Executive Summary .................................................................5
Looking Out, Likely Valuation Ranges ...............................................................7
Key Health Reform Initiatives/Probabilities........................................................8
Public Plan...........................................................................................................9
Health Insurance Exchange/Connector..............................................................11
Guaranteed-Issue/Market Reforms ....................................................................13
Coverage mandate .............................................................................................14
Minimum Cost Ratios........................................................................................16
Early Medicare Buy-In ......................................................................................16
Sector Operating Outlook ..................................................................................17
Company Snapshot Positioning for 2H:2009.....................................................25
Key Industry Operating Metrics ............................................28
EPS Outlook ......................................................................................................29
MCRs.................................................................................................................31
Medical Cost Trend ...........................................................................................32
Component-Specific Trends ..............................................................................35
Company-Specific Cost Trend and MCRs.........................................................37
DCPs..................................................................................................................44
Reserve Development ........................................................................................45
Cash Flow ..........................................................................................................45
SG&A................................................................................................................47
Membership .......................................................................................................48
Reserve Development ........................................................................................53
Stock Performance.................................................................61
First Quarter 2009 Company Snapshots ..............................65
Recent Developments............................................................71
Medicare Developments ....................................................................................70
Regulatory Developments..................................................................................76
Access Initiatives ...............................................................................................79
Political Developments ......................................................................................81
Company Overviews and Models..........................................95
Aetna Inc............................................................................................................93
Amerigroup Corp.............................................................................................109
Centene Corp. ..................................................................................................117
CIGNA Corp....................................................................................................125
Coventry ..........................................................................................................143
Health Net........................................................................................................151
Humana Inc......................................................................................................161
Molina Healthcare Inc. ....................................................................................173
UnitedHealth Group.........................................................................................181
WellCare Health Plans.....................................................................................193
WellPoint Inc...................................................................................................201
Figures
Figure 1: Healthcare Subsector YTD Stock Performance..................................................5
Figure 2: Managed Care Index LTM Stock Performance..................................................6
Figure 3: Managed Care Group – Forward P/E Ratio 1995-2009.......................................7
Figure 4: Individual/Small Group Exposure by Company..................................................8
Figure 5: Overview of Key Reform Initiatives ...................................................................9
Figure 6: Company Cost Trend and Pricing Outlooks......................................................18
Figure 7: Median For-Profit Group Medical Cost Ratio, 1990 to Present ........................19
Figure 8: Recent Not-for-Profit Commercial and Consolidated MCRs ............................19
Figure 9. Not-for-Profit Underwriting and Net Income Margins.....................................20
Figure 10. Not-For-Profit Sector Commercial Premium Yields .......................................21
Figure 11. Average Risk-Based Capital Ratios.................................................................21
Figure 12: Not-for-Profit Blues Pre-Tax Operating Margins 1960-2009E .......................22
Figure 13: EPS and Net Income Growth by Company – 2005-2010E..............................22
Figure 14: MCR, SG&A and Net Margin by Company – 2005-2010E ............................23
Figure 15: Detail of Net Commercial Organic Adds by Company ..................................24
Figure 16: Commercial-Insured Enrollment .....................................................................24
Figure 17: 2009E Commercial Enrollment by Category and Company ...........................25
Figure 18: Comparative Company Data as of June 17, 2009............................................27
Figure 19: MCR, SG&A and After-Tax Margin Change by Company – 2005-2010E.....29
Figure 20: EPS Growth Rates by Company, 2003-2010E ................................................30
Figure 21: Median Y/Y EPS Growth 2001-Present ..........................................................31
Figure 22: Median Group Medical Cost Ratio, 1990 to Present .......................................31
Figure 23: Not-for-Profit MCRs .......................................................................................32
Figure 24: Median Commercial Medical Cost Trend .......................................................33
Figure 25: Commercial Cost Trend and Core CPI 1961-Present ......................................33
Figure 26: Reported Medical Cost Trend by Company, 2001-08 .....................................34
Figure 27: Medical Cost Trend by Component, 2003-09E ...............................................35
Figure 28: Hospital Operating Trends ..............................................................................35
Figure 29: Annual Hospital and Physician Components CPI and PPI .............................36
Figure 30: Percentage Change in Pharmaceutical Sales ...................................................36
Figure 31: Rolling 12 Month Hospital an d Physician Component of CPI and PPI .........37
Figure 32: Summary of Premium, Cost, and Enrollment Trends by Company ................41
Figure 35: Summary of MCRs and DCPs by Company, 2005 to Present.........................44
Figure 36: Median Group Days Claims Payable...............................................................45
Figure 37: Group Median CFO to Net Income (Unadjusted) ...........................................46
Figure 38: Consistency of CFO to Net Income, DCPs by Company ................................46
Figure 39: Median Group SG&A Ratio............................................................................47
Figure 40: 2009E SG&A as a Percentage of Operating Revenue and PMPM Spend .......48
Figure 41: Median Year-over-Year Organic Enrollment Growth.....................................49
Figure 42: Total Organic Enrollment Growth by Company (all payor classes)................50
Figure 43: 1Q 2005-09 Net Organic Commercial Adds, by Category .............................50
Figure 44: Net Organic Commercial Adds by Company (in thousands) ..........................52
Figure 45: Prior-Period Reserve Development Summary ($ in millions) .........................53
Figure 46: Prior-Period Reserve Development Summary for 2000-08 ............................54
Figure 58: Health Benefits Sector Stock Performance 2009.............................................61
Figure 59: Health Benefits Group, Forward P/E Multiples, 1995-2009 ...........................62