Elevance Health, Inc. · NYSE:ELV
Elevance Health — Anthem — Merger or Acquisition (March 2004)
47 slides from Elevance Health's merger presentation, Mar 3, 2004
Slide 1: Larry Glasscock and David Colby, March 3, 2004
Larry Glasscock, Chairman, President and Chief Executive Officer David Colby, Executive Vice President & Chief Financial Officer March 3, 2004
Slide 2: Safe Harbor Statement
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 This presentation contains certain forward-looking information about Anthem, Inc. (“Anthem”), WellPoint Health Networks Inc. (“WellPoint”) and the combined company after completion of the transactions that are intended
Slide 3: Additional Information and Where to Find It
ADDITIONAL INFORMATION AND WHERE TO FIND IT This presentation may be deemed to be solicitation material in respect of the proposed merger of Anthem and WellPoint. In connection with the proposed transaction, a registration statement on Form S-4 has been filed with the SEC. SHAREHOLDERS OF ANTHEM AND
Slide 4: Agenda
Agenda • WellPoint Profile • Anthem Profile • Merger Summary “This presentation contains non-GAAP financial measures, as defined in the rules of the Securities and Exchange Commission. As required by the rules, a reconciliation of those measures to the most directly comparable GAAP measures is avail
Slide 5: WellPoint Profile
WellPoint Profile • Second largest health plan in U.S. • Broad range of medical and specialty products • Organized by customer segment with a diverse customer base • Regional geographic focus • One Company, multiple brands
Slide 6: Broad Product Choice
Broad Product Choice Pharmacy Dental Behavioral Health Life/Long Term Care Disability Medical Management Network Access CHOICE = VALUE
Slide 7: Organized by Customer Segment
Organized by Customer Segment . . . Market Segment Size Individual 1 Senior 1 Small Group 2 – 50 Key Accounts 51 – 250 Major Accounts 251 – 2,000 Special Accounts 2,001+ Public Entities* varies State Sponsored Programs** varies * Employees of schools, municipalities, Federal Employees Program ** Ben
Slide 8: Diverse Customer Base
Diverse Customer Base December 31, 2003 Enrollment 464,000 Seniors 845,000Medi-Cal 5,932,000 Large Group ASO* 726,000 Other State Sponsored Programs 1,497,000 Individual 4,132,000 Large Group Insured 1,415,000 Small Group * Includes 1.2 million network access members and 1.0 million BlueCard “host”
Slide 9: Regional Concentration
Regional Concentration • Health care is locally delivered and locally consumed • Better network leverage • Greater actuarial precision • More efficient marketing/operations Blue Cross license service areas UNICARE regions HealthLink states (also includes Missouri, Indiana & Illinois)
Slide 10: Membership Growth
Membership Growth Total Medical Membership 16,000 (in thousands) 2,797 4,485 6,638 6,892 7,515 8,201 10,528 13,223 15,011 California Membership 7% 27% 17% 7% 15% 8% 6% 11% 2%** Growth: * Total medical membership as of 12/31/03 includes 1.0 million BlueCard “host” members ** California membership gro
Slide 11: Big Plans Will Get Larger
Big Plans Will Get Larger Top Ten Health Plans* Medical Members Total Insured 223.7 Million Top 10 = 61.1 Million 2003* Medical Members Total Insured 245.4 Million Top 10 = 102.4 Million * Top 10 Health Plans as of 9/30/03: UNH, WLP, AET, ATH, CI, Kaiser Foundation, HUM, Health Care Services Corp.,
Slide 12: Fragmented Industry
Fragmented Industry Many smaller, regional players in key geographies California • Alameda Alliance for Health • Care 1st Health Plan • Chinese Community Health Plan • Community Health Group • Community Health Plan • Contra Costa Health Plan • Health Plan of San Joaquin • Inland Empire Health Plan •
Slide 13: Uninsured Opportunity
Uninsured Opportunity Uninsured Potential Solutions 18 million • Demonstrate value • Existing Moderate to high income • Potential tax subsidies commercial • 11.4 million earn >300% FPL programs • 6.4 million earn 200–299% FPL 14 million • Enrollment programs • • Education Existing Medicaid • Eligibl
Slide 14: Ethnic Outreach Programs
Ethnic Outreach Programs • Agent support • Community programs • Media relations • Partnership activities • Example: HealthyCheck Program in California – Experience higher incidence of preventable and manageable chronic diseases – Limited access to health care services – Affordable and convenient pre
Slide 15: Targeted Medical Management
Targeted Medical Management WellPoint Membership 20% 80% Members with chronic conditions • Asthma • Depression • Congestive • Oncology Heart Failure • High risk • ESRD pregnancy • Diabetes • Etc. WellPoint Membership 8% 24% 68% WellPoint Medical Costs 70% 23% 7%
Slide 16: Cost Variations
Cost Variations September 19, 2000 The operation you get often depends on where you live. Total Abdominal Total Knee Hysterectomy Cholecystectomy Replacement CA Hospital A $ 25,100 $ 27,000 $ 28,700 CA Hospital B $ 2,200 $ 1,700 $ 3,000 GA Hospital A $ 11,400 $ 12,500 $ 21,100 GA Hospital B $ 2,800
Slide 17: Managing Rx Costs
Managing Rx Costs Claritin OTC Conversion $3.00 per day $.90 per day $.50 per day $.10 per day
Slide 18: Health Coaching Model
Health Coaching Model Physician Centric Constraints on physician time and resources do not allow for the in-depth counseling and assistance necessary for the effective treatment of chronic illnesses RN Directed RN gives didactic telephonic education without assessing member motivation or underlying
Slide 19: WellPoint Pharmacy Management
WellPoint Pharmacy Management • Fourth largest PBM with more than 31 million members • Offers full spectrum of PBM services Clinical / Medical Management Clinical Business Plan Therapy Management Patients-At-Risk Intervention Programs Disease Management Consultative Services Incentive Programs Benef
Slide 20: Other Specialty Products
Other Specialty Products Dental PPO, DHMO & FFS Life Basic & supplemental group term, dependent coverage, AD&D Disability Group STD & LTD Behavioral Full range of Behavioral Health Health services, including EAP plans WC MCS Network management, bill review, medical management and case management, al
Slide 21: Specialty Products Contribute to WellPoint's Profitability
Specialty Products Contribute to WellPoint’s Profitability Total WellPoint Profitability* Year Ended December 31, 2002 Specialty Segment 13% 87% Health Care Segment Year Ended December 31, 2003 Specialty Segment 14% 86% Health Care Segment Growth** Health Care Segment 40% Specialty Segment 55% *Excl
Slide 22: Leveraging Technology to Improve Margins
Leveraging Technology to Improve Margins G & A Expense Ratio Trends* 329 bp improvement * General and administrative expense ratio is calculated as a percentage of premium revenue and management services and other revenue combined
Slide 23: WLP Financial Highlights: Total Revenue
WLP Financial Highlights Total Revenue $ (in billions) CAGR = 26%* $4.0 $5.6 $6.5 $7.5 $9.2 $12.4 $17.3 $20.4 *As of December 31, 2003. CAGR = (FV/PV)1/n –1, where FV is the future value, PV is the present value, and n is the number of years.
Slide 24: WLP Financial Highlights: Income from Continuing Operations
WLP Financial Highlights Income from Continuing Operations(a) 1000 (in millions) CAGR = 25%(f) 800 $198.5 $224.9 (b) $263.0 (c) $299.1 (d) $342.3 $414.7 (d) (e) $660.9 $935.2 (a) Before extraordinary items and cumulative effect of accounting change, if applicable (b) 1997 income from continuing oper
Slide 25: Agenda
Agenda • WellPoint Profile • Anthem Profile • Merger Summary
Slide 26: Anthem Profile
Anthem Profile Anthem BCBS Coverage Full range of healthcare and specialty products Among the fastest growing healthcare companies 11.9 million medical members Regional business model National capabilities BCBS licenses in 9 states #1 market share in 8 of 9 states
Slide 27: Executing a Simple Strategy
Executing a Simple Strategy Grow Profitable Enrollment Reduce Administrative Costs Optimize the Cost of Healthcare, While Improving the Health of Our Members Provide Distinctive Service Strong Cash Management Drivers to Success Customers Are First Disciplined Focus Regional Model
Slide 28: Profitable Enrollment Growth
Profitable Enrollment Growth 9% Same Store CAGR, 1999—2004E (In Millions) 6.3 7.3 7.9 11.1 11.9 12.5+ Acquisition-related membership in the applicable year
Slide 29: National Accounts
National Accounts Gaining Strength in the Market Place • Strong retention of existing accounts • 30 new account wins for 1Q04 Value Proposition • Blue Cross Blue Shield Brand • Access to BlueCard networks nationwide • ClaimsQuest • Interactive Realtime Information System (IRIS) • Dedicated Business
Slide 30: Specialty Product Opportunities
Specialty Product Opportunities Cross Selling to Existing Customers Membership (mm) Pharmacy 5.3 Dental 2.5 Life 0.9 New Specialty Products Behavioral Health 3.0 Vision 0.4 Total Benefit Solutions for Customers Specialty membership as of December 31, 2003
Slide 31: Administrative Expense Discipline
Administrative Expense Discipline 24.2% 21.2% 19.6% 19.3% 18.9% Strategies For Improvement • Systems consolidation • Shared service platform • Investments in technology • Process improvements
Slide 32: Managing Overall Health Status
Managing Overall Health Status Strategies • Advanced Care Management • Disease Management, identification of at-risk members • Prevention and member education • Wellness and product strategies All Healthy Members At Risk Behaviors Waiting to Happen Most Complexly ill Members
Slide 33: Optimizing the Cost of Care
Optimizing the Cost of Care Distribution of Medical Costs Membership Medical Costs 25% 28%
Slide 34: Optimizing the Cost of Care
Optimizing the Cost of Care Improving the Health of our Members MyHealth@Anthem Disease and Advanced Care Programs IRIS Patient Safety Program Health Advisor Tools Rx Integration Addressing Variations in Patient Care Physician Collaboration Programs Incentive Reimbursement to Providers Hospital Qual
Slide 35: Excellent Customer Service
Excellent Customer Service Best in Customer Service % of responses 82 40 30 24 5 Best in Claims Processing % of responses 74 34 22 20 2 Source: Smith Barney Health Benefit Survey, Sept. 29, 2003.
Slide 36: Strong Cash Management
Strong Cash Management Operating Cash Flow ($ in millions) $342 $655 $549 $991 $774 $1,143 Net Income Cash Flow
Slide 37: Strong Financial Momentum
Strong Financial Momentum Diluted EPS $3.30 $4.51 $5.45 $6.15-$6.25 Operating Revenue ($ in billions) $10.1 $13.0 $16.5 $18.3+
Slide 38: Agenda
Agenda • WellPoint Profile • Anthem Profile • Merger Summary
Slide 39: Transaction Summary
Transaction Summary Consideration Per WLP Share: 1 ATH share + $23.80 cash Name: WellPoint, Inc. Headquarters: Indiana Board Representation: 58% Anthem, 42% WellPoint Chairman: Leonard Schaeffer President and CEO: Larry Glasscock Chief Financial Officer: David Colby Co-Heads of Integration: Mike Smi
Slide 40: Leading Market Positions
Leading Market Positions Anthem WellPoint UNICARE and HealthLink >100K members
Slide 41: Merger Benefits: Growth Opportunities
Merger Benefits Growth Opportunities • Target individual products in ATH markets – “Young invincibles” – Early retirees – Other uninsured • Utilize ATH experience with national accounts – ATH national accounts same store growth 14% in 2002 16% in 2003 – Multi-state employers focusing more on medical
Slide 42: Merger Benefits: Growth Opportunities
Merger Benefits Growth Opportunities • Increase penetration of PBM services – Increased size enhances value proposition – WLP PBM experienced with external sales • Cross-sell other specialty product sales to existing members • Utilize best practices in health improvement programs and contracting to
Slide 43: Merger Benefits: Operating Synergies
Merger Benefits Operating Synergies • Recognize at least $250 million in pre-tax synergies – Information technology $75 million + – Specialty businesses $75 million + – Operations $50 million + – Corporate & Shared Services $50 million + • Positioned to implement over 18—24 months: $50 million in 20
Slide 44: Merger Update
Merger Update • S-4 filed 11/26/2003 – “no-review” by SEC • Form A’s filed with state regulators • Hart Scott Rodino clearance • BCBSA application submitted – PPFSC Committee approval – Board meeting vote by end of first quarter • Anticipate mid-2004 closing
Slide 45: The Underwriting Cycle Is Becoming a Myth
The Underwriting Cycle Is Becoming a Myth • Generally self-inflicted cycles in the past • Track records of underwriting discipline • Industry consolidation since mid-90’s mitigates risk • Fewer, more disciplined Blues • Better prediction of medical costs • Premium refunds better than underpricing
Slide 46: Disappearance of the Underwriting Cycle
Disappearance of the Underwriting Cycle Underwriting Results as % of Revenue* All Blue Plans ‘66 – ‘02 Source: BCBSA, 2002
Slide 47: WellPoint + Anthem: A Very Compelling Transaction
WellPoint + Anthem .. . . . . . A Very Compelling Transaction . . . • Geographic diversification with strong local focus and national reach • Diversified membership base • Realize significant growth potential in ISG, national accounts and specialty businesses • Leverage technology – Enhance product