John Rex - J.P. Morgan Justin Lake - UBS Joshua Raskin - Barclays Capital Matthew Borsch - Goldman Sachs Scott Fidel - Deutsche Bank Charles Boorady - Citigroup Carl McDonald - Oppenheimer Ana Gupte - Sanford Bernstein Research Peter Costa - FTN Midwest Securities Corp Greg Nersessian - Credit Suisse

Welcome to the WellPoint conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the conference over to the company's management.

Good morning and welcome to WellPoint's fourth quarter earnings conference call. I'm 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 our 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 our fourth quarter results, actions, and accomplishments. Wayne will then offer a detailed review of our fourth quarter financial performance and current guidance which will be followed by a question and answer session in which Ken and Brian will also participate. This call will reference a non-GAAP amount. A reconciliation of this non-GAAP amount as the most directly comparable measure calculated in accordance with GAAP is available on the investor information page of our company’s website at www.wellpoint.com. 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 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. I will now turn the call over to Angela.

Good morning. Today we announced fourth quarter 2008 net income of $331 million or $0.65 per share. This included net realized investment losses of $351 million after tax or $0.69 per share. Net income in the fourth quarter of 2007 was $859 million or $1.51 per share which included net realized investment gain of less than $0.01 per share. Full year’s 2008 net income was $2.5 billion or $4.76 per share. These results included net realized investment losses of $1.45 per share, a $0.17 per share impairment charge related to State Sponsored intangible assets and $0.90 per share in income tax benefits resulting from the favorable resolution of certain federal and state tax matters. Net income for the full year of 2007 was $3.3 billion or $5.56 per share which included $0.01 per share in net realized investment gain. We had a solid fourth quarter in core operations where results were in line with our expectations reflecting actions we’ve taken to effectively manage our business through the current economic situation and for the long term. WellPoint remains in a strong financial position with a diverse investment portfolio and strong liquidity. During the fourth quarter, our subsidiaries paid $2 billion in dividends to the parent company. At the end of 2008, statutory capital levels in our insurance subsidiaries exceeded State requirement by $4.9 billion and Blue Cross Blue Shield association requirement by $1.8 billion. Corrective action plans we implemented during 2008 have laid the ground work for growth in 2009 and beyond. One of our internal enhancements was the creation of the WellPoint Operations Council chaired by Ken Goulet. The council is comprised of six key executives who manage the areas that most directly drive our operating revenue and profit. This team is accountable for obtaining our operating target and maximizing…

Good morning. Our underlying operations are doing well, and this is reflected in our fourth quarter 2008 results. Premiums were $14.3 billion in the fourth quarter of 2008, an increase of $25 million over the fourth quarter of 2007, primarily due to premium rate increases for all medical lines of business, growth in our Medicare Advantage business, and increased reimbursement in the FEP program. These increases were partially offset by the loss of the New York State Prescription Drug contract, our exit from the Ohio Medicaid Program, lower premium volume due to membership declines in non-Blue and UniCare business, and conversion of the Connecticut Medicaid Program to self-funded status. Large group benefit buy-downs for 2008 were in line with historical levels and early renewals in 2009 showed the same pattern as many larger benefit designs were locked in prior to further economic declines in 2008. Employers will likely seek even better value from the benefit plans going forward, and we believe this plays to our advantage because of our unique value proposition. Administrative fees increased by $61 million or 7% to $975 million in the fourth quarter of 2008 when compared to the fourth quarter of 2007 primarily due to self-funded membership both at national including Blue Card and local group. The benefit expense ratio was 83.4% in the fourth quarter of 2008, an increase of 50 basis points from 82.9% in the prior year quarter. The increase was driven by higher medical costs and membership exchanges in the local group business including a timing of medical claims recognition. As previously disclosed, we strengthened reserves in the first quarter of 2008 when fourth quarter 2007 claim cost about at a higher level than was anticipated at December 31, 2007. We also incurred a higher benefit expense ratio in our Medicare…

Operator, please open the queue for questions.

We will now begin the question and answer session. (Operator Instructions). Our first question comes from the line of John Rex from J.P. Morgan.

I just want to focus on your commentary you said being consistent about for ’09 pricing that would anticipate something above all in trend; can you give us a rough estimate of what you’re talking about when you say above all in trend, are we talking about 10 basis points, are we talking about 150 basis points; just a magnitude that you’re anticipating now in that positive spread?

We talked about it on our third quarter call that we obviously thought we were seeing rising trend although in terms of our pricing for ’09, but at the same time we thought we were beginning to see some deceleration of that. Clearly for the current year, we now believe we’re slightly less than 8% on trend. I still think it’ll be 8% plus or minus 50 for next year, but I would say right now that we’re not ready to declare that the trend has slowed down or we’ve maintained our higher pricing levels. That being said, we did do a market by market analysis where we thought it was appropriate to maintain those slightly higher levels, but John, as you know in a tough economy like we have right now and a very competitive environment, we’re not talking anything near of 100 basis points or more. It’s slightly above trend.

Would this be fair to assume, at least as a target rate, that you’re targeting at 50 basis point positive spread?

In total we know we’re trying to ultimately finalize for the year so that I can tell you whether we’re over by 50 or 10 or 20. Again, I would say that we’re priced slightly above trend, we feel comfortable with that, and early indication would be positive relative to that, but until we see how the economy reacts, and the fact is with the economic downturn, you could get some adverse selection and so we have baked some of that in as well. Again, we’ll see what ultimately happens and we’ll provide more updates in the first quarter call.

Your next question comes from the line of Justin Lake from UBS.

My question is around the membership guidance for ’09; I know you are not talking to specific numbers, but you did mention that you expect a deteriorating economy and therefore double-digit unemployment in certain states; I just want to get a little more specificity around that. Can you give us an idea of where you think you’re weighted average unemployment rate is coming out of 2008, and which are single-digit EPS growth guidance embedded for unemployment on a weighted average basis for 2009.

You’re right to look at it on a weighted average basis. We look primarily at our Blue states where our membership resides, and as we look for ’09 we’re assuming around 10% for overall unemployment on a weighted average basis.

And where is that now?

It’s not quite there; it’s not there at this point, that’s the forecast that we have. We’re seeing and watching the development on a real time basis in terms of unemployment levels. There have been a lot of recent announcements about some of our key states. So, it varies by state on a weighted average basis. It’s lower than that now, significantly lower than that, but we’re using an assumption of about 10% on a weighted average basis for ’09.

But it’s significantly lower than now. So, you’ve got a fairly…

Yes. It’s closer to what you’re hearing on the national average. We’re not quite at the index level exactly because we have some states that have unemployment at slightly higher levels than you see otherwise. So, I would say it’s pretty close to the averages that you’re hearing on a national basis, maybe slightly higher than that.

Your next question comes from the line of Joshua Raskin from Barclays Capital.

My question relates to the juxtaposition of your cost trend expectations versus your guidance and it sounds like three months ago you were talking about mid single digit guidance for ’09 EPS off of a slightly higher number and now you’re at the low end of that range talking about low single digit growth, and yet it sounds like cost trends actually moderated a little bit; the two questions are, what’s driving that moderation in cost trends and then what is offsetting that positive impact in the ’09 guidance that makes you a little bit more wary?

A couple of things; one is we’re not going to bake in any moderation in trend yet into ’09 until we see more development. So, one is while we did finish the year slightly below 8%, we’re not baking that into the low single digit guidance that we provided. I do want to highlight a few things though. As you know, clearly interest rates have declined in terms of investment income with fed cuts that occurred in the fourth quarter; that clearly also impacts that from a below-the-line perspective. We are assuming, as Angela said, double-digit unemployment levels on a weighted average basis, and while a number of states aren’t there yet, if you look at some of the larger states, take California in particular, it’s already over 9% today. Obviously, you know that’s a significant state for us. So, I think we’re baking in what we think is a prudent and reasonable level of outcomes that could occur with the downward economy, but whether or not there is upside, that’ll be very dependant when upon the economy falls off.

And just a followup on the med cost trends; what’s driving that lower?

From our perspective, we did see the per utilization being slightly down broken into days per thousand, units per thousand; so that came in a little bit better than we expected at this point. I am not sure if anything is really an outlier from what many of you have seen already. I think we did see lower activity both in October and November. We did see a slight true up of that in December, but I would say that things did appear to slow down a bit.

Your next question comes from the line of Matthew Borsch from Goldman Sachs.

My question is if you could talk a little bit about the dynamics you’re seeing in terms of in-group attrition. Obviously probably I would assume the bulk of that is from workforce reductions at your employer clients, but what are you seeing if you can track in this in terms of take-up rates or changes in take-up rates if you have any inside on that. In other words, maybe some people declining to take up employer-offered covered given the economic pressures?

Ken Goulet is here with us this morning, so Ken can you address that please?

We’ve been tracking this pretty closely, and throughout 2008 and now going into 2009, since October 1, 2008, through what we find through the wires and talking with our clients, there were 116 significant layoffs, 52 included our clients, and we monitor the membership losses for each of those. There were a number of specific cases in retail and others that did impact us on a membership basis, and that is built into our plan. So we’re tracking it on the larger cases. On the small groups, we are seeing some changes, and the deteriorating economy will have an impact itself into our plan for next year, but there is a trend in some areas of lower employer contributions for dependence, and therefore, there is some attrition in our small group areas where there are enforced losses due both to the economy of layoffs but also due to smaller contributions and some looking for individual and other alternatives.

So would it be fair to say you are seeing it with the small employer segment, but not as much for the large?

The large is bigger hits and we see it. The small, not as much, although we are tracking it closely.

Your next question comes from the line of Scott Fidel from Deutsche Bank.

Can just size the severance charges that you took in the fourth quarter? Was it $24 million that you had previously indicated, and then talk about some of the annualized run rate savings that you expect to generate in the future from those actions?

The severance charge number that we reported is in fact the number that it finished at. It’s about a nickel impact on EPS, when you look at it from that perspective. We obviously expected some positive run rate benefits on our SG&A. I would tell you that they are in excess of $100 million related to those severance charges.

If I could just ask a followup just around the decline in the medical claims inventory, can you talk about which particular markets or product segments you’re really seeing the decline in inventories or is that pretty much across the board in terms of commercial Medicare and Medicaid?

It really is pretty much across the board. We’ve been driving lower claim inventories in both state-sponsored senior and commercial business, and as Wayne mentioned in the opening comments, we are at a 2-year low right now and reduced 8% in the fourth quarter. It really is across the border. We wanted to drive inventories down for a variety of reasons to get better exposure to provide continually better service, but it’s across all lines of business.

This is a concentrated effort for this year, and it really has produced great results in terms of overall declines in claims inventories. It’s given our actuaries visibility that we’re seeing earlier in the year as well as, as Ken said, improving the service to our customers.

Your next question comes from the line of Charles Boorady from Citigroup.

My question is just around the PVM and whether you’ve been more open lately to considering alternatives for it, and then I also wanted to ask about med loss ratios by product, which I know you don’t disclose, but in the past you’ve given us directionally the year over year change in the loss ratio for commercial versus Medicare, and I was wondering if you can do that for us today.

We believe that we have an obligation to look at all of our assets and try to make sure we’re really creating the most value for our customers and our shareholders, and so we’ll do that with everything including the PVM, but let me say, we’re a real believer that one of our key roles is integration as you know, which means that we have a relationship with a member and we can create value by making sure there’s a coordinated view of their medical care whether it’s their pharmacy benefit or their medical benefit or their wellness benefit and how we can impact that overall. So we continue to view our responsibility to look at those assets and importantly deliver the best value to our customers, so in terms of being more specific around our segments, I am going to ask Wayne to respond.

As you mentioned, obviously we don’t provide that detail by major segment, but obviously we know year over year ’08 to ’07 our loss ratio was up overall all product segments. Obviously we would expect going into ’09 that in many of those segments you will see that come back down, and again we’ll provide more details in late February at our IR day.

Can you comment at all directionally the improvements or deteriorations in commercial Medicare and also on prior period developments, maybe how they’ve trended by product?

I would say that throughout 2008 starting after the first quarter, we’ve had a positive prior period development in each quarter for the last three quarters. We have continued to maintain that reserve strengthening though across all segments and all products, so again if you were to look at our 12/3/2008 reserve levels, even with the positive development in each period, we believe we’ve maintained a very strong balance sheet with over $400 million of year over year increased reserves despite inventories being paid down by 43% and despite fully insured being down for the year significantly.

Your next question comes from the line of Carl McDonald from Oppenheimer.

Carl, we haven’t baked in any expectations around that COBRA subsidy, but we do think it would have a positive impact both on membership and potentially slightly around adverse selection. The typical take up rate for COBRA is very low. It’s typically about 10%, potentially of the group member, and so with the subsidy, we think that would drive the membership up as well as improving the selection.

Any sense of the magnitude on either the take up rate or the difference in the loss ratio?

Not specifically, but I will let Brian Sassi, who is with us here today, talk a little bit about some of our efforts that he and Ken have around as unemployment grows and some of the group members lose their group coverage or through COBRA, the options that we have that are available for them.

Ken and I are working very closely to develop kind of tight connections as large group employers downsize to offer not only COBRA on the commercial side but individual products to ensure that employers know that we have good individual product offerings in their state as well as individual for those who qualify is a much better value proposition for members as they exit group coverage so we can be very focused as the economy continues to turn.

Your next question comes from the line of Ana Gupte from Sanford Bernstein Research.

My question is about what’s going on in the non-profit Blue world, and I was wondering in context to some of those, the capital constraints they may be facing, equity write-downs, and the like; are you seeing any opportunity to gain membership in your BlueCard program as they cannot make their bids or meet client service requirements, and then as Independence and Highmark and other consolidation initiatives are again coming, again some regulatory constraints.

I’m going to talk about the non-Blue. Non-profit Blue is just generally, we have a really positive relationship and have business relationships providing a variety of services. A number of Blue plans for example have our AIM radiology management product. We are trying to work with them in new and different ways and achieve opportunities for us to scale our operations with our Blue partners as well. We don’t talk about any specific issues or any specific states, but we continue to believe that WellPoint is a very attractive consolidation partner for other Blue plans because we do the scale we can make the investments and technology, and we continue to share that. I’m going to ask Ken to talk about his expectations around the BlueCard program and how we are working with other Blue plans there.

Ana, if I understood the question right, does it present opportunities specifically for, I think, our home business. First, BlueCard continues to be a good program, grows across the board, and we have a number initiatives between all Blues that are helping the employer needs. We have over the last couple of years felt a number of capabilities upset, we feel are leading the industry in a number of areas including service transparency, clinical programs, and others, and as a result, we do have some clients ask for us to take the lead in overall administrative services, particularly in the venture capital world where they have business across many states and choose who could be a lead. So, we have seen some growth in those areas as our capabilities have grown, more desire for our services, but BlueCard in general remains strong, and we partner very closely with the other Blue.

Can you comment on your M&A outlook for other Blues and then your plans for UniCare.

The M&A, as we’ve stated, hasn’t really changed at all. We continue to believe we’re a great partner to consolidate other Blues, and we never talk about any rumors or speculations, but we continue to describe for folks how we think that works for customers across the country. In terms of UniCare strategies, specifically Ken, and his responsibilities include UniCare, and there have been efforts where we’ve looked at the strategy this year for UniCare, and I’ll let Ken speak about that.

We mentioned in the opening comments that UniCare did not grow last year and we actually had a reduction in insured coverage of about 279,000 members. Much of that was a very focused effort to turn the financials positive for UniCare, and we took some very aggressive pricing actions recognizing the impact we would have on membership, but wanted to make sure that both small groups and large group was priced right. As we go into 2009, there still be some membership reduction early, and that’s built into our plan as we finish up some pricing actions, but we’ve built a strategy that we’ll share in much more detail at investor relation’s day, but it’s focused on specific provider partnerships and smaller networks that we using in certain areas as well as some very select target geographies that we feel we have an opportunity to grow and maximize in, so we’ll share that, but the strategy is for UniCare to be kind of a niche player in certain markets where we can grow market share and then to make sure that we price right across the board in all of our markets.

Your next question comes from the line of Peter Costa from FTN Midwest Securities Corp.

Can you explain a little bit more about the change away from focal renewals and what those can do to pricing? What portion of the business does that apply to, what’s going to be the new seasonal pattern for the timing of price hikes, and does that imply to those first price hikes that happen since May happen in January of this year and then going through to December, the ones we priced in December will be at the same price for a year and a half or so? Is that the way to read that?

First I would state again the rational for it. We recognized several years ago that while we had significant competitive advantages in California, and we are doing some things to help us administratively to batch all renewals into one month that our competitors were able to target us and recognize what our renewals would be after the focal renewal, which was on May 1st, so starting in 2004, we started to do new business off the focal cycle and new business at that point would renew on its calendar dates. About 50% of the business is on a focal renewal, 50% is not right now, ballpark numbers. What we’ll be doing is going from the May where we normally would be having May renewals that will be extended up to the calendar date of the renewal that instead of doing one small group block, it would be spread throughout the year, and that is impacting about 45,000 groups. It will extend. It has been built into our plan, and we built it specifically into the California plan, both the financial impacts and the way we are working around it, but we feel coming out of this new renewal approach will be identical to what we are in our states, and we will no longer be at a competitive disadvantage, and in fact, we will be able to use this to our advantage going forward.

Pete, it’s about a 1% impact on 2009, but I think we believe the upside is significant to 2010. Peter Costa – FTN Midwest Securities Corp: Your inpatient trend is at the double digit level. Nobody is really getting double digit price increases two years in a row in this economy. Why are your hospitals able to get that from you at this point in time and what are you doing about that going forward?

What we are seeing is some elevated average case acuity, and I think that’s a big driver for us as well as just the increase in contracting, but we are very focused on the re-contracting efforts, making sure that we can mitigate the trend as well as the management program because it’s not just in the contract that you execute, but also in how you work through healthcare management, and so with our 360 degree healthcare management programs, we are very focused on that. We’ve looked specifically at neonatal issues, spinal surgery cases. We are trying to mange the chronic kidney disease and end-stage renal disease cases to really have an impact on that inpatient as well as outpatient, but primarily in the inpatient area.

Your next question comes from the line of Greg Nersessian from Credit Suisse.

My question was on the consumer business. I was wondering if you could quantify for us the impact on the MLR and that business from the market segments that you are walking away from, the Medicare product that you discontinued as well as some of the state sponsored business in Nevada and Ohio. How will that impact the operating margins in that business next year?

We don’t release the MLRs by segment, but I can say directionally the exits from both Nevada and Ohio are having a positive impact on our MLR, Ohio being obviously the bigger driver primarily because it had close to 170,000 members. Nevada to a much lesser extent, we only had about 50,000 members there, but overall generally positive impact going into ’09.

When I look at your operating margins in that business in ’07, you are slightly over 5% this year, about 3.5. So when you think about 2009, do you use the 2007 level as your targeted range for that business?

I think that’s a reasonable and fair proxy. You will see margin improve. They are improving not only because we are exiting what we would believe to be unprofitable states, but at the same time keep in mind that a lot of reserve strengthening was done this year, and so in theory we won’t have to have that happen again next year, so you won’t see margin improvements, and I think you’ll see something little closer to ’07 levels.

I want to thank you for your questions. We’re going to wrap it up here. In closing, I want you to know that we remain very confident in our future. We believe that there are both challenges and opportunities in the current economy, and we are taking the actions necessary to lead our company in addressing the challenges and capitalizing on the opportunities. Our core operations remain strong. We are executing on our plans to provide a firm base for 2009 and beyond. We continue to focus on excelling at day-to-day operations and strive to meet or exceed our service commitments and financial expectation. I thank you for participating in our call this morning. Operator, please provide the call replay information.

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