnings Call. I am Michael Kleinman, Vice President of Investor Relations. With me this morning are Angela Braly, our President and Chief Executive Officer; Wayne DeVeydt, Executive Vice President and Chief Financial Officer, Ken Goulet, Executive Vice President and President of Commercial Business and Brian Sassi, Executive Vice President and President of our Consumer Business. Angela will begin this morning's call with an overview of some of our first quarter challenges, actions and accomplishments. Wayne will then offer a detailed review of our first quarter financial performance and current guidance, which will be followed by a question-and-answer session in which Ken and Brian will also participate. We will be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of WellPoint. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our press release this morning and other periodic filings we make with the SEC. In addition, our discussion will include certain non-GAAP financial measures as defined under SEC rules. As required by the rules, a reconciliation of those measures to the most comparable GAAP measures is available on our website at www.wellpoint.com. I will now turn the call over to Angela.

Good morning and thank you, Michael. The first quarter was challenging. Our GAAP net income was $1.07 per diluted share, and included $0.06 per share in net realized investment losses. Excluding realized investment gains and loses; this is within the low-end of the guidance range we provided last month. While Wayne will update our first quarter results in more detail later on this call, I'd like to take a few minutes to discuss the three primary areas that prompted our earnings guidance revisions last month, the actions we have taken since then, what we've learned from these actions, and the current expectations for 2008 earnings. More importantly, I would like to discuss the key action plans that we are implementing to improve results for the remainder of this year and position us for 2009. Finally, I'll provide some commentary on our value proposition and steps we are taking to enhance our competitive advantages. The three areas we discussed on our call last month related to higher than expected medical costs, including less favorable than expected prior year reserve development, lower than expected fully ensured enrollment and the changing economic and regulatory environments in which we operate. Since our earnings guidance call last month, we are focused on significantly lowering our claims inventory. We increased staffing for medical management, adding claims examiners, and reduced our consolidated claims inventories by over 10% in the month of March. We've now learnt that our claims experience in 2007 was even higher than we thought earlier. Our prior year reserve development continues to be favorable, but less favorable than we expected. We recorded approximately $60 million of additional benefit expense in March, due to less favorable prior year development, which impacts earnings and also increases our underlying medical cost or baseline on which we assess…

Thank you, Angela and good morning. As Angela noted, we do have several challenges right now, and are disappointed with our lower earnings guidance for 2008. But we also have some positive aspects we do need to discuss. One of the positives is that we continued our strong organic membership growth in the first quarter. We added 564,000 new members and our medical enrollment totaled approximately 35.4 million members at March 31st, 2008, an increase of 1.6% from 34.8 million at December 31, 2007. Enrollment in our National business increased by 517,000, including a 354,000 new National account numbers, and a 163,000 Blue Card members. Our National membership has increased by approximately 2 million members since December 31st, 2005. I think this is an excellent indication that customers continue to find great value in the products and services we are providing in the marketplace. Local Group membership in our Blue States increased by 164,000 members in the quarter, while our non-Blue, UniCare and HealthLink membership declined by 136,000 members. As of March 31st, 2008, self-funded membership comprised approximately 52% for Medical enrollment, up from 51% at December 31, 2007. Premiums in the first quarter of 2008 increased $477 million or 3.5% to $14.2 billion from the first quarter of 2007, primarily due to growth in our Medicare Advantage business, premium rate increases for all customer types, and increased reimbursements in the Federal Employees Program or FEP. These increases were partially offset by the loss of the New York State Prescription Drug contract. We had approximately $1.3 billion in annual premium. Some small declines in National accounts and Local Group business, due to fully insured membership losses and conversion of the Connecticut Medicaid program for fully-insured to self-funded. Administrative fees in the first quarter of 2008 increased $45 million or 4.9%…

Thank you, Wayne. We will take your questions in just a moment. We have been very focused on understanding why we are not achieving the growth rates we previously expected and are implementing corrective actions based on what we have learned. We have faced both internal and external issues. We are accountable for our results and are working to address our issues. Even with all that we still have the best brand name and the best value proposition in the industry and we expect to capitalize on those strengths in the future. Operator, please open the call up for questions.

(Operator Instructions) Our first question comes from the line Matthew Borsch with Goldman Sachs. Please go ahead.

Yes, thank you. My first question is the follow-up, which is, your view on commercial medical cost trend. Can you just give us what it is now for 2007 and what it is now for 2008? Is it higher for 2008 than your revised view for 2007?

Thank you, Matt for that question. We have described that what we are looking at for '07, the baseline trends is now 90 basis points higher than we had initially reported. So on March 10th we thought it was 50 basis points higher, since we worked down these claims, we have assessed that it was 40 basis points more than that or 90 basis points higher than that or in the baseline for 2007. In terms of 2008, we continue to expect that medical cost trends will be in the rage of 8% plus or minus 50 basis points to the full year.

Okay. I just what I’m trying to understand with your revised forecast, do you see trend is higher or lower for 2008 relative to 2007 as you can see it now?

Trend is actually very much inline with 2007, now when we look at it on a restated basis, I’d say at this point, we are not expecting or at least in the early indication the trend is rising in '08 on our expectations, but we are still baking in the range of guidance we gave in the event it does. As you know, with only three months of activity at this point, I’m not prepared nor is Angela to say that the trend isn't rising, but I’d say on a restated basis, '07 is very much inline with '08, and right now '08 is still inline with what we originally had expected. So, again, we are building the range in the event that trend does move up, but right now, we are not ready to declare that. We are not really seeing that yet.

And next we'll go to the line of John Rex with Bear Stearns. Your line is open.

Yeah, just I wanted to come back still on the cost trends, so if I understand exactly. I think, where do you describe those seven trends initially was less than 8%, also at 7.9% and 7.5%, but you have 90 basis points over that level at this point. And it would seem that the mid point of that you’re talking to for '08 with still be a reduction with that level. I guess I just want to clear up that. And then if you could just come back and help us understand some of the commentary you gave in the March preannouncement. So, I think in March it was mostly characterized about being the commercial book, today it looks overwhelmingly like the Medicare book that's driving the year-over-year change in Medicare vastly overwhelms the Medicare book. So, it seems like a very different characterization, I want to understand what you’ve learned over the past months to help to get some more precision there? And then if you could come back to your commentary in March, about seeing a higher medical cost MD cost, which is not apparent in the component trend guidance you gave today, that there is higher MD cost, and the higher high cost to claims?

Okay. Why don’t we break this up a bit to answer your question, in terms of what we’ve learned since March, as we described March, we were describing all of 2007 trends. We had great clarity, and have received more clarity in terms of the Commercial book, the Group business, and the Individual book. And in terms of looking back, as you remember in March, we described that, we thought that the trend for ‘07 was actually 50 basis points higher and we brought that up now another 40 to 90 basis points higher. In terms of how that impacts 2008, now that we have that baseline correct, as Wayne said in the last response. We still think that for ‘08, that were in the range of 8%, plus or minus. In terms of better understanding Medicare and Brian is here as well. He can talk a little about that. We do have product design issues and pricing in the Medicare book that we are learning more about and experiencing more in the first quarter.

Okay. Thank you, Angela. This is Brian Sassi. The most significant issue we are facing in the Senior business is a product design issue in one of our private fee-for-service plan, the enhance plan. We are getting adversely selected by enriched benefit design called Part D drugs, and enhanced smith benefits, both of which we are correcting in the 2009 bid process.

Yeah, John, I do want to take a step, because I think this is a very fair question, at what did we learn and what changed. As we said in the early March call, we were seeing a significant increase in high dollar claims and at that time, we were also seeing a little higher MD cost and we were really trying to get our hands on what that is. In driving our inventories down substantially in the month of March, and while we saw there is, in the company rights, inventory is a very normal levels. We do have various inventories, we're at a twelve month low. So, I think we're getting much better visibility than we had before. That being said, the increase that we saw in high dollar claims was really more of a function of cost that belong in 2007. And so when we got this process and got business in the proper, year-over-year, it's not necessarily a spike now in high dollar claims as much as it is the lack of visibility that we had because of the migration timing. So, we have gotten those claims process. We got them in the proper period and I’d say at this point, while we do have higher dollar claims still in MICU and we’ve got programs that are rolling out, and we still saw some in oncology, the working out programs there, the long and short of it is, we really learned that it’s not necessarily a spike or trend issue for 2008 as much as we really lost our visibility on 2007, and that's why we increased our baseline pricing by 90 basis points versus 50 basis points. In terms of higher MD cost, utilization is slightly higher than we had expected. The same phenomenon existed. Now we only got into the right period, the year-over-year increases not as much as we anticipated. The real issue here is we miss baseline pricing by more than we thought. That's what we learnt. As a result, we further strengthened reserves by an additional $60 million and we know we have a product design issue in Senior and those are the three things that really caused the change.

And our next question will come from the line of John Raskin with Lehman Brothers.

Hi, thanks. Apologize for sounding like a broken record, but you guys have suggested, I guess, back in January when you reported the fourth quarter that you had seen medical cost transfer '07 below 8%. And then today, you're saying 8% plus or minus 50 basis points, but that's a 90 basis points change. So, I guess, I'm just asking the same question I think, but maybe I can hopefully a little bit differently. Are we seeing medical cost trends come down in 2008 or is that the expectation? And then secondly maybe Brian could you walk us specifically through what the product design changes were in the private fee-for-service that’s attractive one of this adverse development and then what we should think about I know it's before the bid. So, I don’t want to ask sort of exactly what you’re doing, but how you plan on changing that maybe versus the competitors.

John let me take a step; again at the medical cost trend again we have added three months in ‘08. So, I don’t want to declare whether it’s decelerating or accelerating, which is why we gave the 8% plus or minus 50 basis points. But I what tell you is it's right inline with last year at this point in time and that being said I’m not convinced to accelerating at this point. It’s just too early and I’m not convinced it is accelerating. So, again I think to give any kind of trend relative to the last year based on three months is premature, which why we provided the range, but at this point in time I think we want better visibility around whether it's increasing or not by the second quarter and that’s why in the event it is increasing, we did build the range that we built.

It sounds like your guidance though is at its lower.

It so our original guidance as we thought to be 8% and we changed that in March to 8% plus or minus 50 basis point. So, if you look at year-over-year it’s relatively close on a restated basis.

Okay. Maybe I’ll follow up offline.

With respect to the private fee-for-service plan design issue what I can share is that a lot of the anti-selection is resulting from a zero co-pay for Part D drugs on an new enhanced products that was rolled out in 2007.

Okay, that's an easy fix then, right.

Thank you. Our next question will come from the line of Charles Boorady with Citi. Please go ahead.

Hi thanks. If I could step back and ask you a big picture question regarding guidance in terms of when you learnt that the previous guidance was going to be off. And just what concerns you have over your ability to meet this new guidance for example, if you miss it would more likely be because of industry trends being higher than you thought or is a still a potential for more catch-up from claims processing or benefit design changes and other factors?

Now that we are expecting it, but if there is additional deterioration in the trend overall -- we have tried in our guidance to reflect what we are seeing from an overall economic perspective in terms of rate of buy-down, in terms of in group change that Wayne and Ken comment on kind of the market more generally if you like.

Yeah, Charles a couple of other things that we did is that it was imperative that we have the reserve is right as close as we could be, while there is no guarantee. I think if you look at the balance sheet you will see that the reserves are up almost 600 millions in since 12/31 despite fully insured being down. Our DCP is up as well and then we engaged a third-party firm to come and independently look at significant portions of our reserves and our balances. So, I think we have taken a lot of steps above and beyond we typically would do to try to ensure as best we could that we would not be surprised with a revision. That being said, I think to your question, I think it would have to be something much broader in the industry at this point. But we did bake in the $0.25 range that we put forward in the event that trend was either moving up or there was something that was unexpected. So, again at this point, I think when we look at what we knew in early March, again the only real changes are, in getting the inventories down is that we missed baseline by more than what we thought. We strengthened reserves and we have a benefit design issue and we know we need to do fix it. So, I think the rest of the year will hopefully be a more stable.

And I’ll let Ken comment upon what we are seeing in the market place. As we described, we think pricing is a competitive, but rational. Ken, you want to comment on that?

Yeah, Charles, it’s Ken Goulet. I’d say that our pricing in the market place is competitive, but continues to be rational. As Wayne noted we missed our base point. We have about 75% of our pricing is completed for 2008, and is broken down about 33% in January, 22% February through June, and 20% in July. In looking at that, we will have correct pricing from August on, and our July pricing, we would have captured the 50 basis points that we’ve recognized six weeks ago. So, we feel very comfortable, where we are, from the August timeframe on and we captured a good portion of it in our July pricing which is 20%. That should put us in good position for remainder of the year and then for 2009 and beyond.

Does your year end enrollment assumptions take in to account the potential for attrition as you put through rate increases and does your loss ratio assumption take into consideration that the healthier members are more likely to go uninsured, than those who actually need care so that you might see a shift in the risk of the book, if you do lose some customers in the process of raising price.

The plan for the remainder of the year does take both of them in to effect, does the majority of -- we do have growth plans for the remainder of the year, but the majority of it in fact, in essence, all of it is a National with a large K sale has already occurred that is a midyear sale and also one-one of next year. Our pricing does take into effect. The pricing increases we have going in and the book change although we very aggressively manage the active cancelled cost ratios and as Angela said in the initial comments, we had a 570 basis point advantage in that area and our teams really do look at that as we go forward to make sure that we price well for the healthy cases and for those are not adequate cost ratio price appropriately in those area.

Thank you. And our next question will come from the line of Doug Simpson with Merrill Lynch. Please go ahead.

Hi, good Morning. I was wondering if you could just step back a little bit right now, it seems like there's MA benefit design issues, individual pricing issues, systems migration issues you got the two major forecast change in the last three months. You had a bunch of management turnover last year. I'm just stepping back in, I guess, I'd ask, the company is a lot bigger than it was five years ago. And as you're looking in the next few years, just maybe give us a sense how comfortable are you with the depth and breadth of the management team and should we be looking for bulk up there is or I mean how do we think about all those volatility left six to eight months specifically?

Well, I appreciate that question, Doug. I do think we have brought together a new management team that has considerable operating experience both Brian and Ken who are with us today, are very experienced operators, have our P&L accountability, have began to make significant improvements in their areas. Brian as we described has a number of challenges for the senior product those changes can began to be made in this cycle and they are very fundamental execution issues that we need to improve upon and all of our lines of business and both of these individual can ran our National account business for the last several years and that business has shown a significant execution ability and I think he is bringing that to our team and to his team and the execution for his commercial business. In terms of strengthening our ability, and to do integrations in systems migration that is absolutely something we are very focused on. We disappointed ourselves, our shareholders and our customers as we’ve made migrations that were not planned as well as they should have been. And so we are very focused on executing on that. In fact we have a performance improvement plan with very specific action steps. We are holding people accountable, we have timeline for executing against those and we need to stay very focus on the fundamental. So, I think it’s an appropriate time for us to do that and to execute I can see that we are making our steps in the right direction there and we will continue to focus on that and be very transparent about how we are doing that.

Okay. And then just to the follow-up I know we have talked about this in the past, but just given how the stocks performed in the volatility in your stock over the last six months. I’m just wondering could you just update us what your thoughts on potential for cash dividend, given the cash flow that you guys are projecting. It seems that you are certainly have room to maybe pay a decent cash dividend as well as share buybacks and still leave yourself drive harder to pursue any deals, maybe just don’t tell, but comments around the potential for Blues acquisitions and I guess the question is if there is nothing in the pipeline for the next six months, why not go ahead and do something with the cash dividend that's a little more visible to people in near-term?

Yeah, we constantly visit with our board about capital management plan and we take those considerations very seriously. We will continue to revaluate our capital management plan in light of where our stock price is and other opportunities that exists. We are striving to use our capital and our assets in the manner that most effectively improve shareholder value. So, we continue to do that. The investments we are making and executing on the repurchase authority that we have is appropriate, but I can commit to you that we continually evaluate a dividend and the repurchase program and what would be in the best interest of the shareholders. Wayne do you have anything to add that?

No, I think our new initiative is actually right on and we visits with our board on a regular basis and we are doing everything on shortly.

In terms of the Blue acquisitions and is there one in the pipeline or there are others in the pipeline. We think we are making strides in partnering with Blue Plans in a number of capabilities our aim company has a number of Blue Customers, Resolution Health or RHI that we acquired also has a number of Blue Partnership. We do think there is great value in our Blue Partnership and a variety of ways and we are working well there and to the extent that there is Blue Plan, over time I think it appropriate to consider consolidation, we'd be happy to partner with them, in terms of that. But we do take then to account in terms of whether or not those are short-term or long-term and we'll be thoughtful about that in terms of the capital plan.

Okay. Thanks.

And next we'll go to line of Scott Fidel with Deutsche Bank. Please go ahead.

Thank you. First question just maybe if you can talk a little bit about how the margins you’re seeing in UniCare are relative to the Blue margins you’re seeing in the Commercial Business and then also just thinking more strategically you're updated thoughts on, potentially divesting the UniCare business in the commercial side to focus on the markets, the Blue markets and commercial where you clearly have much more of a competitive advantage?

Thanks, Scott for the question. I going to have change the way I speak to it. As you know we put Dennis Casey, President of UniCare. He is evaluating the business and the strategies there. But Ken would you like to comment upon UniCare generally.

Yeah, I’d say both Dennis and I are relatively new and I asked Dennis to run UniCare and take a look at it. The commercial UniCare membership just give a feel was down about 146,000 members from the yearend and the breakout is about 45% fully insured and 55% ASO. Our margins, we've been very disciplined then our rate action and pricing, which has driven some of the changes in the membership both in the small case and in the individual business. We have taken a number of strategic looks to see how is the best way to use the asset moving forward, which includes a variety of things including different provider partnerships, direct strategies and others and we are evaluating all different options for UniCare going forward and we'll continue till yearend.

Okay. And if just ask a quick follow-up to just thinking more broadly and with the changing economic environment here in terms of the weaker economy. Just wondering if you think there could be a shift at some point in the critical landscape around seeing an increase in Blue Plan conversions over the next 12 to 24 months and just thinking about the states have to grapple with budget issues and Medicaid spending issues, whether you think you could see more of an opening in terms of states being amendable to the Blue conversions.

The thing you have to keep in mind with respect to Blue Plans and Blue Plan conversions in each plan has a different history and potential structure, in some states is clear that the Blue Plan may have an obligation to the state or a charity and other cases it maybe clearer that the Blue Plan is really held by the policyholders. And so that going to have a big impact in terms of the political situation that applies to each of those Blue plans. We continue to believe that in a consolidation and integration strategy that over time that need for scale is evident in this business. And as individual plans you'll have to continue to think of ways to achieve scale and deliver superior capabilities in the marketplace, because we know our competition has scale and is delivering in the Blue and against the Blue competitor. So, we continue to forge good partnership with our Blue Plan Partners, those in that being individual decisions, I do think in terms of the political landscape, the states are again they be thinking about their budget issues and in certain places, they might have the Blue Plan as an option there and they're certainly evaluating those in certain places. But we're going to say consistent with our strategy of partnering with Blues in a lot of ways and be available in the event that a consolidation is desirable.

Okay. Thank you.

And our next question will come from the line of Justin Lake with UBS. Your line is open.

Thanks. Two questions here, first just wanted to return to the medical portion first. I could think the last time we spoke you’ve had said cost trends were still under 8% for 2000 and 2007. Can you give us the spot number, where you think that actually ended up now that you had to revise it up another 40 is it over 8% now?

It’s right about 8%.

So, last year I guess with a little bit confusing to me is that would put you at about 7% pre-quality adjustments, which is materially different I think under 8 that you would talk to, originally for the year. So, I’m trying to get my hands around it. Did you think cost trends were going down, because of this, which would I guess would make sense because of the claims lag or where at 7% the whole time and just were saying under 8?

No, I think we thought in some cases they’d go down slightly and didn’t pass as we had expected.

Okay. So, you’d thought trends were coming down priced for them and saw them go up. So, you’re right around 8% now and as you look at those claims come to I think that the portion number that you put out there as a rolling 12 month if I remember currently.

Correct.

Can you talk about a rolling three month average and just when you start putting those claims back in the right period? Does the fourth quarter for instance look a lot higher or materially different in the first quarter?

Let me answer it a little bit different, Justin. I’d say that the rolling 12 month, when you look at our premium yields on rolling 12 month basis. On rolling 12 month basis our premium yields are positive, but if you look at relative to the quarter, we are missing and we are missing by about 90 basis points quarter-over-quarter, when you look on a restated. So, I’m not sure I’m answering your question correctly, but remember that first quarter where we have significant reserves strengthening and it is well. And so it’s a little bit hard to look at it on a quarterly basis without trying to normalize a little bit more, but when you look at on a rolling 12 months average, we know last year that we missed it by 90 basis points.

Well, I’ll take that off-line. Just one other follow-up quickly on the Medicare business, it was great that you kind of quantify that $200 million operating losses in the first quarter. I’m just wondering now with this revised plan that out there. Can you give us a ballpark as far as how much with the expected overall operating losses are in the Medicare business that you kind of embedded into the '08 plan and how that differs versus your results in 2007?

Justine, we don't provide as you know, our profits by product for competitive reasons, but I will tell you it was relative to $200 million loss in the quarter, about $60 million of that related to timing on Part D. So, we do expect a significant portion that’s online and there is some flu related in there, so you need to bifurcate some of that out. But it is fair to say that as we continue to provide our segment reporting our other businesses are doing well not as well as expected, they are still profitable. And so the majority of what you’re seeing in that segment is all related to Seniors, I think you will get a gaze as the year develops.

Wayne, I guess just the $140 million and are you taking that missed that benefit design mistake and accruing for the entire year, I guess you’re saying it’s a $140 million it's kind of attributable to Medicare Advantage as well as a little bit of flu?

Yeah.

Would that be for the full year, you are taking the reserve at now or should we multiply that by four, as we think about the rest of the year?

In our full guidance we've obviously strengthened the reserve substantially in this quarter though.

For Medicare Advantage specifically?

That's correct.

Okay.

And then we have assumed some level of further deterioration throughout the year on it.

Okay. The Medicare one the loss for 2008 in total probably?

Also Justin, this is Brian. To put it in perspective, private fee-for-service represents less than 50% of our MA book and the plan that we are having the issue on has membership of about 25% a private fee-for-service . So, it is not impacting the entire book.

But you will run at a loss in Medicare for 2008 overall because of this?

No, no, I think we are going to run at a profit, but it's not going to be nearly at the levels that we had anticipated and it will clearly be down over what we were at in the previous year.

Thank you very much.

Thank you.

Your next question will come from Bill Georges with JPMorgan. Please go ahead.

Thanks, good morning. I’m wondering, again on the cost trend issue, when you look back historically, WellPoint always issued pinpoint EPS guidance and pinpoint MLR guidance, and now it would seem with the range and the new policy to not provide quarterly guidance indicates arguably a more constrained view of costs, the direction of costs pricing and margins going forward. So, two questions, what specifically within cost trend benefit design and pricing has got you nervous going forward, and how can you give us more comfort that you have in fact captured the full breath of the issues that have been developing with increasing momentum over the last several months?

Thanks Bill for the question. A couple of things, one thing is, clearly I think we are seeing in economy that many of us and many in this industry have not experienced in the most recent years, and it is creating some variability of what we’ve seen in the past. The other thing I would say is that, there is no other way than saying this, we did not execute well on our migrations when we lost our visibility. And so, while I think we’ve got visibility on the year and the action steps throughout the year, I think it's important that all the decisions we make are focused on that and getting this right for 2009. So, I believe in providing quarterly guidance as does Angela that allows us to focus on driving the longer term shareholder value not the quarterly, it’s not due to lack of visibility as much as it is a focus on ensuring that we get these problems resolved and fixed when we get into 2009 on a strong amount and strong foot. In terms of, just again, if the trends in that, it's clear that we missed the baseline last year so I want to make sure that we're putting the right effort and energy around the resources we need to ensure that our actuarial folks have all the data they need to price for 2009 as well.

Okay. And if I could just ask one quick follow-up as well, I think Angela referenced the sort of the continued dynamic of Blues are WellPoint provider discounts in the marketplace. We're hearing somewhat from you and certainly out in the marketplace and certainly from competitors that, the magnitude of that discount has been decelerating. Can you provide any metrics around that and obviously, that's going to put competitive pressure on you in already difficult environment. So, how are you thinking about that going forward?

We are very focused on that. In terms of we believe that our discounts are very competitive. We want to keep that competitive advantage and we believe we have to continue to focus on new structures in order to do that. In particular, we got to look at the networks that are available for certain products. We have to design products that are network specific because we are seeing shifting around the PPO versus other structure. So, we are very aware of that and very focused on it. We also really have to get the cost of care initiative in there and effective overall. We continue to see the Blues to exceed in the National account arena and Ken comment on that specifically because we are seeing that competitive stance being portrayed by our competitors and we can continue to believe that we need to stay very focused on that and we still have an advantage that we're seeing that in the marketplace, but we need to continue to hone in on that, look at network design and look at cost of care initiatives to drive that further. Ken you want to comment?

I think Angela hit it right on. First, we still feel we have a good, solid advantage in network depth and network discount across the board and it’s evidenced by the 2 million plus increase in National account membership over the last few years, which is a very focused consultant-driven, discount analysis, when comparing ourselves versus other. So, we do have an advantage, however, we have acknowledged at cost advantage isn't as large as it once was. We're doing a lot of work on product and network assessments to ensure that we use depth in the partnerships we have with our providers, to continue to drive the advantages necessary, to keep the margins we want. And it’s a key focus of what we're doing and I’m very confident that with the right focus, we'll be able to either drive product or network advantage to continue to be a significant advantage moving forward.

Okay. Thank you.

Thank you. And our next question will from the line of Carl McDonald with Oppenheimer. Please go ahead.

Thank you. In last call you provided a breakdown on what was causing the increase in the loss ratio guidance for '08 and you talked about $125 million reserves strengthening related to '07, $40 million for the medical cuts and then 20% for Medicare with the balance being Commercial. With the improved claims visibility you have now, can you update those figures for us?

Yeah, Carl, if you look at really what the primary changes in the guidance range were approximately $60 million of it relates to further strengthening of reserves, which is what we did in the quarter. We have approximately an additional $40 million or so related to Senior products and what we are putting there and what we had previously anticipated. And in the delta and the change represents the additional 40 basis points, which is approximately about $120 million or so of additional pricingness.

Okay. And the total reserve strengthening, so I guess it's now $185 million, any sense of how that breaks down between the Commercial versus the Senior products?

We shoot for a higher single-digit margin on all the products. So I’d say that it's fair to say that last year well, both of our segments, both our Commercial and Consumer including the Senior did develop favorably that both develop significantly less favorable than we expected. Keep in mind that while we have a benefit design issue within Senior, the baseline price misses is really around the Commercial book. So, I think it’s important to recognize that we have a strength in both of them -- I don’t want to say it equally split, but it’s relatively comparable.

That’s great. Thank you.

Thank you.

And next we'll go to line of Christine Arnold with Morgan Stanley. Please go ahead.

Good morning and thanks for taking my question. If I understand correctly, you said that the days in claims payable increased 0.7 because of increased cycle time that implies that you’re processing claim is potentially slower rather than faster. Could you address that? And then, could you talk about hospital pricing? How much is hospital pricing in '08 versus '07? And how much of your hospital contract are linked to inflation? And then finally the New York State PBM I think helped 50 basis points on the commercial loss ratio. So, if I understand correctly then other factors X this PBM increased the loss ratio 60, could you address that? Thanks.

Hi, Christine, thank you for your comment. Your first question I think a very fair question and good question. The increase in cycle time is not due to a slowdown in inventories, but actually relates to the impact of the New York PBM and how that timing impacts the calculation. So, remember when we lost the PBM that is a contract, but it is very fast payment time. So, it’s a little bit misleading when we say that, because our inventories are down and our cycle times are improving. So, that represents just about a day, so that describes our particular component. So the remaining increases due to the other factors that there. The second question I think was in terms of our hospital pricing and Ken I don't, if you want to comment on what we're seeing out in the market and how we're addressing that.

Christine, if we look at our inpatient and hospital trends, we are in a hospital trend in the upper single-digits and right now 90% based on unit costs, 10% on utilization. What we enter into is long-term provider contracts and most of them have set fees it is not inflationary base they’re set contract-based over the terms of the contract. So, they are not a variable based contract, we know what they are against our plan, so that we can base our pricing against what itself into the plan and they’re all multiyear contracts. We do incorporate pay for performance into our programs and very heavily used in certain state such as Indiana, Kentucky and Ohio. But we always based our multiyear contracts are preferences DRG or per per-diem basis, but not inflationary based. Although there are inflationary measures built-in over the multiyear contract. And I hope that addressed and Wayne I think you’ve got the third question?

How much do you expect hospital pricing to rise '08 versus '07?

Our inpatient trends of '08 over '07 are in a high single-digit. So, and we're tracking very closely to plan. We watch it on a provider by provider basis (multiple speakers) so it's in a high single-digit range percent.

But how much is pricing, is the pricing 5% last year and 7% this year for hospital or was it 5% and 5% or can you get the idea?

Yeah, it's comparable.

Comparable percent?

Yes

Okay. Okay so high single-digit, both, go ahead, sorry. Last question was on the PBM.

Yeah, Christine, could you repeat the question for me please I want to make sure.

Yeah, as I look at the New York State PBM, I estimate that, eliminating that reduced or held your commercial MLR '08 versus those 2007 by 50 basis points. So, that means, that if all other combined with this, is kind of a ten basis point increase then excluding the PBM, it perhaps closer to 50 or 60. Can you help me with that and what's in this other category offsetting what looks like a significant benefit from losing the PBM on the commercial MLR?

Yeah, I mean, clearly a part of it, is that we're having higher than expected cost relative to exactly we missed our baseline pricing. So, it's a pricing issue not MLR going up because of the trend, but because in the pricing and so that's affecting it. And then again, the flu season and while we're baked in some of that for our original guidance, it was slightly higher than what we have expected as well, but the majority of that Christine, is just that we miss pricing and that's affecting the MLR calculation.

Okay. And it’s high dollar, those high dollars related to first quarter of '08 or '07?

The flu?

You said that the 10 basis points was PBM was offset by high dollar claims in flu, I’m just wondering the high dollar claims were they '07 claims or first quarter of '08?

They were claims who paid in the first quarter of '08 reserve for, but again a lot of these relate to '07 though, which is why we know the baseline was wrong. So, when you miss your baseline pricing, you're taking the charge, but you just don't have the pricing to support it.

Okay. But the claims were incurred in '07, perfect. Thank you.

That’s correct.

Okay perfect.

Thanks you.

Our last question this morning comes from the line of Peter Costa with Ftn Midwest Securities. Please go ahead.

Thanks for squeezing me in guys. Two questions, one it looks like you have booked about a $160 million straight to equity. I assume they aren’t something on the portfolio. Can you tell me specifically what that was? And then the second on the Individual book of business, that drop 30 dips in terms of effecting the overall cost trend. The prime price at the problem there is more like 200, 300 basis points of problem and so it’s a little bit more than the pricing miss that you have talked about plus you have lost membership there. Can you describe exactly what’s going on in that business and then perhaps also did how much of that membership is currently (inaudible) health plans.

I will let Ken add some of this in there, but first thing is I’m going to follow-up on the equity item. There is nothing unusual so Pete I’ll follow-up on that for you. But in terms of the miss I mean the vast majority of that miss in the Individual is the pricing it's still very profitable, but I think as we mentioned we have seen membership declines on a net basis in that and I think it's fair to say that some of the members were losing are the healthier members. So that is having somewhat of an adverse effect as well on the some of the trends we have seen within that book, not necessarily because of medical cost as much as it is mixed shift in the book. Ken I don’t know if you want to add anything.

I think, its Brian.

Brian?

Yes, I just would like to reiterate what Wayne said, the Individual segment is still very strong segment for us with good margins. We -are seeing strong sales activity, you can higher than 2007. In terms of the membership miss we did see greater attrition in a quarter-over-quarter basis when compared to ’07. We have recognized that trend in ‘07 and put a number of initiatives in place to stem that. And looking at the individual book from year-end '07 to the end of first quarter, we stemmed the membership loss and when we lost 10,000 members in the first quarter, which was not unexpected given the seasonality of our California rate increase, which was effective 3:1 in the size of our California book. So, membership is tracking to our expectations.

Hey Peter, I think that we’re referring to on the balance sheet is the accumulated other comprehensive income in the shift that we saw there. And the majority of that represents realized gains and loss to say differently unrealized gains and losses on our equity and bond portfolios. So, since we mark-to-market our investments as the underlying equities move up or down, that number will change relative to how move within the quarter. But keep in mind too that we moved under our accounting policy, we actually took a realized loss for significant portion even though we didn’t saw those investments. So, essentially what we do as we shipped out from equity, we shipped up to the P&L for other than temporary impairments, but it's more that shipped, it's not related to any actual sale that occurred.

I understand, but what specifically was the stuff that went down, was it any particular class of security?

No, it’s mostly just the equity markets. That's driving the vast majority of it. The fact that the equity markets are down and our policy on how we treat OTTI for equities is very conservative, specifically if equity security is underwater by even a dollar after 12 months, we light it off as another temporary impairment and take the charge and if under by more than 20% after six months, we'll take the similar charge. So, it’s more on the conservative and more policy.

And then how many members are in high-deductible health plans of the individual book?

In terms of consumer directed healthcare plans?

Yes.

A very small percentage, probably less than 5%/

Thank you.

I want to recognize here that we have a number of people, who are in the queue to ask questions. Unfortunately we aren’t able to address everyone’s questions and for that we apologize. Alright so, but I do want to thank you for those questions. And in inclosing, I want you to know that we remain confident in the future due to our industry leading value proposition, and our dedicated 41,000 employees. We understand the issue affecting our business and we are taking decisive actions to address these issues. We are monitoring our progress closely and consistently. And we have confidence in our ability to mange through these issues, to continue to provide distinctive products and services, to meet our expectations and to continue to grow. I want to thank you all for participating in the call.

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