WellPoint Across the Nation

OUR GROWTH STRATEGY

WellPoint's strategy for growing nationally involves building upon our core competencies, continuing to make strategic acquisitions, and creating opportunities to partner with other Blue plans in mutually beneficial alliances.

Core competencies

WellPoint's core competencies-innovative medical and specialty product design and marketing, expertise at creating and managing provider networks, experience in helping customers in diverse market segments gradually transition from fee-for-service to managed care plans, and a comprehensive and efficient information system-will be used nationally to penetrate the same market segments that we serve in California.

For example, using innovative product design, effective medical management techniques, and an efficient distribution system, WellPoint was able to grow the individual and small group business in California from scratch. We are now deploying this expertise and experience in other states where market characteristics and the regulatory climate offer opportunity. In 1995, WellPoint launched an individual, senior and group PPO business in Texas to which we will be adding HMO products in mid-1996.

Migrating an indemnity, or fee-for- service, business to the full range of managed care products is another core strength unique to WellPoint. Because we offer a broader array of PPO and HMO products than most of our competitors, our members can move along the continuum of managed care at their own pace, efficiently accessing health care services as their needs and lifestyles dictate. At the same time, employers can be creative in providing diverse health plan options while keeping a close eye on costs.

WellPoint's ability to gradually transform an indemnity business has important implications for our acquistion strategy going forward. We are interested in acquisition candidates that are primarily indemnity-based and who want to make the move to more sophisticated forms of manage care. We can add significant value to these companies.

Strategic acquisitions In April 1996, WellPoint completed its acquisition o the group life and health division of Massachusetts Mutual Life Insurance Company. This transaction is the largest and most recent in a series of acquisitions made outside California that began in 1994 and will continue the foreseeable future.

At year-end 1995, the MassMutual business had 1.2 million medical members in all 50 states. Significantly for WellPoint, about 60 percent of these members are concentrated in 10 states: two in which we already operate and several into which we intend to expand because of their growth potential.

The MassMutual business provides a substantial platform for WellPoint's national expansion and spawns synergies in four key areas:

• Provider networks-WellPoint will build new networks leveraging MassMutual's existing relationships with major employers to enhance provider interest. The most immediate and significant network synergies will come from offering MassMutual's existing 200,000 members employed by California- based companies the opportunity to take advantage of our substantial discounts on provider services.
• Specialty businesses-The MassMutual business has a wide range of specialty products, including dental, life and disability insurance, COBRA and flexible benefits administration. Multiple opportunities exist for marketing WellPoint's specialty products to MassMutual customers and for combining complementary businesses-such as dental and pharmacy benefits management-to achieve greater operating efficiencies and improve WellPoint's competitive position.
• Multistate employers-Both companies possess major accounts in this growing market segment and MassMutual has solid national broker relationships that will play an important role in the future growth of this market.
• Administrative savings-Savings will be achieved by using the WellPoint executive information system to track, monitor, and enhance the productivity of all parts of the combined organization, and by integrating areas of common functionality.

The MassMutual business specializes in serving organizations with 250-3,000 employees. To complement this business, WellPoint plans to explore acquisitions in the 3,000-plus, or jumbo account, market segment during 1996. This is a difficult segment to build from square one and an acquisition would give WellPoint an immediate presence in many of the states we deem attractive.

In addition, WellPoint will introduce products to serve the individual and small group market segments in selected states where MassMutual has member concentrations.

Blue plan partnerships WellPoint sees great opportunity within the national Blue Cross Blue Shield System for partnering with fellow Blue plans. The nation's 65 Blue licensees serve more than 65 million medical members in all 50 states. As of September 30, 1995, only 47 percent of their total enrollment was in managed care. In addition, many Blue plans are not licensed to provide the broad variety of specialty products their customers are increasingly demanding.

With WellPoint's background and unique status as the nation's only for- profit, publicly-traded Blue licensee, we can assist other Blue plans in a variety of ways. Among these:

• providing specialty managed care services through WellPoint's national licenses and specialty services organizations,
• sharing our core capabilities and approach to customer segmentation,
• designing customized managed care products for plan customers,
• helping plans convert from largely fee-for-service to quality managed care alternatives, and
• guiding plans in creating for-profit subsidiaries based on our experience in California.

Our specialty product expertise in pharmacy clinical management services has enabled WellPoint to establish relationships with a number of Blue plans across the country. WellPoint helps Blue plans to lower the cost of their pharmacy benefits through formulary and clinical management programs, benefit design consultation, local pharmacy network contracts, manufacturer discount programs, and creative utilization management with on-line, real-time systems. At the end of 1995, we were working in this area with eight Blue plans covering approximately ten million pharmacy members.

Information systems/network development The glue that will hold WellPoint's national business together is our information systems technology and network development capability. We will have one common system to support our affiliations and start-up activities while allowing customization for new applications. We are in the process of developing system software specific to our three modes of growth: expansion of local businesses, the acquisition of major multistate operators, and partnering with other Blue plans.

In Texas, we have begun replicating the unique contracting and payment techniques that we developed in California to build one of the nation's most respected provider networks. We are also working on making the interface between our networks completely transparent to provide our multistate customers with the experience as well as the convenience of one-stop shopping.