Community Benefit in a NFP Blue Cross Plan: The Case of CareFirst, Inc. Presentation to State Coverage Initiative Workshop John M. Colmers Senior Program Officer, MMF Chairman, CFMI August 3, 2006

Outline History of CareFirst prior to conversion attempt CareFirst Commitment post-conversion actions Conclusions

CareFirst of Maryland, Inc. Organizational Structure CareFirst, Inc. (Not-For-Profit Maryland Holding Company) (Established in 1998) CareFirst of Maryland, Inc. (d/b/a CareFirst BlueCross BlueShield) (MD Not-For-Profit Health Insurer) GHMSI (D.C. Not-For-Profit Health Insurer) BCBSD, Inc. (d/b/a Blue Cross Blue Shield of Delaware) (DE Not-For-Profit Health Insurer) (Joined CareFirst in 2000) CareFirst BlueChoice (d/b/a BlueChoice) (MD/DC HMO) (Established by the merger of CapitalCare (DC) & FreeState Health Plan (MD) 3

CAREFIRST MARKET SHARE BY REGION CareFirst Today A growth-oriented Blues plan with presence in Maryland, Delaware, D.C., Northern Virginia, West Virginia and North Carolina with: CAREFIRST MARKET SHARE BY REGION Revenue: $5.3 billion Enrollment: 3.4 million members Associates: 5,400 Potential Market: 6.8 million customers #1 provider network #1 market position Product mix Traditional and managed health care benefits CDH/HSA Dental Vision TPA Medicare D Maryland: 43% Delaware: 40% West Virginia DC: 33% Charleston Northern Virginia: 28% CareFirst serves Maryland, Delaware, Washington, D.C. and Northern Virginia in a service area defined by the Blue Cross Blue Shield Association We are nearly an $8 billion company with more than 3.3 million members We have a strong employment base of some 6,000 associates – with nearly 4,000 in Maryland. North Carolina Charlotte Current CareFirst Presence

CareFirst Market Segments Planned Growth Segment 2005 Membership Individual <65 170,000 Individual > 65 75,000 1-50 Md 280,000 1-50 Non-Md 190,000 51+ Risk 345,000 Non-Risk 1,655,000 3rd Party Admin. 145,000 Fed. Empl. Plan 540,000 Total 3,400,000 Enrollment in 2006 is projected to grow by 14K (+0.8%) contracts to 1,844,300 By Entity, the highest growth is expected in the BlueChoice entity (+13,700). However a loss of enrollment is expected in the BCBSD entity due to the purchase of MBNA (16,500 contracts) by Bank of America. As of January 2006, BCBSGA (WellPoint) will be the Control plan for this account and BCBSD will be PAR leading to the loss of approximately 11,800 MBNA contracts; 4,700 contracts will remain as PAR. Excluding BCBSD enrollment growth in 2006 is expected to be 1.1% or 18K contracts. By segments the largest growth is expected in the 51+ Risk (+11,400), Group 1-50 (+6,700), FEP (+4,700) and Individual <65 (+3,300) segments Non-Risk is expected to lose approximately 13K contracts due to the loss of MBNA (-12K) as a control account. About 4,700 MBNA contracts will remain with BCBSD as PAR. Largest Federal Employee Plan (FEP) in the BCBS system Administer FEP Operations Center for BCBS System

Creation of CareFirst 1990-2000 Maryland Environment All payer rate setting/CON Dominant payer in all market segments Hospital rate differential Financial crisis in early 1990s Failure of WV plan Nunn Committee hearing on GHMSI and BCBSM New Management Team/Board Affiliation agreements

Major Blues Plans Consolidation and Conversion Activity Consolidation of Blues Plans Major Blues Plans Consolidation and Conversion Activity 1996 1997 1998 1999 2000 2001 2002 2003 BCBS of Maryland GHMSI BCBS of Delaware CareFirst , Inc. CareFirst WellPoint Becomes Public Company WellPoint Cerulean (BCBSGA) RightCHOICE Cobalt Becomes Public Company Anthem (IN, KY) BCBS Ohio Anthem BCBS Connecticut BCBS Colorado BCBSNew Hampshire Becomes Public Company Anthem BCBS Maine Trigon BCBS Texas BCBS Illinois BCBS New Mexico Health Care Services Health Care Services Independence Blue Cross La Cruz Azul (Puerto Rico) Independence BC Highmark Blue Cross PA Blue Shield BCBS West Virginia Highmark

Consolidation Trend Among Insurers 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 Today Kaiser KAISER Community Health Plan (NY) KAISER Kaiser Humana (DC) Permanente Group Health Cooperative (WA) Met Life METRAHEALTH Travelers Group United UNITED United MAMSI Healthcare Oxford UNITED TakeCare PacifiCare FHP PACIFICARE UNITED Humana Humana PCA Aetna AETNA U.S. HEALTHCARE U.S. Healthcare Aetna U.S. Sanus NYL CARE Prudential Healthcare Qual Med HSI Health Net FHS Foundation Foundation FOUNDATION Health Intergroup Systems PHS Cigna Across the country, insurance plans are trying to meet the challenges posed by today’s health care system through consolidation. The combined market share of our three largest competitors has increased 15% in the past 5 years (Accenture Report) Cigna Healthsource Principal Coventry Coventry Health Care WellPoint Cerulean (BCBSGA) WellPoint Right Choice (BCBSMO) A Health Cobalt (BCBSWI) Networks Anthem N BCBS Kentucky ANTHEM T Trigon (BCBSVA) ANTHEM H Community Mutual (69%) E ANTHEM BCBS Connecticut M ANTHEM BCBS New Hampshire BCBS Colorado & Nevada BCBS Maine ANTHEM 8 Plans 37 Plans

Conversion Attempt and Initial Aftermath Attempt to create for profit holding company Affiliation of CFMI and GHMSI Legislation creating foundation Affiliation with DL Market withdrawals Conversion proposal submitted Conversion proposal rejected Legislation enacted Federal litigation DL votes out, GHMSI fails by one vote 5 new board members appointed Remaining 7 board members appointed

CareFirst’s Broad Mission The mission of CareFirst BlueCross BlueShield is to provide health benefits services of value to customers across the region comprised of Maryland, Delaware, and the National Capital Area. To fulfill this mission, CareFirst BlueCross BlueShield commits to: Offer a broad array of quality, innovative insurance plans and administrative services that are affordable and accessible to our customers Fairly address the needs of customers in each of the jurisdictions in which we operate Conduct business responsibly to ensure long-term financial viability and growth Collaborate with the community to advance health care effectiveness and quality Support public and private efforts to meet needs of persons lacking health insurance Foster health systems integration and health care cost containment to benefit the people in the areas we serve Promote respect, fairness and opportunity for our associates.

Access & Affordability Ensuring Affordability CareFirst Commitment Bridges to Excellence Hospital Safety Patient Safety Centers Health Information Technology Quality & Safety Raising the Bar Access & Affordability Ensuring Affordability Corporate Giving Health Care Diversity Closing the Gaps Community Contributions Medical Strategies Communication Strategies Marketing Strategies New Product Development & Launch 2005 Pricing Strategy HMO Premium Tax Care Cost Initiatives 2% of Projected 2005 Net Operating Income Allocation to GHMSI, BCBSD, and CFMI based on % of Net Profit and Membership

2005 Mission Fulfillment Actions Mission-Related Investments Bridges to Excellence Hospital Intensivists Provider Partnerships Evaluation, Comm. Market Diversity Access & Affordability Corporate Giving $1.2 million $1.5 million $800k $1 million $1.1 million $500k $2.6 million Public Program Support MD Senior Rx (in lieu of 2% indemnity premium tax exemption) DC Rate Stabilization (equal to 1% or premium) $21 million $2.7 million Reduced Earnings Target (Includes $40 million in 2005 pricing reductions) $58 million $90.5 million Total

Final questions What does it mean to be NFP in today’s environment? Tax-exempt versus charity Does role differ for providers/insurers? Can any one payer be payer of last resort? How can or should reserves be used? How much is enough?