Wayne S. Deveydt - Chief Financial officer and Executive Vice President Brian A. Sassi - Executive Vice President of Strategy and Marketing, Chief Executive Officer of Consumer Business Unit and President of Consumer Business Unit Michael Kleinman - Vice President of Investor Relations and Acting Vice President of Internal Audit, Ethics & Compliance Ken R. Goulet - Executive Vice President, Chief Executive Officer of Commercial Business Unit and President of Commercial Business Unit Angela F. Braly - Chairman, Chief Executive Officer, President and Chairman of Executive Committee

Carl R. McDonald - Citigroup Inc, Research Division Charles Andrew Boorady - Crédit Suisse AG, Research Division Kevin M. Fischbeck - BofA Merrill Lynch, Research Division Matthew Borsch - Goldman Sachs Group Inc., Research Division Christine Arnold - Cowen and Company, LLC, Research Division Doug Simpson - Morgan Stanley, Research Division Justin Lake - UBS Investment Bank, Research Division Scott J Fidel - Deutsche Bank AG, Research Division David H. Windley - Jefferies & Company, Inc., Research Division Joshua R. Raskin - Barclays Capital, Research Division Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division John F. Rex - JP Morgan Chase & Co, Research Division

Ladies and gentlemen, thank you for standing by, and 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 Third Quarter Earnings Conference Call. I'm Michael Kleinman, Vice President of Investor Relations. With me this morning are Angela Braly, our Chair, President and Chief Executive Officer; and Wayne Deveydt, Executive Vice President and Chief Financial Officer. Angela will begin this morning's call with an overview of our third quarter results, actions and accomplishments. Wayne will then offer a detailed review of our financial performance, capital management and current guidance, which will be followed by a question-and-answer session. Ken Goulet, Executive Vice President and President of our Commercial Business; and Brian Sassi, Executive Vice President and President of our Consumer Business are available to participate in the Q&A session. During this call, we will reference certain non-GAAP measures. A reconciliation of these non-GAAP measures to the most directly comparable measures calculated in accordance with GAAP is available on our company website at www.wellpoint.com. We will also 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 in our quarterly and annual filings with the SEC. I will now turn the call over to Angela.

Thank you, Michael, and good morning. Today, we're pleased to report third quarter 2011 earnings per share of $1.90, which included net investment gains of $0.13 per share. Earnings per share in the third quarter of 2010 totaled $1.84 per share and included net investment gains of $0.10 per share. Excluding the net investment gains in each period, our adjusted EPS was $1.77 in the third quarter of 2011, an increase of 1.7% compared with adjusted EPS of $1.74 in the same period of last year. Our third quarter results were higher than we anticipated and were driven by continued strong performance in our Commercial segment. On a consolidated basis, we experienced sequential increases in both membership and operating gain during the quarter and based on our overall results, today, we're raising our full year 2011 earnings per share guidance to a range of $7.18 to $7.28 on a GAAP basis, which includes $0.28 per share of net investment gains in the first 3 quarters. On an adjusted basis or excluding the net investment gain, our full year EPS guidance is $6.90 to $7. Our medical enrollment increased by 169,000 members during the third quarter and totaled approximately $34.4 million as of September 30, 2011. We added 99,000 members organically in our Local Group business during the quarter, while our Senior enrollment increased by 89,000 including 57,000 members from the CareMore acquisition and organic growth from agents. These increases were partially offset by modest in-group attrition in our National business. We believe that further attrition is likely during the fourth quarter, and we therefore expect in 2011 with approximately 34.2 million members. In light of current economic conditions, we anticipate that in-group membership attrition will continue to pressure our enrollment in 2012. We currently expect that the number of workers…

Thank you, Angela, and good morning. Premium income was $14.2 billion in the third quarter, an increase of $815 million or 6% from the prior year quarter. This reflected rate increases designed to cover overall cost trends and membership growth in the Senior and FEP businesses, partially offset by a decline in fully insured commercial membership. The administrative fees were $963 million in the quarter, an increase of $26 million or 3% from the third quarter of last year, driven by growth in self-funded membership. As of September 30, 2011, approximately 60% of our medical enrollment was self-funded and 40% was fully insured, compared with approximately 59% and 41%, respectively, as of September 30, 2010. As Angela noted, we now expect to end 2011 with approximately 34.2 million members. We also now estimate the full year operating revenue will be approximately $60.1 billion. The benefit expense ratio for the third quarter of 2011 was 85.1%, highly favorable to our expectation and 50 basis points lower than in the second quarter of 2011. We now expect our benefit expense ratio to be in the range of 85% to 85.2% for the full year of 2011, which is a reduction from our prior guidance and reflects lower than anticipated underlying medical cost trends in the Commercial segment. The benefit expense ratio is expected to increase sequentially during the fourth quarter primarily due to the seasonality of our Commercial and Individual product designs. We now anticipate that underlying Local Group medical cost trend will be in the range of 7%, plus or minus 50 basis points, for the full year of 2011. For the rolling 12 months ended September 30, 2011, medical trend continued at lower than expected levels. Inpatient trend is currently in the very low double digits. Outpatient trend is in…

Operator, please open the queue for questions.

[Operator Instructions] Your first question will come from John Rex with JPMorgan. John F. Rex - JP Morgan Chase & Co, Research Division: So I appreciate your comment on kind of describing how you keep the '12 coming up. And I wanted to come back particularly to your commentary that you're looking for your pricing in line with cost trends. So can you tell us what you're expecting in terms of cost trend for '12 versus what you're seeing in '11 thus far?

Wayne, do you want to speak to the transfer swap...

Yes, thanks, Angela. Let me first state how we're -- how we've have been pricing so far for renewals that have occurred this year as they relate to '12. We would clearly have been pricing to date based on trend elevating to more historically normal levels. Obviously through the first 9 months of this year, we've not seen that occur yet. But we are making the assumption that, that will in fact occur and that we will price as if that event would happen. Again, for the first 9 months it does not happen at this point, but we would prefer to take that more cautious view. As we mentioned earlier relative to trend, we are lowering our full year guidance now from previously 7.5, plus or minus 50, down to 7 and that will become at least a new starting point for us as we look forward. John F. Rex - JP Morgan Chase & Co, Research Division: So would you view historically normal levels, as I mean, if you look past over time in this country, it's probably been 8%, 8.5% in terms of trend. Can I think about that as your view for '12 then in terms of your -- what your pricing will reflect? I'm talking about kind of before mix shift and such.

I think, John, I wouldn't be viewing it from that. But again, when you look at the mix shift, we're seeing more normalized flow, more normalized utilization. The mix shift with the business changes in some ways. But all in all, yes, I mean, I think it's clearly, at levels over where we've been seeing a trend at over the last 9 months or for that matter, over the last 2 years. John F. Rex - JP Morgan Chase & Co, Research Division: Let me just try it just this way. So how much would trend have to rise from where we are today to get to like -- I'm talking about what, would we need 100 basis points rise in trend from where we are today to match--to kind of take away what would be otherwise a favorable spread?

No, John, it's not nearly that high, though. John F. Rex - JP Morgan Chase & Co, Research Division: Okay, something less than 100 basis points in terms of what you'd envisioned? Okay. All right.

No, I think we should add a couple of comments there. One, is when you look at trends and obviously lowering it for this quarter announcement, and everyone's talking about utilization, which we are experiencing as well, but also we've been successful in our contracting efforts this year, which have contributed significantly to our results. And we typically have 3-year contracts, and this was the first year, I think we've seen better than expected contracting results. And we have a cycle now 2 more years, and we're going to be very focused on getting the right results there. And also I think it's important, Ken, maybe can speak to pricing, the rationality of pricing in the commercial market for sure, and how this trend assumption is working out in the marketplace.

And, John, as I look at how we're working in each of our markets, we've -- we're in a competitive marketplace but a very market rational marketplace. As we indicated last quarter, there's occasionally a few activities where carriers may be responding to MLR activity, but in general, very rational across the board. We're anticipating a slight rebound in trend and pricing for it, and it appears that our positioning remains very consistent with others in the market. I'm very comfortable with our pricing and at the same time, very comfortable with where we are competitively and with our membership.

Our next question in queue that will come from the line of Charles Boorady with Crédit Suisse. Charles Andrew Boorady - Crédit Suisse AG, Research Division: I just wanted to ask a longer-term sort of forward-looking question around CareMore, which is a pretty bold step in the direction of vertical integration. And I wanted to understand a little bit more about how much you plan to invest in growing that business, 2012 and beyond. And also how you manage the risk -- looking back over -- and this might be dating myself a little bit, but looking back over the last time the industry went through a cycle of more vertical integration. You had some plans like, CR health, looking to expand into Texas. The Las Vegas model, Kaiser are looking to expand out of California it's model. Aetna buying U.S. healthcare to try to retool itself as more of an HMO. And we saw some upside and also some risks in those ventures and I'm wondering how you're thinking about managing those risks and how much you plan to invest in the coming years to build off the CareMore platform?

Charles, I want to speak a little bit about the CareMore. Brian and Wayne, might speak to the specific investments. But CareMore, well yes, it is more of an integrated delivery entry for us. It really is a unique care coordination model. I think it does a couple of really exceptional things. One of which is it really captures the member and engages them very early in the process. They have these healthy start visits. They engage them in the care centers, and then they, through the spectrum of care and the special needs plan, that specifically focus on certain conditions, they have extents of us that really are engaged in coordinating care and really no way that we've ever seen executed as well as we see at CareMore. So while I understand your question about, is this full flash integrated delivery of health, I would say, no, it's an exceptional care coordination model with positions to our really terrific at touching the health delivery system in the right way to make a difference for the members, very member focus. So we have committed to expand the CareMore model across our states and have some targeted plans to do that. Now, Brian and Wayne might talk about the investment. But Brian, you want to add to that?

Sure. As Angela said, the expansion of CareMore is really very focused. We thought it was an exceptional model, particularly focused on the special needs plans and the chronically ill. Currently, CareMore operates in -- largest footprints in California with a small footprint in Arizona and Nevada. And we're taking a close look at how can we expand that model and our plans are to at least add 12 more care centers to the existing 25 care centers that exist. And we're going to be very selective about the markets that we go into. We have large HMO Medicare populations and a couple of other geographies. So we're taking a close look at that. But this is going to be a very measured approach because this is really a targeted model. Plus the other thing that's really attractive to us about this model is, it's very effective at managing the chronically ill, which is going to be very instructive and helpful in managing that -- those populations in some of our other businesses. So taking some of the principals at care management, the CareMore is successfully deployed, and rolling that out across some of our other businesses was one of the other, kind of, strategic values in the CareMore purchase. Charles Andrew Boorady - Crédit Suisse AG, Research Division: Is the 12 centers, is that a 2012 target? And I'm I right that it's around $3 million per site?

Yes, it's a little higher than that. Part of that's is capital, part of that is expense, but that's pretty accurate. Charles Andrew Boorady - Crédit Suisse AG, Research Division: 12 in 2012?

12 in 2012.

And Charles, one last comment I want to add to that, though, just to remind to is that unlike other expansions in the past in the vertical model, CareMore has had 5 years of piloting, 5 years plus. The model works. We've seen the results. We do want to highlight that the -- it's approximately an 18 month break-even period per location, as they open. And then we've seen IRRs in each location well in excess of 25%. So this is clearly investing an investment in our future. We have a track record from this management team of great success already, and we're going to be very focused on how we roll it out and we're doing this will making it mutual to earnings. So in this case, CareMore are generating net profit from other facilities and locations that we can actually cover these investments through their existing operations.

Our next question in queue that will come from the line of Justin Lake with UBS.

First, I just want to follow-up on John's question around cost trend. You talked specifically about the third quarter trends still being well below typical but being up slightly. Can you give us any greater specificity there, Wayne, in terms of what you're seeing and what the actual, let's call it 3-month rolling cluster was in the third quarter?

Yes, I would say beyond normal seasonality, Justin, that we saw in the third quarter that you would typically see anyway, trends are still playing very similar to what we saw earlier in the year versus expectations. So I mean, I'd say we're still seeing new [ph] trend on both utilization. And I think the point that Angela highlighted is probably even more relevant that while utilization is staying very new to this point. Our activities around pricing has been quite significant, and that will continue to get better and we believe, over the next several years. So it's important to recognize who to -- about 1/3 of our hospitals renew each year that provide the context doing so. We're just starting to see even more of the impact of that come through as well, in tying compensation to quality.

Okay, and would it be fair to say that the 3-month trend might be closer to 6%, which I think one of your peers mentioned last week?

It's reasonable, Justin.

Okay. And normalize trend, if we think about your guidance coming into the year was probably closer to around 7.5? I think is what you initially guided to, is that right?

That's correct.

Okay I mean, you said it was less than 100 basis points. But if we think about the real trend right now running at closer to 6, and that normalize trend being 7.5 unless it's changed? Does that add up in your mind?

It's reasonable. But again, let's wait until 2012 for further guidance. But I'd say right now, we have confidence in our pricing and our outlooks.

Okay, great. And then just quickly on the headwinds-tailwinds. You gave specific numbers on most of them and the one we didn't really get, a ton of specificity, was SG&A. If we were just to think about the moving parts, obviously, you've got a pretty big headwind in there from investment income and interest expense which typically ends up improving somewhat conservative I think over time. Would it be fair to say that maybe the SG&A savings that you have kind of targeted for next year might offset that? Just a kind ballpark the number. You put in interest expense at $1.25, I think, plus investment income. Would it be fair to say that SG&A maybe offsets that number or is it not that meaningful?

I think SG&A will be meaningful. But I also think we're very having very positive results in a lot of our lines of business beyond just SG&A. So I think we're seeing core improvements from our operating results. We've seen that in our individual business and all of our segments this year. We're very happy with that. Now that's progressing. Our small group is doing quite well as well. So the one thing I would say Justin is, it's not just going to be the G&A that will help us achieve our EBITDA growth that we believe will achieve as well. But we are seeing core improvements in investments we've made in our businesses coming through in virtually every line of business.

[Operator Instructions] And our next question in queue will come from Josh Raskin with Barclays.

My question was on 2012, I think you guys have talked about a long-term growth rate of about 10% for EPS. I know you're saying operating gains would be up, and obviously, with share repurchases that may indicate something close to that range. But just curious, if you sort of confirm or want to wait on whether or not '12 is going to be within or close to that longer-term goal? And then just sort of 2 specific components that you talked about, I think you said Medicare Advantage would be up next year, I'm just curious it looks like that exit in California has been affected by about 110,000 lives. So curious what the expectation there. Do you think you're going to retain some in local products? And then I guess the last part, hopefully, of this one question is that, you've added to your reserves this year, you talked about the Seniors as well in the third quarter. So I didn't hear that mentioned that they had -- as a tailwind for next year, but can we assume, it won't be the reserve boosting for next year?

Well, let me try to address the big long-term question. As you said, we really, post reform, wanted to look out longer-term and that's when really we set forth on a pathway to the 5-year plan. So the 10% was a compound annual growth rate over the 5-year period and not an annual target. And we're not going to give guidance on this call. We need to go through our Board and go through the annual plan, but we wanted to really reflect, kind of, our focus on the long-term that was part of our authorization for the $5 billion share repurchases over time. The plan, the roadmap that we have for this long-term CAGR, is really looking at operating growth -- operating gain growth as well as below the line return of dividends and share repurchases as well as making investments, like we did in CareMore and in our core business. So the thing about that long term, we'll get back to you with guidance, early next year in terms of what that means specifically, for 2012. Also in terms of the reserves, remember, we did take some of the reserve releases in 2010. So you're right in saying, in '11, we had some strengthening. I'll let Brian speak to the Medicare issues. And Wayne, if you want to add to that?

Okay. You're correct, we have a little more than 110,000 members in the RPPO in California. Exiting that, we do expect to attrit a fair amount of that membership. But as you recall, we do have 13 local RPPOs approved in California. So we'll be expecting to retain a portion of that membership. And as Angela mentioned, we also have quite a bit of expansion in other geographies ongoing next year, 136 new counties across 11 states. So we do expect to gain membership and to grow Medicare Advantage kind of, given that overall footprint. And given -- we've been very focused on expanding the footprint across our 14 geographies. We still have a lot of headroom to go in future years. We're not border to border in terms of HMOs or local PPOs. And so you can look to expect additional expansion not only next year but in the years ahead.

And the only last thing I'd like to add, Josh to your question is, clearly, just as prior period reserve development gave us a negative comp for the current year, it will give us a positive comp for next year, because we'd strengthened reserves. There's no need for us to further strengthen. We're well within our targeted range and in the upper end of our targeted range. So from that perspective, we would fully expect not to have to do that. The only other thing I want to highlight again, and as Angela said, we cannot get ahead of our Board on guidance for 2012. What we try to do is be transparent with our shareholders based on what we know at this point in time. And depending on other assumptions you may, as you develop your models, around headwinds and tailwinds, it may lead to an EPS increase in the general direction of our long-term targeted range. But again, the key for now is we want you to be aware that even the headwinds we've outlined, we believe it will more than cover those. We really think we're positioned well. And I would also say that the clarity around '11, '12, and '13 is much easier to evaluate and look towards as we still wait for clarification on some of the rules for 14. So we think we have a pretty good outlook in terms of the next several years based on the clarity we have in the current regulatory environment.

And Wayne, what's a quantification of that reserved tailwind? What was total strengthening that we've seen into the first 3 quarters?

Josh, we haven't quantified that. It's all because of that is both the mix of refund business and non-refund business. What we had said, is that how our reserves develop, as of 12/31 versus how much we tried to strengthened at a minimum. We have said publicly in the past about $40 million will get you into a more normalized level. But obviously, we saw opportunity and strength in a little more than that this year as well.

Our next question in queue that will come from the line of Doug Simpson with Morgan Stanley.

Just a two-part around sort of where employers are -- or how employers are viewing the market right now. Just -- if you can flesh out the comments, the Bloom Health deal, the defined benefit moving to defined contribution. What's the level of interest from employers on those products? And maybe talk a little bit about how your products line up against a direct comp defined contribution employer channel versus the more traditional individual market. And then maybe also just on the in-patient contracting improvements that you're seeing, it sounded that Angela, like you said you may have some opportunity for further improvements in '12 and '13. Just what's changing there with respect to the conversations you're having with employers and, sort of, how are they viewing cost drivers and what's their willingness to move to more lower price point products, maybe now or network products, given those challenges?

So clearly, and I'll let Ken speak to this. He's been leading efforts around Bloom and our efforts with all of our employers. Affordability is a real issue whether it's individuals or companies. And the obvious interest of companies is to create a hedge against their long-term healthcare liabilities. So they're quite interested in defined contributions, particularly as they go into a reform environment. They've been looking at it for retirees for the last couple of years. So, Ken, you want to speak to Bloom and the defined contribution, and then more of their appetite for that.

Sure. Doug, the Bloom acquisition that we did along with HCSC in Michigan was a joint approach to help meet employer needs. That for say, when your general question, employers are looking at affordability and predictability over the next several years. And many of them, along with their consulting partners, are doing multi-year planning right now. And we wanted to make sure that we had a portfolio that met the needs of many different ways that employers could go. One of the ways and the strong interest is in the affordability or the predictability of a defined contribution model. And there are advantages over Individual and that it offers both some tax advantages, as well as the guaranteed underwriting across your entire population. So we've had a lot of interest since announcing it, from a number of both large and small group employers. We plan to be introducing it in 2012 on some renewals and then fully introduce it in 2013. Now I would just say, that the market feedback has been quite strong, and I think what employers like are the tools that are available through the asset that we purchased to help someone choose their coverages and the variety of coverages available. And that it really lets a member look at the dollars available to them and make sure that they make a planned choice that's best for them and their families.

Let me speak, Doug, to the issue about contracting, too. Our approach is very focused on the right partnerships that would provide our -- a focus on primary care in particular, and what we are doing through this contract negotiations and the focus on quality is aligning the risks and incentives that we have, that employers who are self-funded have, with the provider community. Also we're anticipating and executing on quality measures like the STAR program and Medicare, the heated [ph] measures and State Sponsored. We anticipate exchanges will be quality-oriented as well. And so as we align with providers around those incentives, they see upside in the essentially risk relationship that we're developing or rewarding them for quality. And as Wayne said, we have typically 3-year contracts. This, I think, wasn't a year where really experienced a better contracting relationship with some of our providers, and we have 2 years in that essentially 3-year cycle. You'll see a lot of evolution though over the next couple of years in terms of the models that we're bringing forward whether they're patients that Medical home models, ACO models. Whether it's bundled payment arrangement, capitations, as well as the benefit design changing. So have reference pricing designs in some geographies. So I would expect those efforts to continue to evolve over the next few years. And it's a recognition that we all have, that we need to appropriately manage costs and improve quality.

Our next question in queue that will come from the line of Christine Arnold with Cowen.

A couple of follow-ups here. SG&A, I think you said that you expect it to be flat to down on a PMPM basis. Is that on total medical memberships? Is that how should we be thinking about that? And can we assume with this extra investment spending and the one-time transaction cost of CareMore, that should be down as opposed to just flat on the SG&A per member? And then can you bring us some California rate increases, is that about $2 billion in premiums and have you asked for the rates to be increased for next year?

Overall, SG&A, and Wayne, you can answer Christine's specific questions. But our goal is, as we look longer term, as we created this 5-year roadmap, we really have developed a multi-year plan that focuses on getting to an affordable operating model both efficiency from an SG&A perspective as well as the right investment to manage and lower the cost of cares. So Wayne, I think we -- touched on that in the remarks. Do you want to add to that?

Yes, Christine, the only thing I would comment is one, would be pull CareMore off to the slide for a minute. Because clearly, as we grow that model, those will be separate investments and we'll highlight that. But in terms of a pure run rate, SG&A, it is based on all memberships. It's on a PMPM adjusted basis. And why a Senior member does cost us more, we recognize that mix shift, but we still believe on a run rate basis we can get our SG&A and PMPMs flat to down. So we're covering other investments that we're making. But in it of itself, CareMore will add a lot more G&A. The thing for CareMore for the quarter, Christine, is it was about a $30 million impact on our SG&A for the quarter, but only about half of that related to the one-time cost that we incurred with the transaction. So that gives you a little bit of a gauge of the impact. So when you get a full-year impact on the one-time cost aren't insignificant to the full year for this year or that. It did, more or less, affected the quarter only.

Which transitions into your question about rate increases in the Individual market in California. Our focus is on reducing our SG&A, on making cost of care, lower-cost, higher quality, all of which contribute to our ability to get rates that we think are essential and sustainable to create a sustainable individual marketplace. And so clearly, that will continue to be our focus. And frankly, I think it's a focus of the regulators to make sure there's not a major disruption in this important segment of business, particularly now -- between now and 2014. So Brian, you want to speak more to that?

Yes, specifically, to your question, Christine. We're currently working on our 2012 rate increases. We have not filed with either of the California regulators yet. But expect to be doing that shortly.

Okay, there's about $2 billion of revenue still?

Yes, approximately, maybe a little less.

Our next question in queue, that will come from the line of Matthew Borsch with Goldman Sachs.

I wanted to ask you a question about the pricing environment. I know you talked about that already. But in California, in particular, a pure company of yours talked about seeing really spiking out California as a market, where price competition had become noticeably more intense. Do you think that's just their perspective or would that be one that you would share, and any elaboration you can give?

Yes, I'll turn this over to Ken. It is the only state where we compete with another Blue plan. Although, we think we have a lot of benefits relative -- on a relative basis, around our efficiency and our scale. But Ken, you want to speak to our pricing experience in California?

Yes. First, as Angela said, it's the only one we compete with another Blue. It's always been a competitive market. And California has a large number of competitors. But we've seen in general, we're beating our plans, in both membership and in our general positioning for California this year in small or large group. We are aware of the comment made in the other -- with one of our peer groups. And we have seen some -- more competitive positioning, but it's more on the ASO market than in the fully insured. So the fully insured seems to be rational in there. As they're always are, there are spikes in certain areas where a competitor gets a little more aggressive with one type of program or another. And we've seen that in California but nothing that really has moved us -- moved our needle much at all.

Great. And then if just one more if I could on the -- your comment on Medicaid and the possibility that, that could reduce your operating gain by $75 million next year. Can you just give us a little more detail on that?

Yes, Brian you want to speak to that?

Yes, Matt. That's really a combination of a couple of things. One, we've taken a look at the impact of AB 97 in California. Remember, that about half of our Medicaid population is still in California. So we've taken, I think a fairly consecutive view. But accurate and build that into our 2012 plans, and then that coupled with, kind of, the ongoing situation with state budget deficits in other geographies and anticipating that some of the rate negotiations may result in a slight premium reduction. So it's really the combination of expectations of those 2 things.

And our next question in queue, that will come from the line of Scott Fidel with Deutsche Bank.

First, just -- if I could actually just follow-up on Matt's question on Medicaid and maybe just to highlight what you're seeing on the cost side on Medicaid. With some of the recent reports, there's been some conflicting, sort of, just directionality in terms of whether Medicaid cost trends are actually up, stable or down right now? So interested in your view on that.

Yes, I'll take that, Scott. Medicaid is really the story of where you do business. And so as we look across our different geographies, we have seen in the first half of the year, a slight uptick in some markets. We haven't seen that in other markets. So I think that's why you're hearing potentially, kind of, conflicting stories because as you look across our footprints are all very, very different.

Got it. And then I'd just like to ask a broader question and just interested in an update on Blue's conversion to for-profit possibilities. Obviously, there hasn't been much at all to speak with. But just given that the state budget challenges are going to remain an issue for quite some time and we have a whole crop of new GOT governors and just based on the news up in Michigan that the governor has directed a review of the feasibility of converting BCBS of Michigan to for-profit status. Just interested if you think there could be some renewed possibilities of states looking again at Blue's conversions.

Let me answer that in a couple of ways. One, obviously WellPoint's uniquely positioned a Blue plan consolidation opportunities that we are and really came from. But I have to say, it's reflected anything in our partnership, both with Michigan for the Bloom acquisition as well as with HCSC in South Carolina. On Medicaid, that we have a number of opportunities short of conversions and combinations to create more scale and seamlessness throughout the Blue Cross system. We've done that very effectively in National Accounts. With a Blue Card program, we're doing it, and quality initiatives. We're doing it in transparency initiatives. Our Anthem Care comparison tool was adopted as the Blue Cross Blue Shield tool for transparency for all members. We have a great dental program that we're working with the other Blue plans to create -- really an unbeatable dental network that's seamless. So yes, I think over time, the benefits of scaling and consolidation, benefit our customers and as a result benefit our shareholders. I think, realistically, we're not expecting that in short-term, but we're going to continue to work on these partnerships which we think will add scale in any event.

And our next question in queue, that will come from the line of Kevin Fischbeck with Bank of America-Merrill Lynch.

You mentioned that in the quarter, you did some consumer reserve strengthening and I was wondering why you needed to do that? It sounded like that was one of the areas of strengths as far as a modest cost trends in the quarter?

So Wayne, do you want to speak to that or Brian?

Yes, Kevin, the short answer is we didn't need to do it. Essentially we saw things coming in better than anticipated, and rather than holding those reserves down, we'd rather chose to maintain them at the more elevated levels that they develop that. So it was just another opportunity to further strengthen our balance sheet. And so from our perspective, it was just positioning us well as we move forward into 2012.

Okay, and then related to that on the trend commentary, you talked a lot about how you're doing a better job on provider contracting. What if I compare what you said this quarter about trend versus -- would I have my notes about last quarter with in-patient being low double digits. I think the last quarter was high single digits, and outpatient being high single digits. And I think last quarter, it was mid to high single digits. With the commentary that utilization remains flat to down, I guess, I think similar to comments about acuities last quarter, I guess what is the delta there when we think about what looks like a slight uptick in some of these numbers?

I really appreciate the question on this one because essentially what you're seeing is, as we do the rolling 12 months, you can have disparities in those metrics move from one quarter to the next quarters as an old 3-month period rolls off, and a new 3-month period rolls on. But I can tell you that on an absolute basis, trend is still coming in lower than our expectations. We model what we expect to get for pricing in a year and then we aggressively go out and negotiate based on quality metrics in others. And we are beating that across the board in all areas. And we will get the run rate benefits of the first year of those contracts over the next 2 years. But as Angela said, we're getting them after. So it is literally the math. I hate to make it that simple. But that's really what it is it. It is simply drop the math of when one quarter rolls off, and then another rolls on, depending on the time of those roll-offs. And what happened in that previous quarter versus the current quarter, it can distort those small differences between seeing slightly up or slightly down.

Okay, and then one last question, I just take it in. I guess, you talked about operating gain being up year-over-year, but I guess interest income and investment income -- investment expense being a drag, and I guess the tax rate being a drag. Is there a comment in there about net income being up year-over-year? Or is it or...

On a run rate basis, again, we haven't given guidance yet. And obviously, our net income is important by a lot of other items. We couldn't realize gains and losses and others. But I do believe that our tailwinds will exceed our headwinds on absolute dollar basis going into next year.

And our next question in queue will come from the line of David Windley with Jefferies. David H. Windley - Jefferies & Company, Inc., Research Division: A couple of questions on the fourth quarter if I could make it 2 part or here. First of all, your implied MLR for 4Q does suggest a pretty substantial sequential uptick more than looks like explained by seasonality. I wondered, if you could elaborate on that a little bit. And then secondly, I don't think I've heard you describe the specifics of the restructuring and what you hope to achieve with the $50 million structuring in the fourth quarter?

Wayne, you want to take that?

Yes, a couple of items. First of all, when comparing last year to this year, keep in mind that last year we did have a favorable reserve of leases that were over $105 million. That is going to create a comp issue for us on an MLR basis. In addition, recognize that we will have CareMore in our results for the first time. And as you know, the Senior business isn't in over a higher MLR business than other businesses. So that does create a little bit of a comp problem if you're looking to periods. And then in addition, as Brian mentioned, that we are assuming that AB 97 will in fact impact us starting at some point in the fourth quarter. And that of course does a load of more MLR impact for us as well. Obviously if that doesn't occur, then you'll get a different result. Relative to discharges that we're taking the fourth quarter, of the $50 million, there are a number of initiatives that we've been doing across the company to continue to become administratively efficient and create a low cost, operating, and affordable model for our members. As we continue to make these investments, we have certain facilities that we're consolidating. And about $30 million of that relates to clearly the one facility. There's approximately 8 years left on a lease. So we think the present value of those lease payments as a write-off in the fourth quarter. We will clearly try to sublet that, over the next 8 years. And if we're able to do that, that would be upside. But if you think about it in simple terms, the third divided by years on a present value basis, you pick up about $4 million per year run rate. But we also save, obviously, around utility costs, we save on insurance, we save on other things. And it's part of longer-term plan to getting to a more efficient model. And then the remaining $20 million, just relates to some of the benefits and savings that we expect to further get as we consolidate systems and are able to be more efficient in the support that we have around our remaining business.

Our next question in queue, that will come from the line of Carl McDonald with Citigroup.

So I know the CareMore acquisition closed and with the expansion you're projecting for Medicare next year, do you think the business has enough scale or are you still interested in acquisitions?

Well, we're always interested in acquisitions. And we think that the Senior business is one that we're going to invest in, as we describe the rollover of the CareMore model, and we think our organic, potentially our core Senior business has opportunities to grow as well. Brian, you want to speak to Senior any further?

No, I think you covered the pretty important points. We're looking to increase the scale of the business, but organically. And we will continue to look at every acquisition opportunity that comes up.

Our next question in queue, that will come from the line of Ana Gupte with Sanford Bernstein. Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division: My question's again about the Medicare book. I think you'd said it was $150 million, not gain going from 2011 to 2012. Would you be able to tease out how much of that is coming from repricing versus new membership given CMS has guidance to 10% overall industry growth?

You want to talk about that?

Yes, and we will provide more detail at our IR day. One of the things that I will say, though, part of that improvement clearly, is because our California business is improving over our initial estimates of the loss of $170 million. That's improved for us already. It's still a loss, obviously, in excess of $130 million, $140 million already. So we are seeing improvement. Now that exit, there are certain fixed G&A costs that we have to absorb. And that cuts into some of our G&A efficiencies. We are expecting growth, though, in many markets. And while we expect good membership growth -- in fact, even with the exit, we do believe we'll be able to potentially grow in Senior, even with those exiting the RPPO in terms of membership. But it's important to recognize who they were, headwind cuts across-the-board, though, for everybody next year, regarding the pricing environment from a CMS terms and what we're paid. So we believe we're able to offset all of those as well and still grow modestly excluding the RPPO next year. And the RPPO obviously adds a big tailwind for us. Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division: And looking at the product design, though, do you have a local PPO now about $40 plus in premium and then there is about 2 or 3 still zero premium plans? HMO, I think there's one from United, one from CareMore, and probably one from Kaiser. As -- you've been now 2 weeks into the selling season, where do these 100,000 plus Seniors go next? They were in CIGNA and then you got them. Do you have a sense where they will go?

Yes. Ana, if you look at, kind of, the distribution of our membership in the RPPO, we have a lot of population in Northern California. If you look, there are a number of plans that are offering, either PPO or HMO plans there. So I think there are available options. In Southern California, again, we had 13 local PPOs approved, the majority of which are, kind of, in Southern California or in Central California. And really if you look across, we have a variety of plan options ranging from slight benefit changes, slight increases in go-pays, to -- up to, as you said, $40. And we feel that we're going to be competitively priced in the middle of the pack and be able to recapture a portion of that membership. Ana Gupte - Sanford C. Bernstein & Co., LLC., Research Division: And one final one, on CareMore, how much of a boost do you expect in rate from risk scoring and then you did very well. CareMore does very well on STAR, so on a -- in a long-term sustainable basis. And then just related to that, what percentage of your Medicare membership do you think you'll have in clinic-based models, say, by 2013?

Okay, that's a couple part question. So in terms of -- you're correct, CareMore has historically, done a very good job in terms of risk coating and revenue enhancement. And so certainly, with that expertise in the company, we've had a number of initiatives for the past several years. We've made, I think some pretty good strides in that area ourselves, but obviously, we want to leverage the expertise that we have in-house. So we expect that to continue. If you look at our STARS ratings, on our -- just organic business, all of our markets are at least a minimum of 3.0. Some of our key markets, where we have a lot of our membership, particularly in clinic-based models are already at 3.5. So again, we'll leverage the expertise that we brought in-house from the CareMore team. But we're also making, I think significant inroads. If you look across in our -- across our population, I would say about half of our current MMA population is in managed HMO products already. And we're looking to not only continue to grow clinic base, HMO products, but also on a local PPO basis.

Thank you. I want to thank everyone for their questions. In closing, I want to reiterate that we're pleased to be exceeding our original goals to the first 9 months of 2011. We've grown organically and modestly through acquisition this year, and have done so well realizing the significant administrative savings and efficiencies across the organization. We expect additional success in the years to come and we'll continue to focus on providing outstanding and innovative products and services for our customers. We look forward to providing you with more information about our future expectations in the months ahead. We're currently planning to host an Analyst Guidance Conference Call in February to discuss our 2012 financial expectations and longer term outlook in more detail. I want to thank everyone for participating on our call this morning. Operator, please provide the call replay instructions.

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