Ladies and gentlemen thank you for standing by and welcome to the WellPoint 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 is being recorded. I would now like to turn the conference over to the company's management.

Good morning and welcome to WellPoint's first 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; and Wayne DeVeydt, Executive Vice President and Chief Financial Officer. Angela will begin this morning's call with an overview of our first quarter results, actions, and accomplishments. Wayne will then offer a detailed review of our first quarter financial performance and current guidance which will be followed by a question-and-answer session. Ken Goulet, Executive Vice President and President of our Commercial Business; Dijuana Lewis, Executive Vice President and President of Comprehensive Health Solutions; and Brian Sassi, Executive Vice President and President of our Consumer Business are available to participate in the question-and-answer session. This call will contain certain non-GAAP amounts a reconciliation of these non-GAAP amounts to the most directly comparable measures calculated in accordance with GAAP is available on the investor information page of our company 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 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 announce first quarter 2009 net income of $580 million or $1.16 per share. This included net realized investment losses of $228 million after-tax or $0.46 per diluted share. Net income in the first quarter of 2008 was $588 million or $1.07 per share which included net realized investment losses of $0.06 per share. First quarter 2009 earnings per share increased by 8% on a GAAP basis. On an adjusted basis excluding the investment losses in each period earnings per share increased by 43% from $1.13 in the first quarter of '08 to $1.62 in the first quarter of '09. Our first quarter was solid in light of the current economy and it is clear that the performance improvement initiatives we put into place last year are having positive results, strategic enhancements to our senior business and successful actions to improve visibility in the claims level in medical costs have contributed to an improvement in our operating results despite a decline in member shift. At March 31, 2009 our medical enrollment totaled 34.6 million members, a decrease of 814,000 or 2.3% from March 31, 2008. Enrollment declined by 490,000 in the first quarter of 2009 which was in-line with our expectations for total membership. But we lost fully insured business than we expected. The decline in fully insured membership occurred primarily in the employer based businesses which is a reflection of the economic downturn. The marketplace remains competitive with generally rational in most of our service areas and we are seeing signs of firmer pricing from certain competitors. We will remain disciplined in our pricing and currently have a number of strategies in place to enhance fully insured enrollment in a sustainable long-term manner. While our customer retention levels remained strong at nearly…

Thank you, Angela and good morning. I also agree that we had a solid first quarter 2009. Premium revenue totaled $14.2 billion in the quarter down just slightly from the first quarter of 2008, as fully insured membership declines were essentially offset by premium rate increases in all of our medical lines of business. An increased reimbursement in the FPP program. As Angela noted we are maintaining discipline in a competitive and difficult economic environment and are pricing for small increase in medical cost trend this year. Premium yield and benefit buy downs were tracking inline with our expectations. We have seen a slight increase in buy downs in the small group and large group segments. With no significant change in the individual market, administrative fees were $942 million in the quarter, a decline of $28 million or 3% when compared to the first quarter of 2008. Primarily due to lower revenues in our BlueCard and national government services businesses. This was partially offset by memberships growth in the self-funded National Account segment. The benefit expense ratio was 81.6% in the first quarter of 2009, the decline of 350 basis points from 85.1% in the prior year quarter. Decline resulted principally from disciplined pricing, operational improvements, including market-leading care management programs and higher levels of favorable reserve development in the senior and local group businesses. We expect the benefit expense ratio to increase for last nine months of 2009 relative to the first quarter, primarily due to the benefit designs in our commercial business, where more members satisfy the deductible limit as we progress through the year. We continue to experience a shift in seasonality, reflecting growing popularity of consumer-driven health plan and high deductible products. Our CDHP enrollment increased by 242,000, or 14% in the first quarter alone, and…

Operator, please open the queue for questions.

Thank you. (Operator Instructions) Your first question comes from the line of Josh Raskin from Barclays Capital. Please go ahead.

Hi, thanks. Good morning. Question is really the high deductible health plans, I guess in this new world that we are speaking about. Can you give us some statistics around what is the average deductible for your membership in '09 versus '08? And how many members are in? Plans with I do not know pick a number its $500 or $1000 deductible?

Josh, thanks for that question we know that the consumer directed health plans and these high deductible plans have been very popular. And you are seeing more of the seasonality in our results, you will see through the year, because of these consumer-directed plans and high deductibles. I am going to turn it over to Ken to talk a little bit about what we are seeing in the market place, Ken?

Yeah. First, Josh as you stated, there is a lot more popularity. Our CDHP membership was up 242,000 in the first quarter of 2009, or 14% and it brought our overall CDHP membership to 2 million members. We are seeing high deductible plans on, both the CDHP plans and on our general programs. Our PPO products have much higher deductibles across the board. And as buy downs occur amongst our membership, many of the buy downs are in the deductible areas. The average, and I do not have the specifics with me, and we would need to get back to you. But the average deductibles of many of our small group plans are well over $1,000 now. And it has changed significantly in the last couple of years, which is what impacts the seasonality of our program.

Okay, I guess may be let me try to ask you different way. The seasonality that we are seeing in terms of your guidance now this year is sort of unprecedented and massively different than anything we have seen since after went public in '01 or WellPoint even back of the early 90s. So the question is, this really wasn't mentioned previously, it didn't come up at the Investor Day in February 24th. And while we clearly missed this trend, we are just trying to size it. And if you are telling me that consumer-directed health plan membership was up 14%, and that's 200,000, why is that? I just cant understand how that the a 350 basis point impact on the MLR. And I understand there were reserve boosting et, cetera, so just any sort of numbers that you could give us to help collaborate why this seasonality is occurring so dramatically I think would be , I think would be very helpful.

Josh, I want to cover a couple of things that you have in that question. In the fourth quarter of '08, adjusted EPS was lower than in the third quarter due to the seasonality. And so, we are expecting that similar pattern this year. It's evolving as that CDHP and high deductible membership goes up, and now 2 million members. But on the reserve question specifically, I am going to address that kind of head-on. This is really important question. The reserve releases did not significantly contribute to our first quarter net income. And we have talked about throughout this discussion that throughout 2008, we strengthen reserves, and we did that as we regain clarity into the medical trend and we reduced inventories and improved our processes throughout. So when we look at first quarter of '09, it did reflect a higher level of favorable development when we compared it to the first quarter of '08. And we reestablished these reserves in our 331 '09 balance sheet. And we did so, because we did at the comparable level and we continue to book reserve in a consistent and conservative manner. So I wanted to address that reserve question, because I know it's part of it. But in terms of the seasonality, we will continue to reflect I think as the CDHP membership continues to grow that seasonality. There is slight counter effect of the senior business there, but we are seeing the CDHP impact much greater.

I apologize if I [infibulated] the reserves had anything, I understand that impact to strengthen the seasonality of these high deductible health plan still struggling with how they could go up 200,000 lives and cause such a big differential in the seasonality. Is it even remotely possible that the weak economy is reducing utilization pattern?

Josh, at this point I would say it's too early to call that. What I would tell you is that we are clearly not seeing a spike in utilization patterns at this point in time. But I would also tell you that I wouldn't add any point to clear right now that we have an expectations coming down. We are cautiously optimistic for the year. And while we don't give quarterly guidance, I want to ensure people recognize, we are running this business for the long-term, managing for long-term. I think where the biggest paradigm shift is occurring was between the first and the fourth quarter. And it's probably the best way for me to help you in terms of understanding where that's happening overtime in terms of working senses maybe adverse would at over longer-term. So, most that shifts really a first versus fourth quarter, and really is the dynamic at the high deductible. But right now, Josh, we are not assuming any upside in our guidance for lower utilization. I do think it's too early call at this point.

Well, and Josh back to the first quarter the rate, remember we did had to significantly strengthen reserves for that quarter. And so just looking at 350 bips is a reflection of what happen in '08.

Okay, thanks.

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

Yes, thank you. And actually I would like to sort of continue along the same theme of questioning. Looking at the back, now your outlook for the back nine months of the year, was I missing something. It's looks like you are actually sort of pointing to a comparable MCR for the back nine months, because it was about 83.1 for the back nine months of 2008 and that seems to be about what you are guiding to for the back nine months of 2009. But the guidance also implies your pre-tax income for the back nine months will be down maybe 10% year-over-year. I think I am missing something in the equation here but just hoping you could help me out on this?

Well, let me say first and then I’ll ask Wayne to help me here. Clearly, we are performing better than we planned in the quarter, so given that it's early in the year and the uncertainty in the economy, we are reluctant to bring too much of that confident forward. But we are cautiously optimistic that we are going to see some stability and that's going to be reflected in the nine month, and you are right as they were fairly consistent. Wayne, do you want to be more specific in that?

Yeah. The one thing I would just say Matt is, as Angela reiterated, we are maintaining reserves in a consistent and comparable level that we have had. We have not made any assumptions for any positive development that may come through relative to our full year guidance, or relative to that MLR, so that would be upside. If the patterns continue that we have seen in March 31st, it is very fair to say that we have had a very good experience in reserve development really since the first quarter of last year, but we continue to maintain that high level of conservatism. So that being said as well, I think if you looking to taking the first quarter, I think you have to bake in seasonality, but I also think you have to recognize that we will preferred to maintain a cautious optimistic look at this point and hold our high end of the guidance range until we get further detail in the next quarter. And then in addition, we are assuming that fully insured will continue decline at a faster pace than we originally assume at this point. So again, we feel pretty good, we clearly had to be relative to plan, which is part of the reason we have raised the low end of the range, and but we'd like to remain cautiously optimistic for remainder of the year.

Okay, thank you.

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

Thanks, good morning. In terms of the shift to high deductible plans, I understand that the reality is lot less binary and than just it [settelise] moving from one product to another and there is more of a continuum of rising deductibles rising out-of-pocket. So maybe we get a better sense for that, can you perhaps tell us what the PMPM trend has been when you look at your overall commercial book as we don't have the commercial premiums, but just give us a rough sense the PMPM is growing shrinking and approximately by how much?

You know obviously Charles we do not typically provide that level of granularity for competitive reasons. I will tell you that PMPMs are growing and the premiums dividends are inline with our expectations at this point in time.

Are you able to quantify single digit growth big single digit growth as to that level of granularity on your commercial book of loan?

It’s more mid Charles.

Alright great and then in terms of the loss ratio changes just given the wide swing I know you also do not provide loss ratio by product. But just to help us understand what was really big shift from last year to this year can you characterize the directional changes in the commercial and Medicare managed books in particular?

You know Charles I think we should talk about the real turnarounds that we experienced in the senior business and Brian Sassi is here with us, so I would let Brian to comment on that.

Hi as you are aware, we have made significant investments over the last year in our senior area to address our infrastructural needs as well as in the Medicare managed lines. We did strengthen our bid last year as well as make some product changes. So, all of those investments are having a vary positive impact on year-over-year performance for Medicare Advantage as well as the infrastructure enhancements are actually helping all of our Medicare lines of business. So we are seeing year-over-year improvement in Medicare supplement which is about two-thirds of our membership Medicare Advantage and Part D. So that is helping to contribute to more favorable loss ratios.

And if we exclude all prior period developments from first quarter '08 and first quarter '09 did the commercial loss ratio get better or worse?

Hi Charles this Wayne and the answer is it obviously improved I think one thing that’s difficult for investors to see is when you look at the segment reporting of the commercial segment they look essentially flat year-over-year. When you look at operating gain however, what I want to say is a couple of points, keep in mind the full insured membership has in fact declined yet. We were able to maintain that level of operating gain. In addition this year would be a New York State assessment Angela spoke about, there also were the premium tax assessment and essentially for WellPoint in and being kind of net neutral for us for the year. But what it did do is it move cost into premium tax line which now effects our operating gain from the segment coding perspective. But the benefit of that is below the line and effectively. So also the total company is essentially flat, it makes it look year-over-year that we did not have improvement in the commercial books. That is in fact not the case, we have significant improvement in the book despite the decrease in fully insured membership and covering that as well. As well as the incentive compensation for our employees is also being covered within those numbers year-over-year.

Got it, just lastly in that on the federal employees plan, was that a one timer or is that going to continue and can you roughly size it for us?

I am sorry, Charles in terms of federal employees plan?

Yeah, there was a, there was a benefit in the quarter from prior reimbursement to some to that extent.

Yeah, it’s just a pass through those, so it does not ultimately impact our bottom line essentially the cost plus program.

Right, got it.

But it’s more one time through up but its essentially is the pass through so bottom line no impact.

Terrific, thanks.

Thank you.

Your next question comes from the line of Christine Arnold from Cowen. Please go ahead.

Hi there. I am trying to understand what the underlying MLR looked like year-over-year and understand that it would rather look to allow. But if I add, if I track a $120 million last year of negative development out of the first quarter loss ratio. I kind of get 84.3 versus 81.6 now, and if this comparable levels of kind of reserve, conservativism because you are up the reserves last year. Then that implies significant improvement and even if the seasonality gets worse there is still like 300 basis point improvements. How much of you are expected MLR increase for the rest of the year is COBRA, negative selections and versus the high deductible health plans because I am just confused?

Let's try to address some of those things Christine. In terms of COBRA even with the COBRA subsidies we are not really saying that that's going to have big impact for 2009. In terms of where we are with reserves I will go back to my first statement. We did significantly strengthen reserves in the first quarter of '08. You refer to $120 million I think it was north of that really in establishing and we have given the uncertainty in the economy particularly over the last six months. We are conservatively reestablishing reserves at that comfortable continuous level that we saw through the last three quarters of through first quarter. So there is a fair amount of the seasonality that we have described in terms of the consumer directive and high deductible health plan. Wayne, do you want to add to that?

Yes. Thanks Angela, the only thing Christine, I would just highlight is keep in mind that lot of the improvement is well though it was exiting the some of the enhanced plans on our senior product as you recall. Those are items that obviously will not continue to run rate because we obviously put a lot of medical management initiatives throughout the year, last year once we identified those what was driving some of the adverse behavior. We are trying to drive down some of those costs. But essentially those programs have been eliminated. We took those products off the market completely and that is part of big reason we have seen huge improvement in the MLR this quarter as well.

We are feeling good Christine about active in cancel marked ratios. We feel good about the decisions we made in senior. In retrospect as we look at what has come through from a reserving point of view. We did believe we made right decisions there and same reflected in our results.

Okay but I guess even if you put $200 million and you take it out of first quarter '08 the reserve strengthening is to improve the MLR 200 basis points year-over-year. And you are saying you are not going to hold that, that’s going to almost entirely, that's an entirely reverse because of exclusively the high deductible health plans is that what you are saying?

Well we are saying that you will see obviously a shift in the fourth quarter invested a [paradise] shift in the seasonality patterns in first and fourth quarter. We are also saying that Christine we are providing no upside for any positive development and reserves. And again we would spike that out separately. And call it out separately in the second quarter.

Okay, thank you.

Thank you.

Your next question comes from the line of John Rex from JP. Morgan. Please go ahead.

Hi, thanks. So same topic, we are all struggling with this. And really want to know is the kind of change the seasonal pattern changing you are not the only guys talking to this. So its fair but ROE seemed a bit mysterious in terms of magnitude we think about, you can see my directed business only about half of that is risk business. So if 200,000 adds all of that pattern that's a 100,000 members that's under 1% change in your fully insured membership. So how much of this just, much may be less percent, how much of this is about trying to anticipate or add some conservatism for an uncertain economy and an uncertain outlook versus kind of really knowing about this drastic shift in seasonal patterns.

John I think you are hitting on the right issue. Clearly we are performing better than our plan in the quarter. But it is very early in the year. The economy over the last six months was more tumultuous than we expected. And we are trying to really understand its impact in the fourth quarter and until we see that stability we are reluctant to suggest that the fourth quarter would not repeat.

And maybe any metrics like, if you can tell us potential bed days per 1000 are those still trending down slightly and any statistics on doc visits and you may not believe these numbers yet but what do you seeing the current data?

Let me stick to before we get off that CDHP issue, CDHP plus the high deductible pieces and we are seeing a focus there. So make sure that you encompass not just the CDHP numbers so far as a deductible leveraging growth we need to be thinking about that. In terms of the inpatient trends that’s really pretty flat and we are seeing higher acuity there. So, I think our medical management techniques are being effective. That maybe that we are seeing some lessen inpatient at lower acuity levels go to outpatient but we are refocusing on some of the prior acuity issues to make sure we see some stability there.

Okay, any indications on kind of doc visits as such in terms of where those volumes have been impacted?

Pretty flat John with our expectations bed days per 1000 is pretty flat as well. So we are not going to see an up tick there at all.

Okay and you edged up your out patient view from last quarter, right?

Yeah, John and again more just on the little slight acuity and again recognize that at IR day we were high single digit now we are saying low double digit and as you can probably match we are just talking a matter of bits between those two. So it's fairly tight and I think the best way to respond John I think we are cautiously optimistic on the year and we just like to see how the economy develops more at this point.

Okay, thank you.

Thank you.

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

Thanks. First question I guess on Angela you just mentioned that you performed better than your plan in the quarter. I think that's a great way to look at this given all the questions around the seasonality. Can you give us an idea of how much better you did versus your plan just around numbers and then you kind of break that out between kind of better MLR versus kind the below the line items.

Well, clearly we saw and below the line improved in many ways in terms of that the debt offering in the cost of debt for us, we had an advantage. Obviously, we are very transparent about what we saw in terms of the number of shares outstanding and given the price that we are able to repurchase and the share count is down pretty significantly. In terms of operating result, we are really pleased with how the turnaround has occurred in the senior book, and state-sponsored is running better, I'm not sure how it is scripted, and I'll let Wayne measure this year, we are going to be in terms of our success of our plan given how early is in the year. But let me talk about, what we looked at for the first quarter. As we were looking at guidance originally in the plan, we were looking at unemployment data in our key state. And what has happen with unemployment data is actually employment levels have a declined on a steeper slop than we had first anticipated, but the economist that we follow would suggest it's going to kind of stabilize and moderate and will get to that same place at the end of the year, that we originally expected. It's just going faster than we thought. Despite that we still performed on a overall enterprise basis better, so that's part of our cautiousness. We are optimistic that we are looking at that employment essentially stabilizing little. And I don't know, Wayne, can we be more specific to Justin's question than that?

Yeah, Justin, just a few adds, Angela, pretty much the answer the key items. But obviously it was a be to plan, which is evaluate the loan by $0.09, we are effectively passing through primarily below the line at this point in time, and maintaining a cautious, but nonetheless optimistic outlook for the full year as it relates to above the line and we are not reflecting any potential reserve to be done in excess of our high single-digit margin at this point. So what I would say is from our perspective, the economy is still overhung, but we are cautiously optimistic and we are very comfortable and obviously pushing on the below the line and I think even then, we believe we have a level of conservatism in mixed store property as well.

I would also add even though this economy has been certainly troubling and uncertain in many respects, our national account sales and the pipeline that we have there, really gives us a reflection of how our value proposition is market-leading. And I would love Ken to just touch on that that a little bit, because we described it in our comments that to me it's a reflection of the capability, our ability to continue to make the right decisions about how we can lead in the marketplace.

Yeah, we've gone over some of the numbers on the Investor Day, what we are anticipating in some of the groups we are bringing on Board, but we grew by over 400,000 numbers in first quarter, approximately 315,000 of which were controlled. What I would say with those growth numbers and what doesn't show in there is a 125, that covers an additional 125,000 of in-group change loss where employers laid-off in the first quarter, where it was current customers releasing, which if I will be an optimist, those will come back at some point in the future, but it is because of economy related, so we had a net growth of 400K including in-group changes of over 125,000 in the quarter were anticipating from continued in-group change loss throughout the year, but we have a very high close ratio. It is the good indicator of our value prop overall and our close ratios are in the mid 40% range.

Got it, so far to think about the way you are looking at this, the below the line items, I would say, in the quarter were probably $0.4 to $0.5 from interest expense and lower share count we have seen. Would you save the other $0.4 to $0.5 in their higher lower in the guidance is better operating results is that the way to think about it for the first quarter and maybe we the bip versus plan was somewhere in $0.10 some range or $0.9 range?

I think that's generally correct.

Okay. And then one question on the SG&A, Wayne, you talked about the impact of the New York State assessment. And I think you laid some of that out, but can you be specific as far as the took up your SG&A by 30 basis points. How much of that is due to this New York State assessment issue. And then how much of that comes back and where does it come back in its repose, can you put numbers around that for us?

Yeah. There is actually assessment there, so one is the debt reduction assessment, which essentially as that comes through, we in fact will be passing it on to the premium throughout the year. So a big portion of that should be theoretically have kind of a nominal impact on the SG&A. What does have the impact is the assessment around the shift between the premium tax assessment versus the below the line state tax assessment. And so as it relates to that particular assessment, it's probably about 20 bips or so is probably a reasonable gauge.

Okay, so it's about 20 bips above the line on the SG&A and 20 bips below the line?

That's correct. And so again for net bottom line impact to our shareholders is zero, but nonetheless increases geography as well as metric noise.

Okay. And any update on the CMS, and I'll jump off, on the CMS suspension?

Justin, I am going to turn that over to Brian Sassi, he has been leading our important work there.

Good morning, Justin. As you aware, we had a goal of completing our remediation work by the end of March. We did achieve that, we had a third-party independent reviewer come in and validate our remediation efforts. All of that information and approved documents has been sent to CMS, over the last 10 days, CMS is actively working at reviewing that information and we are having continued dialogue. So, we are very optimistic about our prospects of reentering the market well in time for the annual election period this year.

Great, thank you very much.

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

Thanks. I just want to follow-up on the 2010 national account selling season, and maybe if you could talk about just how much more active you expect it will be then '09, will it be a material change or just the modest change? And then maybe on a percentage basis, how many cases you are biding for and what the average change in case size is?

So, Scott, Ken is here and he will address that.

Yep, I think the economy-related number of larger employers are looking to make sure they have right carrier and the right value prop, we had a very successful year. This year in national accounts, we anticipated very good year going into 2010. What we found is that the number of prospects going out is up significantly. I would say it's in the overall moderate increase range, but we are seeing more cases out to bid and our proposal activity is up right now. Probably more importantly, some of the jumbos, there are a number of larger, significantly large employers who are out to bid from some of our competitors and working to make sure they have the right value prop in place. I think many of them will choose not a single carrier solution, but a multiple carrier solution going network-by-network and now we should fare very well in there. Our own activity is up slightly, but not at all if I look at the ratios of what we are competing on for other business out to bid in our own. It looks like it could be a very good year going in the 2010 for us. It's still early and we are just seeing the proposal activity. We don't see the outcomes yet, but the activity is in our favor at this point.

And if I could, just a follow-up in terms of maybe how you are planning to prepare for two of the bigger [Washington] risks that obviously the sector is dealing with right now. One, just the top 2010 and a rate outlook and may be your initial views on sort of how you want to positions on MA granted your exposure there is already more limited than most of the peers. And then more broadly just to help reform and maybe if you could just touch on your thoughts on how probable it is that we see a public plan option and whether that would actually leverage Medicare or commercial rates, thanks.

I speak to the health reform issues and then have Brian speak specifically to the Med Advantage issues. Editorially with respect to Med Advantage, I really want us to work together with all the parties involved in health reform to make sure that Med Advantage is a mechanism that can meaningfully address medical cost and be very transparent about that, because I really think that's the heart of the health reform discussion. We have to have mechanism to address cost and quality and Med Advantage, I think creates and opportunity for us to do that. In terms of overall health reform and particularly the government plan issue, there are significant concerns that relate to having a government run option. If we look at history in terms of what the Medicare program originally anticipated years ago in the 60s, they said they were going to negotiate for pricing loan fact we know that, it's not the case in Medicare pricing is dictated. I think the same would be true in government loans. Public plan auction here we would have Medicare fee schedules likely to be paid which creates a big-big cost shift and considerable issues in terms of who is really going to deliver costs and quality management. And I think there is some very strong voices with respect to the issues that would create and so I think it's obviously too early to say what will happen overall but we are very active in making sure that, that story is told and we can really get to the hard of what we do which is cost containment and quality improvement and the need for that function on a go forward basis. So, with that I will turn it over to Brian to talk about net advantage.

Okay, good morning, Scott. We are actively preparing for projected reimbursement cut. I think as you are all aware we are estimating it to be in the 4.5% range. That coupled with just projected trend increases we are looking all the different levers that we can pull to offset that, which includes benefits design changes, potential changes to premium levels, we are looking at general administrative costs, marketing and selling expenses. So, we feel that we will be prepared to tackle and really come through this fairly well. But as you mentioned our exposure Medicare advantage is different than some of competitors. We are the second largest provider of net sub plans in the country. We are seeing nice growth in Medicare supplement. And so our renewed efforts on that product line I think will position us well offering a comprehensive suit of solutions for Medicare beneficiaries.

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

Thank you. Do you have any statistics you can give us on high deductible risk enrollment, so if we look at, I mean, I assuming what the risk enrollment down 340,000 lives in the first quarter that your risk high deductible enrollment was also down. But maybe its better look at as a percentage of the overall books, anything you can give us this quarter versus end of '08 or versus a year ago.

No, I am sure that we have that specifics and to provide.

Yes, Carl, unfortunate I have that with me right now, I don’t know that I would say that its I would say its probably generally believe me it's spread across the book, I wouldn’t say anything that would leave me to believe it’s focus or (inaudible) anyone in those segment.

Okay. And then touching on the adverse selection in the canceled versus active benefit expense ratio, what’s the time period that you are looking at, is that through end of '08 or does that include some data from the first quarter of '09?

We update some of the data through '09, obviously you have more of a lag though, so it's a little bit difficult when you are looking at it obviously, March data, you don't get better till April etcetera. So, those run through '08 and then we have got some data points that would tell us that is continuing to trend. And quite honestly I think just looking at our results in the quarter, the operating cash flow that we are generating relative to those results, I think that would imply where we have a less visibility on the active versus benefit things are handling themselves where we expected it.

And I would say that one other, item that we indicated at Investor Day that we track a leading indicator was the age sex demographics, or the age demographics and we are checking that monthly to see what the economy impact is and to read right now through first quarter is surprising in two-third of our states, its actually a less impact year-over-year then we normally experience. So, it's fair to say that we have not seen a significant age demographic change as a result of employer cut-backs and that the layoffs have been of general mix of all ages rather than the younger being laid-off.

Your next question comes from the line of Tom Carroll from Stifel Nicolaus. Please go ahead.

Hi, good morning. Could you just quantify for us the amount of positive development that was realized in the first quarter? And then secondly maybe to put a sharper point on John’s question how much of your conservative outlook is influenced by the upcoming discussion of healthcare reform that’s going to really increase the volume?

You know Tom I don’t know that we are ready to talk specifically about quantification of the positive development. As we said in the second quarter we began to share with you our roll forward schedule that gives you some added transparency about the reserve strength that we have and it is our goal to be very transparent we were about this quarter not contributing significantly to the bottom-line. So, I am not sure that we can provide more specifics, but Wayne do you want to add to that?

Yes Angela, hi Tom. What I would say is obviously the positive reserve development in the quarter as it relates to 12/31 was significantly higher than what we were at the year-ago at this time. That being said, we essentially reestablished a same level of conservatives in a couple of matters at March 31st, which essentially means there is a very little impact at all through the bottom-line in the quarter.

Okay, so I am just trying to think about this buck 62 number. I mean if you had softened that position a little bit given the trends we are seeing out there in terms of utilization and what not, the buck 62 would have been higher than, correct?

That's a correct way to look at it.

Okay.

And Tom what we are saying here is that’s where the part of caution is that we are looking at utilization seeing it pretty flat, we are not ready yet to say that it's is going to be significantly positive contributor to '09, because we are not, we are not at that point yet early in the year.

So, on the reserve develop just to confirm, you guys are putting that money back up in the shelves just as conservatively as you did all of last year which was a difficult year for the industry?

That’s right, we are reserving, reestablishing this reserves, we did at March 31 comparable level, conservative, consistent methodology and that’s exactly what we are doing.

Very good. And then maybe just a second part of my question on --

Yes, could you repeat that second part?

Just how much of your conservative outlook is really influenced by the discussion that we are going to hear about healthcare reform in the coming months. It’s really going to rash it up in volume?

We really didn’t try to bring the reform uncertainty into where we are right now. What we are reflecting here is that the economy over the last six months has created more uncertainty around employment and whether or not utilization will be positively or negatively impacted. So, really what you hear from us today is clearly we are seeing some upside which we wanted to bring the lower end of the range up, but its so early in the year, we don’t want to really pull that end for the rest of the year, but we are cautiously optimistic that we are going to see some stability in the economy and that will be reflected over the year. In terms of the reform debate we have really think that at this point there is not enough specific to build that into the plan. And we are optimistic that between the efforts of the industry and all of the players that will comfort with that result that we think is positive and reflects the value that we create for our customers on an on-going basis.

Okay, thank you.

Your next question comes from the line of Beth Senko from Williams Capital.

Hi, good morning. Couple of questions. I want to dig deeper on this age sex demographic issue. In particular, I guess the issue for me is, I am not sure the data in reality are sort of held together, but what have you learned sort of from last. I know that if the age numbers say that you are not getting sort of an adverse selection, but what other measures do you guys going to able to use? Or if you develop relative to last year that will help you understand sort of in group decline utilization etcetera, etcetera. My thought being that healthcare utilization isn’t sort of a normal curve, it absent flows as people get older. And also some of this may very well be in in-group situation on the risk business?

Ken do you want to add to your earlier comment on that?

Yes, couple of things. The age is just one indicator that reviews as a leading indicator of the economy. We take a look at a number metrics on an ongoing basis to see how the book is performing. We mentioned earlier the active cancelled ratios which is taking a look at the groups that are remaining with us versus those that are leaving, how we are managing that to keep our risk profile solid overall. We have risk scores through predictive modeling which identify where we are running, but most of those are after the fact when the age, it's an ongoing basis but the age is a leading indicator of saying how is our book changing as a result of the economy. And that's why we have spiked that out. We feel we have a pretty good script on how the book is performing. And I think the one area that we are having as a disparity between consensus goes to the seasonality issue when we really looked at seasonality and looked at that over the last year. And looked at it regarding how does higher deductibles impact that. And we see the fourth quarter and very namely November and December more than October changing significantly over the last few years.

I think there is another approach here that really isn’t directly related to what Ken was talking about. But if you look on the consumer side we are actually looking at age differently. And there is some opportunities, we have an individual, Brian do you want to talk about that in terms of our approach to the early retiree and some of the older individual folks?

Sure, thank Angela. We have made significant progress during the quarter and kind of improving our ability to understand and diagnose kind of different customer segments. We built an individual data march during the quarter that takes a look at kind of all of the different demographic and performance data from a distribution standpoint from a claims and membership standpoint. As well as repurchase our external data that brings in over 250 different customer attributes. And by kind of using that data and being able to profile kind of behaviors both retrospective and using on a predictive modeling basis, we are able to better able to kind of tell where the sweet spots are within our business and within the market overall. And as a result of that we are really kind of shifting a lot of our product focus towards more high value, more lifetime value segment. I think you will see increased focus on the pre-retiree and early retiree the 50 to 64 year old segment. That is a segment that on a compounded annual growth basis. If you look at the trends and demographics, that is an area that is going to be growing and outpacing growth and many other age segments. And so just recently we were piloting some pre-retiree and early retiree plans in the Midwest that look at the key component of that is a multi-year rate guarantees. As we have done consumer research stability and predictability of that customer segment is more valued than virtually any other attribute. And so I think you will see us kind of flex our product portfolio to meet the kind of new demands of that growing segment plus from a life time value standpoint, higher life time value than some other segments that we focused on historically and has a nice transition into the senior segment. It's really the baby bloomers are going to be aging into senior are in early pre-retiree segments. So, I think you will be seeing nice shift in our strategy relative to individual.

I would like to say too that the kind of micro segmentation that Brian is describing is really going to be a powerful tool in terms of changing the out region product, communications bring that together with Express Script approach to the consumer and the way that they look at the consumer that’s a very powerful thing on a integrated basis. So we are really looking forward to brining that market and taking full advantage of that.

Your next question comes from the line of that Matt Perry from Wachovia Capital. Please go ahead.

Hi, good morning. A kind of question on a separate topic. I think one of the themes you have talked about today in 2009 outlook is kind of remaining cautious given some of the uncertainties of the economy and uncertainties around utilization. And which to me makes a lot of sense. And then I look at the way you deploy your capital and it's seems a little less conservative in my opinion. And you are not the only company in this sector that’s doing it so but just wondering how we should think about that, you are deploying most of your free cash to buyback shares and then you have talked about, using a lot or most of the after-tax proceeds from the Express the next Rx sale to also buyback shares and wondering if may be a little bit more conservative outlook on that capital deployment, given the uncertainty of healthcare reform might be prudent.

Let me speak to that then I will turn it over to Wayne, we given the evaluations and just our fundamentals we do think that share repurchase is the right use of our capital, but we have got down with CP, we are using part of the proceeds we describe using part of the proceeds from the next Rx sale to pay off some debt first in general corporate purposes. So not all of that was going to flow through necessarily on a buyback basis. Clearly this is an issue we continue to evaluate making sure that we are prepared for liquidity issues that we saw in the last quarter of last year, we think given our cash flow we are in a good position to deal with those and given where we are having paid down some debt, we are being appropriately conservative there. But I will let Wayne add to that.

Yes, hey, Matt, a just couple things one is I would say while obviously, we can not predict the outcome reform, we believe there will be aspects of reform. We also believe that there are obviously different opinions right now from a variety of parties. I think we do think overtime when this reform will come forward. That being said to our cash on cash yield are so significant, so even if you recognize in the performance itself we are generating over 15% cash on cash yield. We do believe we will be able to manage to perform that we come forward in some capacity and still be able to maintain very high cash on cash yield. So, these yield levels is very difficult and that see buying our shares to be extremely compelling. What I would say, is with the Express Script tractions closing in the second half of the year, we do believe at that point that we will have a lot more visibility to around how to perform, what is out there and how we will respond with it as well. So from that perspective while we said this would be our intentions to use that clearly the Board is not authorized but they have approved the use of proceeds from the perspective that when the transaction (inaudible) but we all agree that we made the right decision.

And If I could just ask a second question on the sale of NextRx. It looks like both companies Express Scripts and WellPoint expect to generate some significant and lower purchasing costs on drugs there and you have talked about getting back to kind of slight accretion even without considering share buybacks. Just wondering how the deal might be structured in terms of who gets that ultimate savings, does WellPoint recoup certain amount of savings from [$1] or is that just split in a certain way from the first dollar just wondering how that might be structured?

Well Matt, we don’t want to get into too great detail about that because obviously that we would loose a competitive advantage if we did, but I think it’s fair to say that from our perspective it is a win-win for both parties for a couple of reasons. One is we do think the value that we got upfront was a the right reflection for the asset, but we wanted to make sure that on a go-forward basis we would have the ability to be extremely competitive and create customer value for the long-term. And so that in this situation it would unique in that for both parties and for both of upfront purchase prices as well as the long-term contract. We saw and received advantages over our ability on a stand alone basis to drive that kind of reduction in cost of goods sold. Obviously as we come together Express Script then has that advantage not only for our book of business but for their, the rest of their book of business. And so they see a great advantage so it was clearly one of those unique transactions where we both at one and the customer win and the shareholder win.

Your next question comes from the line of Ana Gupta from Sanford Bernstein. Please go ahead.

Thanks, good morning. I was looking for some color on the in-group attrition that you mentioned earlier today. I was wondering if an addition to layoff in the early retirees, are you seeing active vendor their dependence dropping group coverage, and is that varying by state or geography. And then a follow-up to that is, if they are then where exactly are they going. Are they dropping it and staying uninsured, are they going to individual, are they moving to the competition, you saw the small sequential decline in your individual book and I was trying to understand the outlook for growth in MLR?

Yes, I am going to let Ken and Brain speak to this little bit, but Ana earlier in my comments I talked about the fact, we have definitely had a process in place to track some of these layoffs and were digging deeper to make sure, for two reasons; one, we want to understand what’s happening to the group members who is departing as well as enhancing our ability to capture that member on an individual on senior product basis. So Ken and Brian have been working together to address both of those issues, so I will turn it over to them.

Ana, this is Ken. Much of the information will be anecdotal now and we could give very specific information at the next quarterly call. The change of enforce is a direct result of the economy and we see that people are leaving group coverage. And when we say in group change where the employers stay and the individual members of the employers decline. Historically or year ago it was about even in prior year as we actually would grow through in group change and this year on fully insured basis we lost over $200,000 first quarter and over $125,000 on the AFL. I commissioned this study to really take a look at that because we have not run through something like this before. We know they are leaving. We are not 100% sure if they are being laid off because the contribution levels or because of other behavioral patterns. We have anecdotal information that the majority is lay offs. And we have worked between our individual and group areas to begin to capture that the best we can. But I really need to get the market data back because where it's leaving from which was built into the plan but we had not experienced at this level. It's really the small group level. So I would say the 25 and under. And to be able to grab information from that we need to do some detailed research or actually going member by member and doing some detailed research to find out what they are doing with the behavioral patterns, why they left and would be able to better understand that for ourselves and for future product needs.

Okay. Thanks Ken and as you indicated the economy is certainly having an impact on in group change within the employer markets. We are very focused and have a number of initiatives as Ken mentioned underway to strengthen the linkages between the commercial side and the consumer side so that we can improve upon our member conversion rates. Last year we initiated some pretty targeted programs at converting the over 65 members both within kind of individual on our group segments in to senior business and then we are continuing to strengthen and roll out that process from commercial membership to individual. Historically a large portion of the individual market actually does come and historically has come from group. And so we are very focused on kind of increasing that rate of conversion. With that said we are having another very good sales year in our individual segments. We are however seeing that the economy is having an impact on lapses so we as Angela mentioned are rolling out, continuing to expand our health plan advisors where we are having a great degree of success. Plus we are implementing a number of different and new tools. So that we can better predict those types of customers that can lapse and do pro active outreach to those members. So we are making a number of improvements. And as we look at our active versus cancelled loss ratios within the individual segment we are still trending very positively on that front.

Operator I think we have chance for one more question.

Okay your final question comes from the line of Peter Costa from FTN Equity. Please go ahead.

Thanks. I would like to finish off on the same note that we started on. But I am going to do it anyways. Last year at this time when the first quarter conference call tell us that the prior period favorable development was $120 million less favorable in 2008 than it was in 2007 first quarter. Can you tell us that same what's the change year-over-year in prior period favorable development this year? And then second question, gets to sort of the same issues again on the time of the Investor Day you discussed having a higher medical loss ratio factored in because you assumed that younger people were going to be laid-off. So people were going to be sicker in your population mix and now you telling us you have not really seen that trend. So that theoretically you should improve pretty some of the out performance this quarter and going forward can you describe sort of how much of that is still in the numbers and what impact that had in terms of that not showing up?

You know Peter we are going to continue reiterate that. We had a higher level of favorable development in the first quarter as compared to first quarter of '08 we are not going to get specific in terms of the different at this point. And before I turn it over to Wayne I would add to that certainly in terms of the we are feeling good about where we were coming in, in terms of active cancelled we are feeling good about that. I would say part of their cautiousness is a result of the fact that unemployment rate increased faster in the first quarter than we had expected. We still think it make it to the same price at end of the year and because that trends will flatten somewhat but that’s where a lot of cautiousness comes from and given the seasonality that we experienced in particularly in November and December we are reluctant at this point and giving what we are seeing in terms overall utilization being relatively as expected we are reluctant to go there yet at this point in the year. So Wayne do you want add to that.

Yeah, thanks Angela. Hey Pete. Just as Angela said our preference has always been to wait till the six months mark to give more clarity. What I can say that the based on what we have said before is clearly you would have expected the reserve to be strengthened by at least the $200 million we had last year when I can tell you is in fact the number has in fact been strengthened by that and it is more of that. And we would reestablish that for you in the quarter, so we can provide better granularity at that point in time, that I will give you reasonable gauge of year-over-year improvement in the number, of patients would actually have to be strengthened. The other thing I would say some of the Angela's comment please recognize we did lower MCR guidance to the low end of our range as well. But we are remaining cautiously optimistic about the economy at this point.

And I would say there is a very significant difference between where we were last year at this time and where we are this year, the processes have been strengthened significantly, we have much greater visibility into medical claim. The claims inventories are down, the processes have been improved and so in terms of where we look at reserves now being consistent and conservative, having a comparable process is really significant and I think as you see the roll forward schedule beginning in the second quarter. You will understand that strength in the reserves in the DCP is that to. So another indication in strengthen in terms of our overall cash flow. So thank you, unfortunately we are not going to be able to get to everyone's questions I want to thank those who were able to ask questions. So let me close here, I want to say just how please I am with the solid start that we have for 2009 clearly we believe there are both challenges and opportunities in the current economy and we are taking strategic and operational actions to lead the company and addressing both the challenges and capitalizing on the opportunities. Our core operations are improving, we have greater visibility and the medical cost, we have remained disciplined in our pricing and we believe that the strategic initiatives we have underway are laying the ground work for even better performance in the future. I want to thank you all for participating in our call this morning and I'm going to turn it back over to the operator to provide the call replay information.

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