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WellPoint, Inc. at Morgan Stanley Global Healthcare Conference - Final.

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Original Source: FD (FAIR DISCLOSURE) WIRE

CHRISTINE ARNOLD, ANALYST, MORGAN STANLEY: Good morning, everyone, and welcome to the WellPoint session of the Morgan Stanley Unplugged Conference. Thank you all for joining us.

We are delighted to have with us today Michael Kleinman of Investor Relations and Dave Colby, CFO. Thank you both for joining us. Really appreciate your coming.

DAVE COLBY, CFO, WELLPOINT: Thank you, Christine.

CHRISTINE ARNOLD: I will now make this interactive so you folks in the audience please participate. Raise your hand and use the mics in front of you, so that people on the webcast can also hear our discussion this morning.

Did you have a few comments that you would like to make to begin with or should we just launch into questions?

DAVE COLBY: I think most people know WellPoint so I'm happy to launch into your questions.

CHRISTINE ARNOLD: Why don't we start with California health care reform?

DAVE COLBY: California Health Care Reform, I mean it is a complicated issue. It is one that I think that we are very supportive of any initiative to improve and cover the uninsured in the United States. Particularly if you are going to do it through private health plans which is what the California Market Reform does.

I think on the grand surface you have to look at it as being something positive when you are trying to cover six million additional Californians. Under Schwarzenegger's plan, you would be putting about $12 billion additional into the California health care system to fund it and you would cover those six million individuals to expanded medical, more encouraging small employers to buy insurance -- the 40% that don't -- and more individual policies for those that don't.

Those three segments tend to be some of our stronger segments in the California market.

As in any plan, there are certain things that are of concern to us. Certainly an 85% minimum loss ratio unless it's defined properly could be an issue. And we have a little bit of concern over a guaranteed issue environment for individual versus a guaranteed act -- what we call a guaranteed access environment. And I think as we have had meetings, our CEO Larry and Angela Braly have had meetings with the governor over those issues. And I think there is some willingness to look at the issues because the back state guaranteed issue works well when you have guaranteed purchase. But how do you ever enforce guaranteed purchase?

We are not going to let somebody who doesn't buy health insurance die because they get sick. We are still going to cover them and we are probably not going to throw them in jail for three years because they didn't buy it.

So a better solution is more of a high-risk pool to cover those that can't pass medical underwriting to address those while you keep a vibrant individual market. California is the second lowest state in the country in terms of what the average individual radius. About $157 per member per month versus guaranteed issue states where people don't buy health insurance until they need it which are $300 to $400 a month.

CHRISTINE ARNOLD: What's your personal view on the 85% loss ratio? Is that going to be probably defined? Is it going to be eliminated? Do you have any intelligence on that? Or is it just too soon to know?

DAVE COLBY: It's too soon to know. I mean even though I think the governor proposed his health care reform in January of this year, there's yet to be a sponsor to even introduce it into the House or Senate in California. So I think it is way too soon. But I think the governor's office as we met with them more, understand that it is hard to run an 85% loss ratio in individual and small group when you have to pay commissions to distribute that product. They certainly want it distributed.

They even acknowledged that one of the problems in California is that one million of the six million uninsured are eligible for medical. They just haven't signed up. So if the state can't give away free health insurance, how do we sell it without a fairly expensive distribution channel there that needs to get compensated?

Also the governor is very interested in certain things like wellness and fitness and wants to encourage those. And there's even -- said "well maybe we can make those medical costs."

CHRISTINE ARNOLD: Last question on this. Is it conceivable to you that there could be a plan enacted that roughly resembles what has been proposed and that not being [net harmed] to WellPoint.

DAVE COLBY: It's so hard to judge because even if it has negative components to it that we (multiple speakers)

CHRISTINE ARNOLD: It could be positive because you get the Medicaid (multiple speakers) .

DAVE COLBY: Because if you get six million more lives covered through [MediCal], small group and individual coverages that could be quite positive. And if you eliminate bad debts for hospitals because people are covered gives us better network leverage to bring our cost structure down.

So there's a lot of complications to the whole thing that you have to really flush through the entire system.

CHRISTINE ARNOLD: We've been through a lot of benefit design changes as an industry the last couple of years. Our most recent broker surveys suggest we might beginning to the end of the road and some small employers and brokers are saying hey we are already at $1500, $2000 deductibles. What do you think the next key is for main -- for controlling or reducing health care costs? Or maybe you think that you still have room for benefit changes?

DAVE COLBY: I think there will be some benefit changes but I would agree with that possibly although I think moving more to consumer directed plans, we had just in the fourth quarter a 35% growth in our consumer directed plans. We are up to 1.1 million members and what three or four years ago I remember when we had 85,000 consumer directed plans. Those, while the insurance component is a different benefit structure, because a lot of companies fund a lot of that in an HSA, it is not a real big buydown for employees and they actually like the flexibility.

You were mentioning how our member satisfaction in these consumer directed plans are actually higher in our standard plans...

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