Ladies and gentlemen, thank you for standing by. And welcome to the Anthem Conference Call. At this time, all lines are in a listen-only mode. Later, there will be a question-and-answer session. Instructions will be given at that time. [Operator Instructions] As a reminder, this conference call is being recorded. I’d now like to turn the conference over to the Company’s management.

Good morning and welcome to Anthem’s Fourth Quarter 2014 Earnings Call. This is Doug Simpson, Vice President of Investor Relations. Presenting today are Joe Swedish, President and Chief Executive Officer; and Wayne DeVeydt, Executive Vice President and CFO. Joe will start with the discussion of our fourth quarter 2014 financial results and the macro backdrop, and then Wayne will review the quarter’s financial highlights in more detail and provide additional commentary on our 2015 outlook. Q&A will follow Wayne’s remarks. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our Web site at antheminc.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 Anthem. 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 today’s press release and in our quarterly and annual filings with the SEC. I’ll now turn the call over to Joe. Joe Swedish Thank you, Doug, and good morning. Our first quarterly discussion since our corporate name change from WellPoint to Anthem. We are pleased to announce strong 2014 adjusted earnings per share of $8.85, as we previewed two weeks ago with membership and margins tracking well in the fourth quarter. We ended 2014 with 37.5 million members, which was about 250,000 higher than the mid point of our previously guided range. For the full-year 2014, we added over 1.8 million members, representing growth of 5.2% versus year-end of 2013. Our growth was balanced in 2014 as we added 815,000 Medicaid members, 607,000 National members and 412,000 Local…

Thank you, Joe and good morning. My comments today will focus on the key financial highlights from the fourth quarter of 2014. I’ll also provide commentary on our 2015 outlook. On a GAAP basis, we reported earnings per share of $1.80 for the fourth quarter of 2014. These results included net investment gains of $0.07 per share. Excluding these items, our adjusted earnings per share totaled $1.73 for the quarter. For the full-year 2014, we reported earnings per share of $8.99 on a GAAP basis, $8.85 on an adjusted basis with the high-end of our previously guided range. As Joe noted, we’re pleased with our 2014 results and feel well positioned to grow earnings per share in 2015. Medical enrollment declined by 32,000 members, a 0.1% sequentially to approximately 37.5 million Medical members as of December 31st. This reflected membership declines in our Individual and Small Group businesses, partially offset by gains in our Medicaid and Large Group businesses. Overall, we’re pleased with our membership result which were approximately 250,000 higher in the mid point of our previously guided range. Operating revenue was nearly $18.8 billion in the quarter, an increase of approximately $1.1 billion or 6.4% versus the fourth quarter of 2013, reflecting enrollment growth in the Government business and additional premium revenue to cover overall cost trends and new fees associated with healthcare reform. For full-year 2014, we reported operating revenues of $73 billion, an increase of $2.8 billion or 4% from 2013, including the adverse impact of the previously discussed transition by the State of New York account and fully insured to self-funded status on January 1st. Our 2014 revenues were slightly below our previously guided expectations as we were adversely impacted by higher than expected experience rebate accruals in the Medicaid business, as performance was better…

Thanks, Wayne. And with that, operator, please open the queue for questions.

Thank you. And ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] And our first question will come from A.J. Rice from UBS. Please go ahead.

Thanks. Hi, everybody. I might just ask you to expand a little bit on some of the medical cost trend commentary. I know in the fourth quarter we’re seeing -- with the fourth quarter release you’re saying the 2014 medical cost trend ended up being about 6.5%. I think in the third quarter commentary, you said it was trending towards the lower end of the 6% to 7%. Is that -- is there a slight variation there or is that just the way the variances in commentary? And then, for the ’15 commentary, can you flush out the 50 basis point step up? It sounds like it’s mostly hepatitis C, but I just want to confirm that versus other puts and takes and your sense on where the medical cost trend is going?

Thanks, A.J. Good morning. Let me first address your first question. As we had said in the third quarter, we did expect trend to be in the lower half of that 6.5% plus or minus 50 basis points. Not necessarily the low end, we had -- we were intension [ph] about the lower half. Probably the one item that surprises a bit in the quarter was nothing to do with core run rate or core medical trend, but really was just the flu season starting earlier than expected in the level of flu that we saw in our markets. But outside of that, really no surprises and had that not occur, we still would have been squarely in the lower half of expectations. Relative to the future medical trend of 7% plus or minus 50 basis points, we do have increased hep C costs in there, but recognize while we got a bit surprised in ’14 on the level of hep C costs, the actual cost per drug that is included in our medical trend though that you see in the 6.5%. So you already have some of that baked in when we start going into ’15 and then we’ve added increased hep C cost as well as some underlying utilization that we expect to start returning to a more normal level. So I think all-in, we think we’re finishing ’14 though in a good spot relative to our pricing going into ’15. So cautiously optimistic at this point on the pricing that we see into the New Year.

Okay, great. Just on that fourth quarter flu commentary, would you say that the flu had a bottom line impact or was there sort of a marginal -- was there pennies involved in impact?

I mean it was over a nickel impact versus our expectation. So it gives you a little bit of flavor that, the best being at the high-end of our guided range we actually outperformed it, but it was north of a nickel impact.

Okay, all right. Thanks a lot.

A.J it’s Joe. Just to let you know data we’re tracking suggests that the flu exposure is plateauing if not declining slightly which is sort of given what we see in prior somewhat of a normal trend.

Right.

So, again we’re optimistic that the plateauing is sustainable.

Okay, great. Thanks a lot.

Thank you. And our next question is from the line of Christine Arnold from Cowen. Please go ahead.

Hi, there. Could you help me quantify some of the Medicaid impacts? I think you had a delay of some of the $100 million that you expected, but then you did get Texas retroactive. How much of what you expect it to get this year is moving into next year versus being realized in the quarter? How do I think about a run rate there?

Hi, Christine. Good morning. They’re almost, I mean, within a $1 million an exact offset of each other. So essentially what we pushed into next year the Texas essentially offset it almost dollar to dollar like we said within a few million dollars. But keep in mind; we fully expected to collect Texas. We just weren’t expecting to get the letter on December 31st allowing the reimbursement, so we had assumed that we would get that in January. So in some way to somewhat of a flush it doesn’t affect run rate in the next year because while we did take some of the earnings out of this year and push to next year, we did accelerate the Texas earnings though out of next year into ’14.

And if I understand correctly, you’re looking for the loss ratio to rise in Medicaid. Is that because you’ve kind of maxed out profitability relative to the quarters or is it because you’re seeing some rate reductions or is it the duals? What’s behind your expectation on the MLR for Medicaid next year?

I’d put it into three different buckets. The first bucket is we had exceptional performance in our Medicaid to the point that we recorded very sizable risk collars back to many states this year. And so, we are at what I will call optimal margins in certain programs. And we’ve assumed a more conservative outlook on that, although I would again indicate that underlying trend seems to be playing well. So hopefully that will prove to be at least a prudent may be a conservative outlook. The second thing I’d say is we’ve new states we’re expanding into. So in the case of Tennessee, we’re expanding into new markets and we’ve many expansion lives coming on. And so as we typically deal with new membership coming in, we automatically assume a higher MLR and a lower margin. And so that’s putting a little bit of pressure on the overall margins. And then the last thing is just that as we continue to build out capabilities for the new growth pipeline we see out there, we’re putting some more G&A investments into new states that we expand -- or planning to expand in and hope to win. And that puts a little bit of short-term margin pressure on it, but it’s for a longer term revenue and operating gain. But all-in Christine, I mean, we -- I’d say if there is a reason for margins to go down, this could be the -- this is the right side of the track to be on.

Right. Thank you.

Thank you. Our next question is from Justin Lake from JP Morgan. Please go ahead.

Thanks, good morning. First, on the individual book specifically the exchanges, it sounds like your corridor accrual if I’m -- I was hearing correctly went from positive in the third quarter to flat in the fourth quarter. And then, I think you actually -- you might have said risk adjustment also may have moved negative in the quarter. So I just wanted to get some update on the individual book margins and those puts and takes?

Hi, Justin. Yes, really good question. A lot of moving parts here, more complicated than it should be, but let me try to make it a little more simple. On the risk corridor, yes we had a very slight receivable. We chose to book 100% valuation allowance against that slight receivable, so obviously our concern is whether collectability will ultimately be there. So we are more at neutral, but it's not moving the needle for us. We didn't have a receivable as you know our profitability in the books have been quite good so, and it's based on a market by market. So it was more conservative posture to put a valuation allowance against the collectability of that receivable. Obviously, that proves to be collectible then it’s very modest outside though. Relative to the risk adjustors, I think we’ve decided as a Company that we had a lot of new data points that would imply that we could have a more sizable payable. The [indiscernible] data at 9.30 would have implied that we had a net receivable. As you know we booked a 100% valuation allowance against that as well under the premise that that could switch and change. And so, we hope that will prove to be conservative that we chosen a book of payable at 12.31 and if it does prove to be a conservative that will be upside to 2015.

And so where are the margins, are they still shaking out around that 3% range?

We are north of 3%.

Okay. Is it closer to 4% to 5%?

Yes, I would say our targeted margins of 3% to 5%, we’re well within the higher end of our targeted margins.

Okay. And then, just a follow-up on the Government business, specifically, how do we think about that $100 million give or take that’s going to be received in 2015? Would we think about that as kind of a one-time benefit so as we think about the growth rate off 2015, would that be a headwind, Wayne, given that it's attributable to ’14?

No, I think the one thing, Justin, the reason we don’t view it as a headwind is while its attributable to ’14, we really have these type of items happen to us just about every single year. What was a little bit unusual was to have north of $100 million in timing occur, so the good news was with us collecting a little bit more than half of that, you really got back to a point where it was back to what I’d call more of a typical run rate of what kind of flows from year-to-year. So I’d say from our perspective we’re not really concerned about it and unfortunately, I guess, that we will probably have another $50 million in ’15 that probably will ends up in ’16 so -- and we’ve assumed that in our outlook, in our plans. So I think we’re more in a run rate now.

Got it. Thanks for the color.

Thank you. And our next question is from Matthew Borsch from Goldman Sachs. Please go ahead.

Yes, good morning. Can you tell us what your outlook is on the Medicaid rate updates and the rate resets, and maybe if you can breakout where you expect development on rates that are specific to the Medicaid expansion populations versus the existing pre-expansion business?

Good morning. I would say the Medicaid rate environment, we’re cautiously optimistic. Still lot of moving parts there, but we’ve been successful in our rate negotiations. As you know many of the rates at least going into ’15 were finalized in ’14. Now obviously we’ll go through a new rate cycle beginning second half of ’15. In general I think we’re optimistic about the rates that we were able to achieve. We think we’ll continue to have industry leading margins, but we think that’s because we provide an industry leading value in terms of the overall cost we provide to the state, and I think that’s the important part to keep in mind. The other thing to keep in mind Matt is that we had sizable callers in the hundreds of millions of dollars in terms of better than expected performance. So those callers serve as a reasonable buffer to future trend if it was to occur relative to the rates as well. So, all in, I would say we really like our chances on the Medicaid front and how we’re addressing new populations and I think the Medicaid team has really done an exceptional job managing this very unknown environment in about an optimal ways you could possible be.

Sorry. Can you just remind us how the callers worked, does that mean that you’re paying money back to the states when you’re outperforming?

That’s correct, Matt. So to the extent that we achieved MLRs below a certain threshold, we’re writing a check dollar for dollar back to the state. And so I think again the point we wanted to make was, we finalized our rates but even in finalizing those rates has also seen sizable callers that were going back from this year. So, there’s a bit of a buffer there that if for some reason the rate would be deemed inadequate, keep in mind you would have to burn through a lot of caller activity that we’ve had this year as well before you ultimately get to a point of being short on rates. So -- but yeah, our MLRs and many of our expansion markets came in south of what those minimum floors were.

This is Joe, again. I also want to underscore another part of the equation, because there is the rate situation or negotiations that goes on, but also I think its fair to underscore aggressively we’re pursuing medical cost management as a contributor to how we better manage that book as well as others. Specifically building out data analytic capabilities, really a passionate commitment to effectively managing the medical cost trends I think really benefits us over the long-term. So, it’s really sort of a two sided coin here in terms of rate negotiations as well as medical management both cost focused.

Thank you.

Thank you. Our next question is from the line of Chris Rigg from Susquehanna Financial. Please go ahead.

Good morning. Thanks for taking my questions. Just on the individual comments with you’re seeing modest growth for 2015. Can you give us a sense for sort of the churn or retention rates in that business versus new member adds? Thanks.

Hi, Chris. So, first let me comment on the modest growth. We are still seeing relative to the new lives coming into the system, us getting our mid 20% range market share. So, I do want to first start with, this is not a growth store issue around new lives coming in. And I would say retention has been decent, I mean, kind of what you would expect with an individual book. What we are seeing now, and part of the reason for the more modest view is, overall employment in the economy is starting to improve. And as that starts to improve, individuals start getting jobs, and as a result they drop their individual healthcare coverage. And so, the one thing that we feel good about though is that, we still think we’ll have modest growth. If the economy really does take off though and we saw that gets more flattish or even slightly down, we have got a pretty big catchers net with the way our book is build. And so, ultimately we will most likely pick up much of that membership in either a large local group business or a national account business. So, I view it a little fungible regarding the growth, but I think we still expect modest growth. But if the economy really takes off, that could decline. But again we would expect to have offsetting beats in other lines of business.

Okay. And then, the follow-up is just on Medicare Advantage. Understand the comments on 2015, but assuming the rate environment for ’16 remains reasonable. Do you think you can grow that business next year? Is the repositioning essentially down at this point? Thanks.

Yes, this is Joe again. We have stated that we do expect a slight decline in membership for MA for ’15 and again that’s a continuation of the repositioning of that portfolio, so that it -- it does become a solid performer for us going forward. It builds a great foundation in terms of adding membership in key markets in an effective way given the business model we build out. Our sense is that, going into ’16 obviously we’re looking forward to a combination of organic growth and the potential of M&A activity similar to what we just announced regarding Simply Healthcare in Florida. So, we’re very mindful of M&A opportunity, and also just basically organic growth I think will continue to be a great benefit to us. So, I think net-net we’re going to be well positioned for what comes our way and we’re very optimistic about our potential going forward in MA.

Okay. Thank you.

Thank you. Our next question is from the line of Sarah James from Wedbush Securities. Please go ahead.

Sarah, are you there?

It looks like we lost her line. So, we’ll go to Ana Gupte from Leerink Partners. Please go ahead.

Yes, thanks. Good morning. I was just trying to see what other puts and takes in your 83% consolidated loss ratio guidance for 2015 across commercial and if any color on small and large group like changes in Medicare and Medicaid?

Well, I think relative to the overall guidance in the MLR, generally pretty stable for the year across all of our lines of business, no real outliers. We’re expecting to maintain our margins in general across various books, but we see margin declamation. Again it more like what we talked about on the Medicaid in terms of some new markets and some new investments versus what I would call real pressures. Again we think we priced right, that’s the key, and we priced for a rising trend. And we -- again our starting point is good at this point, and its really in the year, but January cash flow seems to be at least supporting our assumptions at this point, so, more to come. But I would simply say that, as you look to the various businesses in 2014 it will be a very comparable MLR for each of the lines of business in 2015.

So, just to follow up then, Wayne does small group, is the margin compression done at this point and secondly on your reserve expectation you’ve been remarkably stable for three years on the 500 plus that was assumed into guidance?

Yes. So, two things; one is on the small group. We really expect this to be the last what I would call more meaningful wave of attrition and margin compression that would occur. So, from a membership perspective we are assuming we’ll loose north of a 100,000 lives in ’15, and we have about $100 million of EBIT headwind this year as a result of that margin compression. But in essence after this year we’re kind of on a very flat to growth trajectory again. So, that is included in our outlook and our guidance. The second part of your question, on the blank what it was.

The reserves, it was like 540 I think you said that in your prepared remarks.

Yes. Thank you, Ana. And we have assumed no reserve releases in our outlook or anything of that sort. We would expect reserves to develop very similar in ’15, now what you have seen in ’14 and ’13 et cetera. So at this point, if that proves to be conservative then that would be an upside to our earnings outlook as well.

Thanks, Wayne. Very helpful.

Thank you.

Thank you. And our next question is from Scott Fidel from Deutsche Bank. Please go ahead.

Thanks. First I just had a question just following up on individual and the modest growth that you’re expecting. How would you expect that, that’s going to break out between on-exchange growth as compared to off-exchange attrition? Then just interested in terms of what you’ve seen so far in terms of how the rest of the mix is developing for year two, and how those new joiners that are coming into the exchanges this year appear to be looking from a risk profile perspective?

Thanks, Scott. So, let me start with the individual market on the modest growth. I would say really it’s somewhat fungible between our on and off exchanges at this point. Everything seems to be kind of holding the line as the year develop, so nothing really crazy. I mean, I would say on-exchange is going to grow and we’re getting new market share and off-exchange will have some attrition, but similar to what we saw in ’14. Relative to new entrance and new markets, I guess what I would say is, in general pricing seems to have stabilized more. We’re not seeing as wide of the variability or variation in pricing as we saw in ’14 and it seems that there has been a bit of a regression to the mean in terms of pricing which is a positive. We continue to see some outliers, generally new interest that we scratch our heads on in terms of the pricing and, so that may slow some of our growth in certain markets for a short period of time But we think over time that similar pricing has to prevail, because if it doesn’t, financial solvency becomes an issue, and so, we for those other entities. So, I think in general we think industry is handling a very unique and unknown environment in the right way with pricing. We’d like to see the regression in the mean and I think as the Three R start to dissipate over the next couple of years, I think you’re really going to see rational pricing come even into play.

Okay. And then just, I had one follow up, and just with Simply now coming online in Florida and then you have obviously the Amerigroup platform already there in Florida. How do you view the positioning of the government platform for Anthem now in Florida after the Simply acquisition? Do you feel like, you’ve now got the pieces in place for Florida or do you feel like you’d need to do sort of further actions in order to get it to where you would want to be long-term?

Yes, it’s a great question. Thank you. Simply, I assume you’re aware of the -- of this growth dynamic we created for ourselves by now becoming the second largest player in the state of Florida which is a very solid position especially South Florida combined with the regions we’re already performing in. So, our sense is that we’re extremely well positioned in Medicaid going forward especially if there is the prospect for expansion in that state becomes a reality which obviously is still somewhat speculative. So, again I think we’re very well positioned in that regard. I hope that answers your question.

I’m sorry, Joe. I was sort of meaning the combination of Medicaid and Medicare just in terms of Simply’s Medicare capabilities ...?

Yes, and excuse me I should have kind of weighed in on Medicare as well, because that really gives us a good foot hold in a very dynamic state regarding Medicare or MA membership and it’s potential. So obviously we certainly intent to leverage our new found position in the state, especially given the fact that we’ve got some very expert management associated with Simply that will be coming into the company. We fully intent for that leadership team to continue to support Simply and the overall footprint that we have in the state. So, I think we’re very well positioned for growth going forward in both MA and Medicaid.

Okay. Thank you.

Thank you. And we’ll go to the line of Sarah James from Wedbush. Please go ahead.

Thank you and I apologize about the technical difficulties earlier. There has been a lot of talk about the price ticking behavior of exchange members. And now that we are in year two, can you talk about, how you’re seeing that balance against brand loyalty or consumers just not wanting to re-bid every year, so giving us a sense of the overall stickiness of the book.

I’ll take a shot at it first by simply saying that I think stickiness is real. It certainly has played out as we expected. Given our entry last year migrating into the second year, I think stickiness has played out particularly related to our Blue Cross Blue Shield brand identity in our 14 states where we have played. So, our sense is that, that certainly has been a so called asset for us. So our strategy is playing very well with respect to our pricing model and especially leveraging our brand identity in all the markets that we serve. We really like our position going forward in the market regarding how we priced and obviously continuing to leverage our brand identity. So, long story short, stickiness is real. We believe its sustainable and, but I do want to underscore that, certainly is the determinant as well and we’re very mindful of the combination of pricing, brand and network configuration being three core ingredients regarding how people will make their decisions going forward. But again I think brand stickiness is a significant driver and will remain so for the foreseeable future.

Sarah, one thing we want to add to Joe’s comments is that, our strategy was not a ’14 strategy. It really was a post Three R strategy and where we wanted to take our organization. And so, I think one of things too to keep in mind is, having a first year mover and a first mover advantage, we think is meaningful. But we think the ultimate value, that value proposition and how that affects pricing over time and how that a price affects market share, really it can't be measured until you get closer to ’17 and ’18, because when you think about the unknown to Three R’s, if those still haven’t been settled and they’re not getting settled until probably second quarter of ’15. So, I still don’t think people can say that they had complete visibility on all of the factors that affect pricing. And so, I think from our perspective though, we have taken a conservative posture on all those factors. We’ve priced well in the first year, we have achieved all of our margin goals that we set for ourselves as a company, and we know what the consumer makes decisions on beyond just price, including brand and product design, and we have really learned a lot in this first year. But keep in mind, this is a multi-year strategy and we’re going to have to trudge through a few years, but we still think of some irrational behaviors. But once those pass, we really think the value of this strategy is really going to shine when you get out to the ’16, ’17, ’18 time periods.

I appreciate all the color. And if I could just clarify one comment from earlier. The $0.05 of flu, how did that fall between Medicaid and Commercial?

So, it was north of $0.05 and it’s roughly split, fairly evenly between the two.

Thank you.

Your next question is from Tom Carroll with Stifel. Please go ahead.

Hi, guys, good morning. Also just a clarification on some prior discussion. The Medicaid rate retro payment in Texas, I think you guys were expecting to get paid for the tax. But you hadn’t explicitly assumed the gross up. So, is that something that we should consider here in terms of kind of a run rate discussion kind of what Christine was getting at? Maybe that’s a nitpick, so I apologize for that. And then secondly, kind of a high level question on your outlook. The press release and this call seem to be very favorable and the outlook seems to suggest if you look on a, your old methodology basis, kind of a 5% EPS growth over 2014 level. So if I’m doing the math correctly, it seems like you could double that on repurchase and capital deployment alone. So, I guess the heart of my question really is, where do you feel like you could see points of concern in 2015 that may hold things back more or is there just a good bit of flexibility in your outlook?

Good morning. Let me start with your gross up of Texas, I mean that’s a good point. So, we did not assume that we would get the non-deductibility to tax initially in our outlook, so that was upside to us relative to Texas. But again if you were to take the actual model received plus the gross up, it literally is within a few million dollars of that amount that got differed to next year on some of the retro rate stuff. So again still on that flush from that perspective.

Okay. Good.

Relative to outlook, it’s a very fair question, is what I’ll start it with. I want to highlight that as you know, we do have a 40% increase in the industry tax this year which we want to manage through. We have many investments that we are making for the long-term all around growth, both in our commercial and our government businesses. And those are reflected in here as well as many investments that Joe has really pushed the pedal to the floor on around shutting down the system platforms and other items, things that will really drive value into ’16 and beyond that you cannot see in the ’15 outlook. And then lastly I would simply say, we have the small group headwind of north of $100 million of EBIT. But all that being said, core operating gain is still growing very meaningfully with that. And I would say that, we feel that we’ve given the least prudent guidance of a greater than number and if, we don’t need a lot of things to fall our way. We just need to make sure that we maintain our conservative posture and we could have opportunity for our performance. But three weeks into the year, so lots still due and our job is to execute with the agility as a lot of these unkowns become known.

Great. Thanks.

Thank you. Our next question is from the line of Kevin Fischbeck from Bank of America. Please go ahead.

Great, thanks. I just wanted to go back to the small group commentary, it sounds like you guys feel like it will be through the margin compression in 2015. But just trying to understand I guess two things, one is whether if you had any conversations with those customers, those who have not yet dumped, whether there is any view that the risk that they will dump increasingly in the future, is there -- or whether this is something that really isn’t heard, haven’t turned out to be the issue that people thought that might be just trying to understand. I know you have re-priced the margin between the two, but clearly there is a risk about re-capturing those members on the exchange if they do in fact dump. And then second, any issues at all in the kind of the 50 to 300 range. It wasn’t, its never been 100% clear to me why you guys felt like there wouldn’t be at least some pressure in the 50 to a 100 range, and why kind of the $400 million was only related to that, to the small group?

Kevin, let me start with the first part of your question which was, we’re having discussions with our customer’s conversations around this, I mean, and the answer is absolutely. I think its -- and these questions kind of go hand in hand, the two comments you raised. I mean it’s important to recognize though that, that generally speaking for a company that has fewer than 50 employees just the economics, the math of their business models would generally imply there is a value benefit to them moving to a public exchange versus not. And as you get to a larger size employer, that value benefit diminishes. And so, one is, there’s just an economic play that we think an employer can look at. Two is, because there is no penalty for dropping coverage below 50 lives is also a natural incentive then for employers to not only evaluate the economics but recognize there is not a penalty for not providing coverage’s of some sort. So, we have regular discussions with our customers. We were very pleased with our retention of small group renewals in December, and we hope that gives us a little bit of a positive starting point going into ’15. But I would say though that, its not just about small group retention, because again we set up a lot of customers in small group, it’s about margin compression. And I think that’s the other part people have to remember though is that, there is an alternative available now and that alternative has lower margins than what we have in small group and our goal is to make that alternative fungible between the two. And then, in the 50 to 100 segment, in general our market share has been relatively stable. In some spots we have lot a little bit of market share but nothing that’s really concerning and I think -- we actually think we’re going to start growing in that area now that we’ve seen some of the shakeout of exchanges.

Okay. Then maybe just to clarify, because again to the extent that we do see again you could be agnostic margin wise between the two products, but any color you have on how you think about your local market share in the small group or even up to a 100 versus the exchange market share? Is it reasonable to assume that you would capture your fair share of that membership that moves in or is there potentially a risk from a membership perspective if there was somehow a wholesale dumping or a larger scale dumping than we’re seeing now?

We really like our chances on maintaining even the market share that we have between the two and that our catchers they kind of pick some up wherever they fall. But I want to clarify; I’ll caveat my comment with one thing. Not necessarily all in one year though. And the reason I said that is again, we still see some players in certain markets that we think have to get right sized on pricing, and so as we’ve seen Kentucky and a few other markets, we understand that we may not have the market share we had and then as people move from one bucket to another we may not maintain that market share. But we think overtime that sustainability to the market comes and as the Three R start to dissipate, and we’ll see that market share come back in. So, obviously for ’14 we think we’ve accomplished that goal quite well. We’re assuming we’ll do something similar in ’15, and -- but we really think you’ll see potential growth in beyond our market share as we get to a more stable environment through the end of ’16.

That makes sense. Thanks.

Thank you. And our final question this morning will come from the line of Peter Costa with Wells Fargo Securities. Please go ahead.

Thanks for squeezing me in at the end here. Can you guys talk a little bit more about private exchanges and what you’ve seen happening there between 2015 and 2016 selling season? Where do you think that’s going at this point and then also, the second question around your PBM structure? Do you see that evolving this year in any way shape or form from what you have used in the past?

This is Joe, I’ll take on private exchange and then Wayne you can pick up on PBM. We have been, I think well positioned regarding private exchange formation for go-to-market effort. We have been believer now for quite some time that there is going to be a relatively slow uptake on private exchanges, and I think in fact that has come to pass. We have had about 100,000 members in the private exchange space for quite some time. Having said that though, I think we’re extremely well positioned because we do believe that there will be an inflection point in the not too distant future where there probably well be an increasing interest in private exchanges, so I think this moment in time has given us tremendous opportunity to prepare. Get aligned with a variety of interest in the market that are advancing various models. So long story short, I like our chances when that moment comes and I think that, the private exchange market place has potential albeit it’s been a slow uptake. So, it’s out there, we’re ready and I think we’ve got the experience that’s necessary to actively engage when that moment comes.

Pete, relative to the PBM, let me first start by saying that similar to what we said in our Investor Day last year, we continue to expect significant value for our members and our shareholders regarding our PBM and its value that, that the question really becomes a matter of win not if we’re optimistic that we’ll begin to hopefully garner some of this value for our shareholders and members sooner than later. But we obviously don’t discuss our relationships or any negotiations regarding those relationships in a public environment for competitive reasons. But in general, our goal is to ensure that we get all the rights that were allowed into our contract and to also ensure that those values go to not only our members but our shareholders.

Is there market check explicitly in your contract?

Yes.

Thank you. End of Q&A

Thank you. And I would now like to turn the conference back to company’s management for any closing remarks.

Thank you for your questions everyone. We’re pleased with the operational performance last year. It clearly was a year of substantial change to our markets and our associates I believe have done an impressive job of navigating the market rules and executing on our strategies. I also believe we’re making progress in advancing our positions in the market with respect to core elements, such as provider collaboration, cost of care management and our ever increasing focus on the consumer experience. While we made progress in these areas, there is substantial room for further gains. I’m really confident that we are appropriately focused on our long-term market position. Our structure, leadership and strategy are all pointed in the right direction. We are targeting further growth in 2015 and beyond and really remain optimistic about the meaningful opportunities across both of our business segments. I’d like to thank all of our associates for their efforts that drive our company success and importantly our transformation into a performance-based culture. Thank you all for joining us this morning and for your interest in Anthem. We look forward to speaking with you next quarter. All the best.

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