1 GWS Investor Conference Presentation.ppt Gregory W. Scott Executive Vice President and Chief Financial Officer.…a health and consumer services company.

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Presentation transcript:

1 GWS Investor Conference Presentation.ppt Gregory W. Scott Executive Vice President and Chief Financial Officer.…a health and consumer services company making people’s lives better Financial Fundamentals

2 GWS Investor Conference Presentation.ppt Key Balance Sheet Events Share repurchase program canceled 8/00 Unihealth repurchase program restructured11/00 Recapitalization transaction withdrawn 7/01 Bank facility extended 8/01 Acqua Wellington equity agreement12/01 OPM resolved 4/02 Bank facility extended two years, conditionally 4/02 High yield debt issued 5/02

3 GWS Investor Conference Presentation.ppt High Yield Debt Bank facility extension through 1/05 secured FHP bonds funded Avoids July 2003 interest rate step up of 50 basis points Lower cost of capital compared to equity transactions $0.18 EPS 2002 dilution; $0.30 EPS annual dilution

4 GWS Investor Conference Presentation.ppt Capitalization Table

5 GWS Investor Conference Presentation.ppt Commercial Premium & HCC Gross Profit PMPM $16.61$17.70$15.63$16.19$16.13$20.45$21.39 Membership (000s) 3,0232,9912,7302,6342,5672,4732,440 MLR 87.9%87.2%89.5%89.2%89.5%86.9%87.5%

6 GWS Investor Conference Presentation.ppt Senior Premium & HCC Gross Profit PMPM $46.71$47.47$50.52$53.82$62.03$48.74$60.72 Membership (000s) 1,0261,0581,0501,0081, MLR 91.0%91.0%90.7%90.3%89.0%91.3%89.8%

7 GWS Investor Conference Presentation.ppt Dollars (in Millions) Consolidated SG&A % of Operating Revenue (1) (1) excludes investment income

8 GWS Investor Conference Presentation.ppt 2002 Net Income Guidance * Restated for SFAS 142 cumulative effect change in accounting principle, excludes restructuring charges # Excludes SFAS 142 cumulative effect change in accounting principle, OPM credits, bank fee write-offs (In Millions)

9 GWS Investor Conference Presentation.ppt Operating Profit Before Change in Investment Income* Improves 61% Year Over Year *Adjusted for SFAS 142 change in accounting for goodwill as if adopted January 1, 2001 and excludes impairment, disposition, restructuring, OPM and other charges/credits Investment Income: -37% Operating Profit: +61%

10 GWS Investor Conference Presentation.ppt EBITDA/Free Cash Flow (In Millions)

11 GWS Investor Conference Presentation.ppt Free Cash Flow

12 GWS Investor Conference Presentation.ppt Medical Claims and Benefits Payable

13 GWS Investor Conference Presentation.ppt Medical Claims and Benefits Payable

14 GWS Investor Conference Presentation.ppt Capitated, Administered Providers Capitated, Delegated Providers Fee-for-Service Providers Capitated Physician, Non-Capitated Hospital HMOs comprehensive services to members fixed monthly payment amount withheld by HMO monthly to pay providers’ cost of referral claims to specialists, hospitals HMOs adjudicate and process referral claims on providers’ behalf using cash withheld comprehensive services to members fixed monthly payment providers responsible for paying referral claims to specialists, hospitals HMOs have no contractual relationship with referral providers comprehensive services to members no fixed monthly payment cost based on discounted fee for specific service rendered HMOs responsible for paying claims physician services to members fixed monthly payment to medical group can be delegated or administered for specialist services hospital contracts negotiated separately, generally on a per-diem basis Liabilities are Based on Contractual Arrangements Withhold Pools/Capitation Capitation IBNR Capitation/IBNR

15 GWS Investor Conference Presentation.ppt Variables that Impact IBNR Reserves Variable Variable Measurement Change IBNR Risk Membership# of risk members Cost per risk serviceprovider contracts Utilization of servicesbed days/k and other indicators Speed of claims payment# days between date of service and check date

16 GWS Investor Conference Presentation.ppt Changes in Incurred But Not Reported Liabilities

17 GWS Investor Conference Presentation.ppt What Do Investors See? Days Claims Payable HNT (56) PHSY (39) WLP (62) UNH (66) Source: Banc of America Securities

18 GWS Investor Conference Presentation.ppt MCBP and Days Information $1,275.4$1,095.9$1,078.5 (In Millions)

19 GWS Investor Conference Presentation.ppt Commercial MCBP and Days Information $659.0$569.1 $607.9 Hospital risk members1,338 1,286 1,318 Physician risk members (In 000s) (In Millions)

20 GWS Investor Conference Presentation.ppt Senior MCBP and Days Information $616.4$526.8 $470.6 Hospital risk members Physician risk members (In 000s) (In Millions)

21 GWS Investor Conference Presentation.ppt Membership Losses Decrease Days Claims Payable PHS on average turns IBNR claims in 68.9 days % Health Care Costs avoided with member exits

22 GWS Investor Conference Presentation.ppt Medical Claims and Benefits Payable Information

23 GWS Investor Conference Presentation.ppt Medical Claims and Benefits Payable Information

24 GWS Investor Conference Presentation.ppt Medical Claims and Benefits Payable Appendix

25 GWS Investor Conference Presentation.ppt What are Provider Withhold Pools? How are they recorded? Withhold pools = cash withheld from capitation to pay referral claims on providers’ behalf Liability = withheld amount less claims paid to date

26 GWS Investor Conference Presentation.ppt What are Risk Program Reserves? How are they recorded? Provider incentives based on risk sharing Liabilities estimated Settled quarterly or annually, in arrears

27 GWS Investor Conference Presentation.ppt Capitation is Prepaid. Why is there a liability for it? Capitation Liabilities may arise from: retroactive membership changes not yet paid to providers low enrollment or capitation guarantees retroactive changes in capitation contracts million

28 GWS Investor Conference Presentation.ppt What are Insolvency Reserves? How are Insolvency Reserves Estimated? Some of the insolvency reserves relate to specific provider bankruptcies. Estimate may also include reserves for potentially insolvent providers where evidence indicates non-payment or slow payment of referral claims. Estimates of amounts owed by providers for referral claims - essentially, the provider’s IBNR for services covered by our capitation payment. Liabilities are specific to state law. reserves Insolvency expense may also include reserves for provider receivables (claims paid in excess of capitation withheld or risk programs. Receivables are fully reserved unless provider has agreed to a firm collection plan.