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WellPoint Reports Third Quarter 2008 Results
Date:10/22/2008

-- Net income was $1.60 per share in the third quarter of 2008

-- Medical membership grew by 63,000 members during the quarter and

exceeded 35.3 million at September 30, 2008

-- Benefit expense ratio declined by 80 basis points from the second

quarter 2008 -- Operating gain in both the Commercial and Consumer segments increased

from the second quarter 2008 -- Insurance subsidiaries remain well capitalized with statutory capital levels approximately $6.3 billion above state regulatory levels and $3.3 billion above the Blue Cross and Blue Shield Association requirements

INDIANAPOLIS, Oct. 22 /PRNewswire-FirstCall/ -- WellPoint, Inc. (NYSE: WLP) today announced that third quarter 2008 net income was $820.7 million, or $1.60 per share. These results included:

-- Net realized investment losses of $562.6 million pre-tax, or $0.71 per share, consisting primarily of other-than-temporary impairments of certain equity and fixed maturity security investments;

-- An impairment charge related to the fair value of certain intangible assets in the Company's State Sponsored business, which totaled $141.4 million pre-tax, or $0.17 per share; and

-- Income tax benefits totaling $460.8 million, or $0.90 per share, resulting from the favorable resolution of certain federal and state tax matters.

Net income in the third quarter of 2007 was $868.0 million, or $1.45 per share, which included $0.01 per share in net realized investment gains.

"WellPoint delivered a solid third quarter of 2008 amidst a challenging economic environment. Our Commercial segment is performing well, as we continue to grow Commercial membership while maintaining strong operating margins. We are also seeing improvements in our Consumer segment, where we achieved the highest level of operating gain in seven quarters despite continued challenges in State Sponsored busi0 per share, resulting from the

favorable resolution of certain federal and state tax matters in

the third quarter.

-- Year-end medical enrollment is now expected to be approximately 35.2

million members.

-- Operating revenue is now expected to total approximately $61.7 billion.

-- The benefit expense ratio is now expected to be in the range of 83.5 -

83.6 percent.

-- The SG&A expense ratio is now expected to be approximately 14.6

percent.

-- The Company now expects operating cash flow of approximately $2.6

billion.

Basis of Presentation

1. Operating gain is defined as operating revenue less benefit expense, selling expense, general and administrative expense, and cost of drugs. Operating gain is used to analyze profit or loss on a segment basis. Consolidated operating gain is a non-GAAP measure.

2. Operating margin is defined as operating gain divided by operating revenue.

3. Certain prior period amounts have been reclassified to conform to the current period presentation.

Conference Call and Webcast

Management will host a conference call and webcast today at 8:30 a.m. Eastern Daylight Time ("EDT") to discuss its third quarter earnings results and updated outlook. The conference call should be accessed at least 15 minutes prior to the start of the call with the following numbers:

888-423-3268 (Domestic) 800-475-6701 (Domestic Replay)

651-291-5254 (International) 320-365-3844 (International Replay)

An access code is not required for today's conference call. The access code for the replay is 908944. The replay will be available from 1:45 p.m. EDT today until the end of the day on November 5, 2008. The call will also be available through a live webcast at http://www.wellpoint.com under "Investor Info." A webcast replay will be available following the call.

About WellPoint, Inc.

WellPoint, Inc. is the largest health benefits company in terms of medical membership in the United States. WellPoint is an independent licensee of the Blue Cross and Blue Shield Association and serves its members as the Blue Cross licensee for California; the Blue Cross and Blue Shield licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as the Blue Cross Blue Shield licensee in 10 New York City metropolitan and surrounding counties and as the Blue Cross or Blue Cross Blue Shield licensee in selected upstate counties only), Ohio, Virginia (excluding the northern Virginia suburbs of Washington, D.C.), Wisconsin; and through UniCare. Additional information about WellPoint is available at http://www.wellpoint.com .

WellPoint, Inc.

Membership & Prescription Volume Summary

(Unaudited and in Thousands)

Change from

September December September December September

30, 31, 30, 31, 30,

Medical Membership 2008 2007 2007 2007 2007

Customer Type

Local Group 16,683 16,663 16,649 0.1% 0.2%

National Accounts 6,808 6,389 6,388 6.6% 6.6%

BlueCard 4,785 4,563 4,562 4.9% 4.9%

Total National 11,593 10,952 10,950 5.9% 5.9%

Individual 2,341 2,390 2,432 (2.1%) (3.7%)

Senior 1,308 1,250 1,250 4.6% 4.6%

State Sponsored 2,022 2,174 2,141 (7.0%) (5.6%)

FEP 1,390 1,380 1,383 0.7% 0.5%

Total Medical Membership 35,337 34,809 34,805 1.5% 1.5%

Funding Arrangement

Self-Funded 18,662 17,737 17,571 5.2% 6.2%

Fully-Insured 16,675 17,072 17,234 (2.3%) (3.2%)

Total Medical Membership 35,337 34,809 34,805 1.5% 1.5%

Reportable Segment

Commercial Business 28,515 27,886 27,885 2.3% 2.3%

Consumer Business 5,432 5,543 5,537 (2.0%) (1.9%)

Other Business 1,390 1,380 1,383 0.7% 0.5%

Total Medical Membership 35,337 34,809 34,805 1.5% 1.5%

Other Membership

Behavioral Health

Membership 23,588 20,230 20,168 16.6% 17.0%

Life and Disability

Membership 5,507 5,598 5,665 (1.6%) (2.8%)

Dental Membership 4,618 5,014 5,008 (7.9%) (7.8%)

Vision Membership 2,632 2,401 2,367 9.6% 11.2%

Medicare Part D Membership 1,870 1,614 1,596 15.9% 17.2%

PBM Prescription Volume Processed

(Quarterly)(1)

Retail Scripts 96,759 91,393 86,382 5.9% 12.0%

Mail Order Scripts 6,532 7,019 7,149 (6.9%) (8.6%)

Specialty Pharmacy Scripts 244 193 163 26.4% 49.7%

Total Scripts 103,535 98,605 93,694 5.0% 10.5%

PBM Prescription Volume Paid

(Quarterly)(1)

Retail Scripts 58,621 56,833 54,014 3.1% 8.5%

Mail Order Scripts 6,345 7,000 6,637 (9.4%) (4.4%)

Specialty Pharmacy Scripts 177 131 103 35.1% 71.8%

Total Scripts 65,143 63,964 60,754 1.8% 7.2%

(1) Prescriptions processed represent all requests submitted to our PBM

companies. Prescriptions processed may not ultimately agree to the

amount paid for various reasons, including duplicative and non-covered

submissions.

WellPoint, Inc.

Consolidated Statements of Income

(Unaudited)

Three Months Ended

(In millions, except per share data) September 30

2008 2007 Change

Revenues

Premiums $14,230.7 $13,905.6 2.3%

Administrative fees 925.6 911.6 1.5%

Other revenue 153.1 157.6 (2.9%)

Total operating revenue 15,309.4 14,974.8 2.2%

Net investment income 214.2 257.7 (16.9%)

Net realized (losses) gains on

investments (562.6) 9.5 NM(1)

Total revenues 14,961.0 15,242.0 (1.8%)

Expenses

Benefit expense 11,745.6 11,380.0 3.2%

Selling, general and administrative

expense

Selling expense 448.2 430.8 4.0%

General and administrative expense 1,772.0 1,759.1 0.7%

Total selling, general and

administrative expense 2,220.2 2,189.9 1.4%

Cost of drugs 114.1 107.3 6.3%

Interest expense 118.4 119.6 (1.0%)

Amortization of other intangible

assets 71.9 73.8 (2.6%)

Impairment of intangible assets 141.4 - NM(1)

Total expenses 14,411.6 13,870.6 3.9%

Income before income taxes 549.4 1,371.4 (59.9%)

Income tax (benefit) expense (271.3) 503.4 NM(1)

Net income $820.7 $868.0 (5.4%)

Net income per diluted share $1.60 $1.45 10.3%

Diluted shares 513.5 597.0 (14.0%)

Benefit expense as a percentage of

premiums 82.5% 81.8% 70 bp

Selling, general and administrative

expense as a percentage of total

operating revenue 14.5% 14.6% (10) bp

Income before income tax expense as a

percentage of total revenues 3.7% 9.0% (530) bp

(1) "NM" = not meaningful

WellPoint, Inc.

Consolidated Statements of Income

(Unaudited)

Nine Months Ended

(In millions, except per share data) September 30

2008 2007 Change

Revenues

Premiums $42,810.0 $41,598.9 2.9%

Administrative fees 2,861.2 2,759.5 3.7%

Other revenue 481.8 471.2 2.2%

Total operating revenue 46,153.0 44,829.6 3.0%

Net investment income 664.5 757.7 (12.3%)

Net realized (losses) gains on

investments (636.0) 10.6 NM(1)

Total revenues 46,181.5 45,597.9 1.3%

Expenses

Benefit expense 35,817.7 34,215.2 4.7%

Selling, general and administrative

expense

Selling expense 1,337.6 1,283.4 4.2%

General and administrative expense 5,349.8 5,298.4 1.0%

Total selling, general and

administrative expense 6,687.4 6,581.8 1.6%

Cost of drugs 351.5 327.7 7.3%

Interest expense 353.9 322.6 9.7%

Amortization of other intangible assets 215.0 215.5 (0.2%)

Impairment of intangible assets 141.4 - NM(1)

Total expenses 43,566.9 41,662.8 4.6%

Income before income taxes 2,614.6 3,935.1 (33.6%)

Income tax expense 455.3 1,448.8 (68.6%)

Net income $2,159.3 $2,486.3 (13.2%)

Net income per diluted share $4.09 $4.06 0.7%

Diluted shares 527.9 612.6 (13.8%)

Benefit expense as a percentage of

premiums 83.7% 82.3% 140 bp

Selling, general and administrative

expense as a percentage of total

operating revenue 14.5% 14.7% (20) bp

Income before income taxes as a

percentage of total revenues 5.7% 8.6% (290) bp

(1) "NM" = not meaningful

WellPoint, Inc.

Consolidated Balance Sheets

September 30, December 31,

(In millions) 2008 2007

(Unaudited)

Assets

Current assets:

Cash and cash equivalents $2,270.6 $2,767.9

Investments available-for-sale, at

fair value:

Fixed maturity securities 1,640.6 1,832.6

Equity securities 1,527.5 1,893.7

Other invested assets, current 34.8 40.3

Accrued investment income 165.7 165.8

Premium and self-funded receivables 3,265.5 2,870.1

Other receivables 1,347.8 996.4

Income taxes receivable - 0.9

Securities lending collateral 633.0 854.1

Deferred tax assets, net 741.7 559.6

Other current assets 1,050.7 1,050.4

Total current assets 12,677.9 13,031.8

Long-term investments available-for-sale,

at fair value:

Fixed maturity securities 12,035.1 13,917.3

Equity securities 35.2 45.1

Other invested assets, long-term 789.9 752.9

Property and equipment, net 1,019.4 995.9

Goodwill 13,582.1 13,435.4

Other intangible assets 8,895.1 9,220.8

Other noncurrent assets 723.9 660.8

Total assets $49,758.6 $52,060.0

Liabilities and shareholders' equity

Liabilities

Current liabilities:

Policy liabilities:

Medical claims payable $6,272.5 $5,788.0

Reserves for future policy benefits 63.3 63.7

Other policyholder liabilities 1,617.1 1,832.2

Total policy liabilities 7,952.9 7,683.9

Unearned income 1,050.6 1,114.6

Accounts payable and accrued expenses 2,798.4 2,909.6

Income taxes payable 14.6 -

Security trades pending payable 7.5 50.6

Securities lending payable 633.0 854.1

Short-term borrowings 100.0 -

Current portion of long-term debt 623.7 20.4

Other current liabilities 1,881.4 1,755.0

Total current liabilities 15,062.1 14,388.2

Long-term debt, less current portion 8,491.3 9,023.5

Reserves for future policy benefits,

noncurrent 663.4 661.9

Deferred tax liability, net 2,501.0 3,004.4

Other noncurrent liabilities 1,367.5 1,991.6

Total liabilities 28,085.3 29,069.6

Shareholders' equity

Common stock 5.1 5.6

Additional paid-in capital 17,016.0 18,441.1

Retained earnings 5,167.2 4,387.6

Accumulated other comprehensive (loss)

income (515.0) 156.1

Total shareholders' equity 21,673.3 22,990.4

Total liabilities and shareholders' equity $49,758.6 $52,060.0

WellPoint, Inc.

Consolidated Statements of Cash Flows

(Unaudited)

Nine Months Ended September 30

(In millions) 2008 2007

Operating activities

Net income $2,159.3 $2,486.3

Adjustments to reconcile net income to

net cash provided by operating activities:

Net realized losses (gains)

on investments 636.0 (10.6)

Loss on disposal of assets 6.0 10.3

Deferred income taxes (322.2) (229.4)

Amortization, net of accretion 358.2 350.7

Impairment of intangible assets 141.4 -

Depreciation expense 78.7 91.4

Share-based compensation 129.3 153.6

Excess tax benefits from share-based

compensation (14.9) (141.4)

Changes in operating assets and

liabilities, net of effect of

business combinations:

Receivables, net (739.5) (441.4)

Other invested assets, current 5.4 34.4

Other assets (89.8) (61.0)

Policy liabilities 270.5 638.0

Unearned income (63.8) (3.4)

Accounts payable and accrued

expenses (137.7) (199.0)

Other liabilities (446.4) 158.3

Income taxes 43.9 424.8

Other, net 23.7 (21.3)

Net cash provided by operating activities 2,038.1 3,240.3

Investing activities

Purchases of fixed maturity securities (5,007.9) (7,131.4)

Proceeds from sales and maturities of

fixed maturity securities 6,041.1 5,914.7

Purchase of equity securities (1,237.8) (1,147.7)

Proceeds from sales of equity securities 935.0 1,750.9

Changes in securities lending collateral 221.1 13.2

Purchases of subsidiaries, net of cash

acquired (207.7) (298.5)

Proceeds from sales of subsidiaries,

net of cash sold 5.0 -

Purchases of property and equipment (235.9) (211.5)

Proceeds from sales of property and equipment 11.3 52.6

Other, net (60.7) (30.9)

Net cash provided by (used in) investing

activities 463.5 (1,088.6)

Financing activities

Net repayment of commercial paper borrowings (474.9) (97.3)

Net proceeds from short-term borrowings 100.0 -

Proceeds from long-term borrowings 525.0 1,978.3

Repayment of long-term borrowings (9.2) (206.2)

Changes in securities lending payable (221.1) (13.2)

Changes in bank overdrafts 9.5 (12.9)

Repurchase and retirement of common stock (3,047.0) (4,325.3)

Proceeds from exercise of employee stock

options and employee stock purchase plan 103.9 605.4

Excess tax benefits from share-based

compensation 14.9 141.4

Net cash used in financing activities (2,ness," said Angela F. Braly, president and chief executive officer of WellPoint, Inc. "We have highlighted three items that impacted third quarter results, but these items substantially offset and had a minimal net impact on our earnings per share and operating cash flow. In total, we reported record EPS of $1.60 for the quarter."

"The operating environment for our State Sponsored businesses remains challenging due to various state budgetary issues and other impacts from the current economic situation. However, our Blue franchise remains strong, and as we look towards 2009, we expect another year of good net membership growth in our National Accounts business," added Braly.

"Despite the impairment charges we recorded in the third quarter, our subsidiaries remain very well capitalized with statutory capital levels approximately $6.3 billion above state regulatory levels as of September 30, 2008," said Wayne S. DeVeydt, executive vice president and chief financial officer of WellPoint, Inc. "We expect to generate $2.6 billion of operating cash flow this year and also have ample liquidity with $646 million of cash and investments at the parent company, approximately $1.5 billion in ordinary dividends scheduled to be received from our subsidiaries in the fourth quarter of 2008, and a commercial paper program that is supported by a $2.4 billion senior credit facility. We continue to have access to the capital necessary to operate our businesses."

"We are also pleased to have resolved certain federal and state tax matters dating from 1987 to 2002," added DeVeydt.

CONSOLIDATED HIGHLIGHTS

Membership: Medical enrollment exceeded 35.3 million members at September 30, 2008, an increase of 532,000 members, or 1.5 percent, from 34.8 million at September 30, 2007. The increase was driven by the National business, which added 643,000 members over the past 12 months. Membership in the Company's Senior and Local Group businesses grew by 58,000 and 998.9) (1,929.8)

Change in cash and cash equivalents (497.3) 221.9

Cash and cash equivalents at beginning of

period 2,767.9 2,602.1

Cash and cash equivalents at end of period $2,270.6 $2,824.0

WellPoint, Inc.

Reconciliation of Medical Claims Payable

Nine Months Ended

September 30 Year Ended December 31

(In millions) 2008 2007 2007 2006 2005

(Unaudited)

Gross medical claims

payable, beginning of

period $5,788.0 $5,290.3 $5,290.3 $4,853.4 $4,134.0

Ceded medical claims

payable, beginning of

period (60.7) (51.0) (51.0) (27.7) (31.9)

Net medical claims

payable, beginning of

period 5,727.3 5,239.3 5,239.3 4,825.7 4,102.1

Business combinations

and purchase

adjustments - 15.2 15.2 (6.4) 784.5

Net incurred medical

claims:

Current year 36,034.1 34,558.1 46,366.2 42,613.2 32,865.6

Prior years

(redundancies)(1) (263.8) (336.2) (332.7) (617.7) (644.9)

Total net incurred

medical claims 35,770.3 34,221.9 46,033.5 41,995.5 32,220.7

Net payments

attributable to:

Current year

medical claims 30,124.5 29,053.6 40,765.7 37,486.0 28,997.1

Prior years

medical claims 5,150.3 4,693.4 4,795.0 4,089.5 3,284.5

Total net payments 35,274.8 33,747.0 45,560.7 41,575.5 32,281.6

Net medical claims

payable, end of

period 6,222.8 5,729.4 5,727.3 5,239.3 4,825.7

Ceded medical claims,

end of period 49.7 56.0 60.7 51.0 27.7

Gross medical claims

payable, end of

period $6,272.5 $5,785.4 $5,788.0 $5,290.3 $4,853.4

Current year medical

claims paid as a

percent of current

year net incurred

medical claims 83.6% 84.1% 87.9% 88.0% 88.2%

Prior year

redundancies in the

current period as a

percent of prior year

net medical claims

payables less prior

year redundancies in

the current period 4.8% 6.9% 6.8% 14.7% 18.7%

Prior year

redundancies in the

current period as a

percent of prior year

net incurred medical

claims - as reported 0.6% 0.8% 0.8% 1.9% 4.2%

Prior year

redundancies in the

current period as a

percent of prior year

net incurred medical

claims - adjusted for

acquisitions 0.6% 0.8% 0.8% 1.6%(2) 2.1%(2)

(1) Negative amounts reported for net incurred medical claims related to

prior years result from claims being settled for amounts less than

originally estimated.

(2) The reported ratios of prior year redundancies in the current period

to prior year net incurred medical claims is impacted by certain

acquisitions (the former WellChoice, Inc. in 2005 and WHN in 2004).

The Company has provided ratios adjusted for these acquisitions in

order to demonstrate these impacts. Refer to the table entitled,

"Reconciliation of Medical Claims Payable - Adjusted Ratios" for

details regarding the respective calculation methodologies.

WellPoint, Inc.

Reconciliation of Medical Claims Payable - Adjusted Ratios

(Unaudited)

Note: Below are reconciliations for the adjusted ratios of prior year

redundancies in the current period to prior year net incurred medical

claims that are included in table entitled, "Reconciliation of Medical

Claims Payable."

Ratio for the Year Ended December 31, 2006

This ratio is impacted by having no net incurred medical claims for the

former WellChoice, Inc. ("WC") in 2005.

Net incurred medical claims related to prior years

(redundancies) - year ended December 31, 2006 (As Reported) $617.7

Net incurred medical claims - year ended December 31, 2005

(As Reported) $32,865.6

Ratio (As Reported) 1.9%

Net incurred medical claims - year ended December 31, 2005

(Comparable Basis)(1) $37,676.0

Ratio (As Adjusted) 1.6%

(1) Represents comparable benefit expense, assuming WC had been owned for

the entire year ended December 31, 2005.

Ratio for the Year Ended December 31, 2005

This ratio is impacted by having only one month of net incurred medical claims for the former WellPoint Health Networks Inc. ("WHN") in 2004.

Net incurred medical claims related to prior years

(redundancies) - year ended December 31, 2005 (As Reported) $644.9

Net incurred medical claims - year ended December 31, 2004

(As Reported) $15,344.9

Ratio (As Reported) 4.2%

Net incurred medical claims - year ended December 31, 2004

(Comparable Basis)(2) $30,819.1

Ratio (As Adjusted) 2.1%

(2) Represents comparable benefit expense, assuming WHN had been owned for

the entire year ended December 31, 2004.

SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF

1995

This document contains certain forward-looking information about us that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not generally historical facts. Words such as "expect(s)", "feel(s)", "believe(s)", "will", "may", "anticipate(s)", "intend", "estimate", "project" and similar expressions are intended to identify forward-looking statements, which generally are not historical in nature. These statements include, but are not limited to, financial projections and estimates and their underlying assumptions; statements regarding plans, objectives and expectations with respect to future operations, products and services; and statements regarding future performance. Such statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed in, or implied or projected by, the forward-looking information and statements. These risks and uncertainties include: those discussed and identified in our public filings with the U.S. Securities and Exchange Commission, or SEC; increased government regulation of health benefits, managed care and PBM operations; trends in health care costs and utilization rates; our ability to secure sufficient premium rate increases; our ability to contract with providers consistent with past practice; competitor pricing below market trends of increasing costs; reduced enrollment, as well as a negative change in our health care product mix; risks and uncertainties regarding the Medicare Part C and Medicare Part D Prescription Drug benefits programs, including potential uncollectability of receivables resulting from processing and/or verifying enrollment (including facilitated enrollment), inadequacy of underwriting assumptions, inability to receive and process correct information, uncollectability of premium from members, increased medical or pharmaceutical costs, and the underlying seasonality of the business; a downgrade in our financial strength ratings; litigation and investigations targeted at health benefits companies and our ability to resolve litigation and investigations within estimates; our ability to meet expectations regarding repurchases of shares of our common stock; funding risks with respect to revenue received from participation in Medicare and Medicaid programs; non-compliance with the complex regulations imposed on Medicare and Medicaid programs; events that result in negative publicity for the health benefits industry; failure to effectively maintain and modernize our information systems and e-business organization and to maintain good relationships with third party vendors for information system resources; events that may negatively affect our license with the Blue Cross and Blue Shield Association; possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets; intense competition to attract and retain employees; unauthorized disclosure of member sensitive or confidential information; changes in the economic and market conditions, as well as regulations, that may negatively affect our investment portfolios and liquidity needs; possible restrictions in the payment of dividends by our subsidiaries and increases in required minimum levels of capital and the potential negative affect from our substantial amount of outstanding indebtedness; general risks associated with mergers and acquisitions; various laws and our governing documents which may prevent or discourage takeovers and business combinations; future bio-terrorist activity or other potential public health epidemics; and general economic downturns. Readers are cautioned not to place undue reliance on these forward-looking statements that speak only as of the date hereof. Except to the extent otherwise required by federal securities law, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events. Readers are also urged to carefully review and consider the various disclosures in our SEC reports.

34,000, respectively, while enrollment in the Federal Employee Program increased by 7,000. This growth in membership was partially offset by a decline of 119,000 in State Sponsored programs reflecting the Company's withdrawal from the Ohio Medicaid programs, and attrition of 91,000 Individual members, the majority of which occurred in the Company's non-Blue branded business.

During the third quarter of 2008, medical enrollment increased by 63,000 members, or 0.2 percent. Enrollment growth of 150,000 in the Company's Blue-branded Commercial and Individual products was partially offset by declines of 50,000 members in non-Blue Commercial and Individual products and 46,000 members in State Sponsored programs.

Operating Revenue: Operating revenue was $15.3 billion in the third quarter of 2008, an increase of 2.2 percent from $15.0 billion in the third quarter of 2007. The increase was driven primarily by premium rate increases in all medical lines of business and growth in the Company's Medicare Advantage products. These increases in revenue were partially offset by the loss of the New York State prescription drug contract and lower Commercial and State Sponsored fully insured membership.

Benefit Expense Ratio: The benefit expense ratio was 82.5 percent in the third quarter of 2008, an increase of 70 basis points from 81.8 percent in the prior year quarter. The increase resulted primarily from higher medical costs and membership mix changes in the Local Group business. This was partially offset by the loss of the New York State prescription drug contract, which had a benefit expense ratio higher than the overall Company average.

The benefit expense ratio declined by 80 basis points from the second quarter of 2008 primarily due to seasonality in the Senior business, including the Medicare Part D drug benefit design, and a decline in Local Group due to disciplined pricing.

Premium and Cost Trends: Trends include Local Group and Individual fully-insured businesses.

For the twelve month period ended September 30, 2008, unit cost increases continue to be the primary driver of medical cost trends. Underlying medical cost trends for the full year of 2008 are expected to be in the range of 8.0 percent, plus or minus 50 basis points, and the Company continues to price its business so that expected premium yield exceeds total cost trend, where total cost trend includes medical costs and selling, general and administrative ("SG&A") expense.

The Company currently expects a small underlying medical cost trend increase in 2009 and is pricing its business accordingly.

SG&A Expense Ratio: The SG&A expense ratio was 14.5 percent in the third quarter of 2008, a decline of 10 basis points from 14.6 percent in the third quarter of 2007. The decline principally resulted from lower incentive compensation in the current year quarter and leveraging fixed costs across a higher revenue base.

Net Realized Investment Losses: During the third quarter of 2008, the Company recorded net realized investment losses of $562.6 million. These net losses included other-than-temporary impairments of equity security and fixed maturity security investments totaling $347.4 million and $217.0 million, respectively, which were partially offset by net realized gains of $1.8 million.

Significant other-than-temporary impairments recognized during the quarter included $229.5 million for investments in the Federal National Mortgage Association ("Fannie Mae") and the Federal Home Loan Mortgage Association ("Freddie Mac"), and $88.5 million for investments in Lehman Brothers. The Company also recorded other-than-temporary impairments for other fixed maturity and equity investments primarily due to the extent and duration of the declines in the securities' fair values in light of financial market conditions. These securities covered a number of industries, led by the banking and financial services sectors.

As of September 30, 2008, the Company's gross unrealized investment loss position was $925.2 million, consisting of gross unrealized losses on fixed maturity and equity security investments totaling $704.1 million and $221.1 million, respectively. As of September 30, 2008, the Company's gross unrealized gain position was $149.2 million, consisting of gross unrealized gains on fixed maturity and equity securities totaling $85.2 million and $64.0 million, respectively.

Impairment of Intangible Assets: Due to ongoing changes in the economic and regulatory environment in certain states, including California budgetary cuts impacting State Sponsored business, the Company lowered its performance outlook for certain Medicaid and related state programs during the third quarter of 2008. As a result, the Company performed an interim impairment review of indefinite lived intangible assets in these businesses that resulted in an impairment charge of $141.4 million related to certain State Sponsored licenses.

While the Company has lowered its performance outlook for State Sponsored business in certain states, management continues to believe that managed care can provide valuable benefits to State Sponsored programs for an appropriate financial return. The Company will continue to work as a partner with states in programs for which actuarially-sound rate reimbursement can be obtained.

Income Taxes: As previously disclosed, the Company has been in discussions with federal and state taxing authorities. During the third quarter of 2008, the Company resolved certain federal and state tax matters relating to period of 1987 to 2002 and realized income tax benefits totaling $460.8 million.

Operating Cash Flow: Operating cash flow for the three months ended September 30, 2008, was $892.8 million, or approximately 1.1 times net income. Operating cash flow for the nine months ended September 30, 2008, totaled $2.0 billion, or 0.9 times net income. The Company now expects operating cash flow of approximately $2.6 billion for the full year of 2008, which is a reduction of approximately $400 million from its prior expectation primarily due to actions taken in response to certain system migrations and a decline in certain premium rate stabilization reserves.

Days in Claims Payable: Days in Claims Payable ("DCP") as of September 30, 2008, was 49.1 days, a 1.4 day increase from 47.7 days at June 30, 2008. The increase in DCP was driven primarily by medical benefit seasonality and the Company's continued practice of establishing reserves for medical claims in a consistent and conservative manner. Medical claims payable as of September 30, 2008, were flat compared with June 30, 2008.

Share Repurchase Program: During the third quarter of 2008, the Company repurchased 3.6 million shares of its common stock for $171.8 million. For the nine months ended September 30, 2008, the Company repurchased 50.1 million shares for approximately $3.0 billion. As of September 30, 2008, the remaining Board-approved share repurchase authorization was approximately $1.3 billion. The Company will continue to monitor financial market conditions as it evaluates future share repurchase activity.

Liquidity: As of September 30, 2008, cash and investments held at the parent company and available for general corporate use totaled $646.2 million. Approximately $1.5 billion in ordinary dividends are scheduled to be received by the parent company from its subsidiaries in the fourth quarter of 2008. The Company also maintains a commercial paper program that is supported by a $2.4 billion senior credit facility. As of September 30, 2008, the Company has $1.3 billion outstanding under the commercial paper program and no amounts outstanding under the senior credit facility.

REPORTABLE SEGMENTS

In 2008, WellPoint, Inc. has the following reportable segments: Commercial Business, which includes the Local Group, National, UniCare, and Specialty Products lines of business; Consumer Business, which includes the Individual, Senior, and State Sponsored lines of business; and Other, which includes Comprehensive Health Solutions (including the Company's PBM and Behavioral Health operations), Federal Employee Plan or "FEP" business, National Government Services, inter-segment sales and expense eliminations, and corporate expenses not allocated to the other reportable segments.

Operating revenue and operating gain are the key measures used by management to evaluate performance in each segment.

WellPoint, Inc.

Reportable Segment Highlights

(Unaudited)

(In millions) Three Months Ended September 30

2008 2007 Change

Operating Revenue

Commercial Business $9,497.1 $9,541.0 (0.5%)

Consumer Business 4,092.7 3,792.5 7.9%

Other Business:

External Customers 1,719.6 1,641.3 4.8%

Intersegment Revenue 698.4 554.2 26.0%

Intersegment Eliminations (698.4) (554.2) (26.0%)

Other 1,719.6 1,641.3 4.8%

Total Operating Revenue 15,309.4 14,974.8 2.2%

Operating Gain (Loss)

Commercial Business $878.8 $1,018.3 (13.7%)

Consumer Business 236.3 207.9 13.7%

Other 114.4 71.4 60.2%

Operating Margin

Commercial Business 9.3% 10.7% (140) bp

Consumer Business 5.8% 5.5% 30 bp

Nine Months Ended September 30

2008 2007 Change

Operating Revenue

Commercial Business $28,502.4 $28,530.0 (0.1%)

Consumer Business 12,336.7 11,327.8 8.9%

Other Business:

External Customers 5,313.9 4,971.8 6.9%

Intersegment Revenue 2,061.2 1,628.7 26.6%

Intersegment Eliminations (2,061.2) (1,628.7) (26.6%)

Other 5,313.9 4,971.8 6.9%

Total Operating Revenue 46,153.0 44,829.6 3.0%

Operating Gain (Loss)

Commercial Business $2,583.2 $2,862.2 (9.7%)

Consumer Business 335.8 563.9 (40.5%)

Other 377.4 278.8 35.4%

Operating Margin

Commercial Business 9.1% 10.0% (90) bp

Consumer Business 2.7% 5.0% (230) bp

Commercial Business: Operating gain for the Commercial Business segment was $878.8 million in the third quarter of 2008, a decrease of 13.7 percent compared with $1.0 billion in the third quarter of 2007. The decline principally resulted from higher medical costs and membership mix changes in the Local Group business. Membership in the Commercial segment increased by 630,000, or 2.3 percent, from the third quarter of 2007, as growth in self-funded enrollment was partially offset by a decline in fully insured membership. The Company is executing on a series of initiatives, including account retention programs, broker incentive programs and the introduction of new products, all focused on growing Commercial fully insured enrollment.

Consumer Business: Operating gain for the Consumer Business segment was $236.3 million in the third quarter of 2008, an increase of 13.7 percent compared with $207.9 million in the third quarter of 2007. Operating gain in the Senior business increased from the prior year quarter due in part to a favorable 2007 risk-score settlement with the Centers for Medicare & Medicaid Services that was recorded in July 2008 when compared with the 2006 risk-score settlement that was recorded in July 2007. This beneficial impact was partially offset by membership mix changes in the Medicare Advantage business and deterioration in State Sponsored performance in 2008. The Company adjusted benefits and pricing for its Medicare Advantage products for 2009 and has exited, or is planning to exit, certain State Sponsored programs for which actuarially-sound rate reimbursement could not be obtained.

Other: Operating gain for the Other segment totaled $114.4 million in the third quarter of 2008, an increase of 60.2 percent compared with $71.4 million in the prior year quarter. The increase was driven by growth in the Company's Behavioral Health and Pharmacy Benefit Management ("PBM") businesses. Behavioral Health membership increased by 3.4 million, or 17.0 percent, driven by the conversion of New York membership to the WellPoint Behavioral Health Company. Paid prescription volume in the PBM grew by 4.4 million, or 7.2%, from the prior year quarter.

OUTLOOK

Full Year 2008:

-- The Company now expects net income to be in the range of $5.43 - $5.49

per share. This updated outlook includes the following:

-- Net realized investment losses of $0.78 per share, which include no

realized investment gains or losses beyond those recorded through

the nine months ended September 30, 2008;

-- Expenses of $0.17 per share related to the third quarter impairment

of certain State Sponsored intangible assets; and

-- Income tax benefits totaling $0.9
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SOURCE WellPoint, Inc.
Copyright©2008 PR Newswire.
All rights reserved

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