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 grow 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. Of all of the people insured, 1/10 of those 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 female executive 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 continues to be considered an industry favorite with 2006 awards including top CFO of the Year in managed care for David Colby (3rd straight year) and 2nd Best Company by BusinessWeek. Other recent recognitions include placing in the top 50 companies to work for according to DiversityInc.

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 customer 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

The Business Strategy

WellPoint is the nation’s leader in health benefits. The company serves approximately 34 million medical members. Therefore, WellPoint must tailor its business strategy to fit the needs of all members while fulfilling company goals. The business strategy is as follows:

Good health care is important to all consumers, which must be locally delivered and consumed. The right health plan needs to have local market presence and resources to understand and meet the needs of consumers and health care professionals. Affordable health care is essential to all consumers. WellPoint works hard to keep their health care coverage affordable by improving health, heath care quality, and by leveraging WellPoint’s scale to enhance services, improve operations, and better achieve efficiency. Members of a health care plan want to choose from a diversified product portfolio. WellPoint allows their members to choose what works best for them and their family in an open market. Growth primarily comes from having a diversified customer base. In order for WellPoint to maintain growth, they continually reassure customers the safety of their health plans. Their consistent, steady performance provides each customer with the security that their particular health plan can be completely relied on for all health care expenses.

WellPoint has established a business strategy that satisfies all members, employees, health care professionals, associates, and shareholders. The company can continue to be the leader in health benefits by upholding the current strategy

Strategic and Financial Objectives

Expects to yield net earnings per share of: $1.14 in the 2Q, and $4.63 for the year Seek out new markets of entry through acquisition and corporate growth Aggressively pursue large National accounts Seek to insure the uninsured Lower SGA costs Maintain and improve strong brand recognition Concentrate brand awareness on a local scale Utilize Economies of Scale to continue lowering costs from suppliers

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 employed by such.

Health Insurance Industry Characteristics

Market Cap 5.08 Billion Size- Employees 8.98 K Quarterly Revenue Growth 21.9%

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.

The Five Forces

New Market Entrants

Credibility essential Too expensive to compete nationally Economics of Scale will force entity to be more expensive

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.

Buyer Power

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

Competitive Rivalry

Strong industry rivals Industry growth based on acquisition Product offerings similar Shareholder expectation drives constant innovation

Substitute Products

Comparable Options Available Health Savings Account Self Insure Government Aid

Competitors

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 Aetna 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.

  WellPoint

(WLP)

UnitedHealth Group

(UHG)

Aetna

(AET)

CIGNA

(CI)

Fortune 500 Rank #38 #37 #91 #130

Total Subscribers 34 M  18M 15.4 M 10 M

High

Profit

Low

Few Locations Many Locations

Geographic Coverage

WellPoint’s Key Success Factors/Core Compencies

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 coverage 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 Wide array of products and services

which leads to higher retention

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

High cost of SGA Synergy of previous mergers not optimized “non-core” investments may distract management Untimely physician payments

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 (Centers for Medicare and Medicaid project $100 billion

increase in drug costs by 2010)

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 million 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. WellPoint has implemented the following programs to cater to lower income Americans.

Blue Access Value Plan – Low monthly premiums catered towards the most common health care services. Targeted towards: Early retirees and healthy lifestyles who are looking for cost-effective benefits BeneFits – Offered to small businesses including part time labor. Tonik – 3 plan options and the sign up process is done entirely online. Targets 19-29 year old market (which is the most likely to be uninsured)

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.

$8 million were spent in 2005 on educating insured/elderly consumers, community clinics, and Latino outreach programs.

Strategic Assessment

WellPoint’s strategy has provided continued value in shareholders eyes, with stock prices up 38% in 2005. Revenue growth for 1Q of 2006 was 24.5%, higher than the industry average of 21.9%. Cost management has lead to an impressive Debt/Equity ratio of .30 for the 1Q of 2006, and 11.2% earnings growth.

National Accounts have grown tremendously with 16% of members being enrolled since the beginning of 2005. With the acquisition of Wellchoice, WellPoint now has greater strategic access to Fortune 500 firms in the New York area.

84% of groups purchasing BeneFits plans did not offer employees any insurance prior. 78% of Tonik participants were previously uninsured. In the last 2 years; 753,000 uninsured purchased WellPoint policies, and 378,000 of these were in 2005 alone.

WellPoint has successfully managed to implement a strong corporate strategy. It continues to reach out to uninsured Americans with attractive packages, while at the same time increasing profits. Even with aggressive expansion, WellPoint has nearly $20 billion in cash and investments.

Strategic Recommendations

Aggressively pursue National Accounts. With over 50% of the insured Americans depending on employers for coverage, equates to an additional 115 million Americans nationwide. Implement awareness programs to attract more Medicare Plan D participants. With the Federal Government subsidizing 74.5% of overall costs, the additional 40 million potentially eligible participants can be an extremely lucrative customer segment. Participants on average are expected to save 37% on total health care costs. A strong push for Blue Value Access Plan to early retirees will ensure corporate growth in the 70 million baby boomers that will turn 65 over the next 20 years. Additional acquisitions of smaller firms should be considered. Financial and Strategic goals can be met to service customers in new markets. WellPoint needs to continue to lower SGA costs per better integration of acquired companies. $375 million can be utilized in synergies from the 2004 merger to today.