Capital Structure

Operating Cash Flow was $2.5 billion versus $3.0 billion in 3Q09.

Cash Position:  As of December 31, 2009, statutory capital levels in the company's insurance subsidiaries exceeded state regulatory levels by approximately $5.5 billion and Blue Cross and Blue Shield Association requirements by approximately $2.5 billion.  Cash and investments at the parent company totaled $4.5 billion.

Days in Claims Payable:  Days in Claims Payable (DCP) as of December 31, 2009, was 42.3 days, a decrease of 4.1 days from 46.4 days as of September 30, 2009.  Approximately 1.6 days of the reduction related to favorable prior period reserve releases not reestablished at December 31, 2009, as well as faster claims payment cycles.  The closing of the NextRx transaction resulted in accelerated payments of pharmacy claims and changes in the timing of these payments, reducing DCP by another 1.5 days in the quarter.  The remaining decline of 1.0 day resulted primarily from medical benefit seasonality in the Commercial and Individual businesses, which experience higher benefit expense ratios in 4Q09.

Share Repurchase Program:  During 4Q09, the company repurchased 16.5 million shares of its common stock for $827.0 million.  In FY09, the company repurchased 57.3 million shares of its common stock for $2.6 billion.  As of December 31, 2009, the company's remaining Board-approved share repurchase authorization totaled $383.8 million.  On January 26, 2010, the Board of Directors increased the share repurchase authorization by $3.5 billion, and the company will continue to evaluate future share repurchase activity, subject to market and industry conditions.

Sale of Next Rx Pharmacy Benefit Management (PBM):  WLP closed the sale of NextRx to Express Scripts on December 1, 2009, for $4.7 billion in cash and recognized a pre-tax gain on the sale totaling 3.8 billion in 4Q09.

UniCare:  WLP's Unicare subsidiary exited the commercial market in Texas and Illinois at the end of 2009.  Management stated on the call that market dynamics made it increasingly difficult for UniCare to provide affordable products to commercial customers in those states due to not having sufficient scale.
 

Healthcare Reform:  During the 4Q09 call, WellPoint took time to address the current healthcare reform issue.  The company continues to support responsible and sustainable healthcare reform that fundamentally addresses the costs and insures more Americans, and management sees the importance of reducing costs and improving quality in the industry.  The company is in favor of reimbursement reform focused on value, cost, and quality instead of traditional fee for service approaches.  In 2010, WLP will seek to expand the idea of bundled payments to their markets.

• Heavy regulations and changes in state and federal regulations, and significant competition could negatively affect WLP’s profitability.
• The greatest risk to WLP is price competition.  Although it enjoys a leading position in most markets, other less well-positioned competitors are cutting prices in an effort to bolster enrollment rates.
• Acceleration in the medical cost trend is the single biggest risk to managed care stocks and will likely hurt commercial, Medicare, and Medicaid segments.