Introduction

In the evolving insurance industry, Wellpoint stands on top with an astounding 34 million members. Through strategic growth choices and strong leadership, Wellpoint is positioning itself as the national leader in Healthcare for decades to come. The focus of this report will be to analyze Wellpoint, evaluate its strategy, and to make strategic recommendations to ensure longevity

Wellpoint’s Growth

Wellpoint Inc was born from the acquisition of Wellpoint Health Networks Inc by Anthem Inc. Post acquisition, Wellpoint became the largest healthcare provider in the country with 28 million customers. Wellpoint offers a wide array of products and services in 14 different states as a licensed Blue Cross/Blue Shield (BCBS) agent, and offers UniCare service for those who do not have BCBS available.

Since Wellpoint Inc.’s conception in 2004, it has continued to grown through acquisitions. Recent acquisitions include WellChoice out of New York, and Lumeno’s out of Virginia. With these recent acquisitions and capitalizing on opportunities, Wellpoint has penetrated the market to deliver shareholders unprecedented results. 1/10 individuals insured, are affiliated with Wellpoint. Shown below is the family of Wellpoint companies.

Wellpoint Family of Companies

Anthem BCBS Anthem Dental OneNation Benefit Administrators

Blue Cross of California Anthem Life Insurance Co. PrecisonRX

BCBS of Georgia Anthem Prescription Mgmt UniCare

BCBS of Missouri Anthem Vision United Government Services

BCBS of Wisconsin HealthCore Wellpoint Behavioral Health

Empire BCBS (New York) HealthLink Wellpoint Dental Services

Lumenos Health Management Corp. Wellpoint Pharmacy Mgmt

AdminaStar Federal Golden West Dental & Vision

Wellpoint Worker’s Compensation Managed

Care Services

Anthem Behavioral Health Meridian Resource Co. Wellchoice New Jersey

Current News

Currently Wellpoint maintains it’s dominance in the industry with just over 34.2 million subscribers, with 1.3 million of those coming from the new Medicare Part D Plan. Lawsuits have plagued Wellpoint in recent times. Most recently a former employee has filed suit against the firm claiming gender biasness, and termination due to ‘whistleblowing’ on questionable business practices. The employee questioned whether special deals provided to dentists under the

Connecticut Medicaid Program were legal. Wellpoint Spokesman Jim Kappel reaffirmed the stellar reputation among industry analysts on Wellpoint’s corporate culture practices of embracing diversity and treating associates fairly.

Other lawsuits include the investigation of whether Wellpoint systematically would eliminate BCBS members’ coverage due to expensive or high risk diagnosis.

CEO Larry Glasscock recently spoke at the Goldman Sachs 27th Annual Global Healthcare Conference on June 14, 2006. Glasscock stated, “We are very much disciplined at not giving up profit margin for membership.”

Wellpoint’s Business Foundation

Vision

WellPoint’s goal is to provide affordable quality healthcare while meeting the needs of their diverse customers. They want to be a company that people can trust. WellPoint states their vision is to “transform health care and become the most valued company in our industry”. The result will be:

Improved health, health care quality and affordability Increased member satisfaction and enrollment Superior returns to shareholders Enhanced opportunities for associates A highly trusted and respected national organization

Mission

WellPoint’s mission is “to improve the lives of the people we serve and the health of our communities.” The company carries out this mission by creating many different health benefits and financial services to meet the needs of their diverse customer base, and by being involved in the communities through foundations and corporate social responsibility programs.

Values

Wellpoint has five core values that guide them and these are:

Customer First

actively pursue ways to improve quality and service

Lead through innovation

continuous change to provide products and services to meet customers’ needs

One Company, One Team

treat everyone in the company with respect, dignity, and common courtesy

Personal Accountability for Excellence

establish and meet high-performance expectations Integrity

always act ethically, honestly, and fairly Strategic and Financial Objectives

Expects to yield $1.14 a share net earnings 2Q of 2006, and $4.63 for the year Seek out new markets of entry per acquisition and corporate growth Aggressively pursue large National accounts Seek to insure the uninsured Lower costs associated with SGA Maintain and improve strong brand recognition

Insurance Industry

The healthcare industry is the largest in the nation, accounting for over $1 trillion goods and services each year. Coordinately it is also the largest employer, with 1 out of 9 Americans working

The Insurance industry is growing in terms of revenue, but shrinking in the total number of firms. Wellpoint and United HealthCare in particular have been very aggressive in acquiring smaller firms. Shown below is the United States population divided based on insurance indicators. The corresponding graph depicts national opinion on health insurance companies.

Commonweath Survey 02/2006 The Harris Poll 2005

Although nearly ½ of polled Americans were not satisfied with the level of customer service provided by Health Insurance companies, it had rose 16% favorable from the year prior. As larger firms compete aggressively for market share it appears that quality of service delivered is also increasing.

Health Insurance

Industry

Competitive Rivalry

Strong industry rivals Industry growth based on acquisition Product offerings similar

Shareholder expectation drives constant innovation

Supplier Power

Generic drug options is forcing name brands to lower costs General Healthcare costs still on the rise but slowing down in comparison to previous years. Physicals/Hospitals also in highly competitive industries. Prefer strategic partnerships Hospital Consolidations limit options, raising costs.

Substitute Products

Comparable Options Available Health Savings Account Self Insure Government Aid

Buyer Power

Generally based on employers’ choice Cost is increased w/o group participation Several Markets bordering monopoly (Indiana 95% Wellpoint customers)

New Market Entrants

Credibility essential Too expensive to compete nationally

Economics of Scale will force entity to be more expensive

H EALTH CARE

INDUSTRY

Although the industry has the potential to be very profitable, it is not an attractive industry for a new entrant. A successful localized firm would be acquired inevitably by one of the larger firms.

Wellpoint competes head on with a few large firms in several markets. United Healthcare Group (UNH) is following a similar acquisition strategy as Wellpoint. Most recently, with it’s approved acquisition of PacifiCare Health Systems Inc for $9.2 billion.

Other notable contenders include Aethna Inc. (AET) who was the first to offer full service health insurance on a national front. Cigna (CI) who operates a variety of products on a global scale is also a considerable threat. Shown below is an industry profile of Wellpoint and its competitors, as well as a revenue/net income comparison. The final chart is a 3 year stock history between Wellpoint’s largest rival United Healthcare, and the S&P 500.

   

     

 

     

 

     

 

High

     

 

     

 

   

 

     

 

   

     

 

     

 

Profit

     

 

     

 

     

 

 

   

     

 

   

     

 

     

 

     

 

Low

     

 

     

 

     

 

   

     

 

Few Localities

Few Localities

Many Localities Many Localities

Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverage Geographic Coverage

provided by SEC Filings

Separating Wellpoint from the Competition

Wellpoint’s core business is the 14 Blue Cross/Blue Shield it facilitates. BCBS is the nation’s largest form of insurance with 1/3 insured being a BCBS member. Also a strong link is made between insurance regulation and BCBS due to the high volume of members, including Federal/State employees. BCBS is also federally funded for the task of Medicare and Medicaid payments.

Also due to recent legislation and a strong push by the current President Health Care Spending Accounts are projected to be on the rise. Since Wellpoint acquired Lumenos’, which specializes in private investments, it is prepared to handle future market demands.

Due to the large subscriber base, Wellpoint has unprecedented bargaining power with physicals and health care facilities to ensure the lowest cost of services.

With the breadth of products Wellpoint offers it can consult all benefits into one carrier. A 2003 Limra study pointed out that, ¾ employees preferred to consolidate their coverages to one carrier. Having multiple coverages also increases the 80% annual persistency rate (i.e. lose 20% of your clients). With multiple options as well, bargaining strength is increased.

Strengths Weaknesses

Strong bargaining power per customer base High cost of SGA

Wide array of products and services

which leads to higher retention

Strong brand recognition BCBS provider for 14 states Economics of Scale on Operations

Synergy of previous mergers not optimized “non-core” investments may distract management

Opportunities Threats

45 million uninsured National Employee Accounts Acquisitions of smaller firms Capitalize on competitors dissatisfied customers (generally nearly 50%)

Competitors more efficient operating principles Lawsuits Spikes in health care costs

Strategy in Action

Wellpoint’s plan for future growth is to target the uninsured, elderly, and large national accounts. "If you go back five or seven years, we didn't have a product to sell national accounts," CFO Dave Colby said. "They could go to our competitors and deal with one entity." In the last 5 quarters Wellpoint has acquired 1.5 new members via National Accounts. Bringing the total to 9.3 million and Colby believes that there is room for growth. National Accounts are derived from Employers which represents over ½ the insurance market.

Wellpoint feels that 30 out of the 45 million uninsured could be potential members. Including Medicare eligible members who have yet to sign up, as well as the youth who may not feel they need it. 378,000 uninsured because Wellpoint members in 2005.

Currently sitting at 1.3 million new Medicare Plan D members, Wellpoint is projecting to have 2 million new customers from the program by year’s end. Wellpoint is anticipating the swelling of the elderly demographic.

A purely financial strategy came with a $50 million investment into 2 high end luxury resorts and spas. WellPoint Chief Financial Officer David Colby said the company's stake in the luxury centers is a chance to promote wellness and disease prevention. He added that WellPoint expects the resorts to be a profitable venture. "Looking at the health-care marketplace and given our mission and definitely our goal of promoting healthy living and well-being, this is certainly very consistent of our goals," "We want to keep people healthy," he said. "Well-being is good in our business.”

In May of 2006, Wellpoint agreed to acquire Ohio based HMO QualChoice Health plan, to acquire more of the Medicaid market share. Qualchoice offers 68,000 new members to the Wellpoint family. The deal is expected to close in the later part of 2006.