Cobalt Corporation Q2 2003 Earnings Conference Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: Charles Boorady - Salomon Smith Barney - Analyst : Thanks, good morning. Question number one is for Steve Bablitch. I'm just curious if you realized how strong your results were going to be at the time you struck your merger agreement with WellPoint.

Question: Charles Boorady - Salomon Smith Barney - Analyst : [Got it.] And the second question would be for Dave Colby, I guess. If you could give components of the medical cost trend

Question: Josh Raskin - Lehman Brothers - Analyst : Hi, thanks. Two questions. First is -- you mentioned in the press release but didn't really talk about it in the call, some impact from the MediCal program. I was wondering if you could just flesh out what the rationale for the Orange County exit was; and then if we could get any sort of update, and I know obviously nothing's settled yet in terms of outlook for rates for the end of this year and into '04. And then, the second question is -- I know it's probably a little early, but you had mentioned in your prepared remarks that -- again, another question for WellPoint, really -- that second half '03 sales were looking pretty good and 1/1/04 was encouraging. Can you give us any sort of sense of where you would expect membership to be at the end of this year, and then what we should expect for 2004 to start the year?

Question: Josh Raskin - Lehman Brothers - Analyst : Okay, but Dave, could you just comment in terms of the -- maybe the RFP activity, or what you've got through the middle of July vs. last year, etc.?

Question: Josh Raskin - Lehman Brothers - Analyst : Okay, that's helpful. Thank you.

Question: John Szabo - CIBC World Markets - Analyst : Oh, good morning. Thanks, Ed [ph]. Two questions, one for Leonard, and the other for Steve and his team. Leonard, I was wondering, could you talk about the dynamic between small group and individual? I think in the past, you've seen the individual sales pick up when small group declined. Has there been any change, and are you feeling a little bit better about prospects for small employers, particularly in California?

Question: John Szabo - CIBC World Markets - Analyst : So was -- the in-group dis-enrollment, was it disproportionately slanted towards small group, then? Is that an accurate statement?

Question: John Szabo - CIBC World Markets - Analyst : Okay, thanks. And, I guess, question for Steve. It sounded pretty encouraging about the quote level on the broker-distributed products. Could you talk a little bit about the close ratio on that quote activity, and where do you see that broker distribution channel as a percentage of your total sales, say in the next 12 to 18 months?

Question: John Szabo - CIBC World Markets - Analyst : Okay, thanks.

Question: Bill McKeever - UBS Warburg - Analyst : Yes. [inaudible] Dave Colby on

Question: John Szabo - CIBC World Markets - Analyst : Okay, thanks.

Question: Bill McKeever - UBS Warburg - Analyst : Yes. [inaudible] Dave Colby on hospital costs. The hospital utilization seems to be tied to the general economy. I'm wondering if you believe that as the economy recovers, could that put upward pressure on the hospital costs again, to get it back in line with where you were last year?

Question: Bill McKeever - UBS Warburg - Analyst : Okay, and then my last question. On the SG&A side, the productivity improvements that you've seen, is that going to come from just continued penetration of physicians and getting hospitals to interact with you more electronically, or are there any specific initiatives that you have underway that might begin to have an impact and bear fruit later on?

Question: Bill McKeever - UBS Warburg - Analyst : And then the calls that are going to the service center -- are you actually seeing a shift, more calls being handled over the Internet vs. a live person?

Question: Bill McKeever - UBS Warburg - Analyst : All right, thank you.

Question: Matthew Borsch - Goldman Sachs - Analyst : Thanks. My question is for WellPoint, and I also have a follow-up. The first question is on the enrollment and economy, and I'm wondering how much of the enrollment weakness you estimate is coming from a lower take-up rate of employer-sponsored insurance by young and healthy members that may be looking at substantially higher premium contributions. And to the extent you're seeing that, are you concerned about the potential impact to the risk pool?

Question: Matthew Borsch - Goldman Sachs - Analyst : Got it. Okay, thank you. And my other question is on a different topic related to your outlook for Dave Colby, and that's whether you still see about $1b in operating cash flow for the full year.

Question: Matthew Borsch - Goldman Sachs - Analyst : Great, Dave. Thank you.

Question: Michael Baker - Raymond James - Analyst : Oh yes. My first question is for WellPoint. That would be, I'm interested in hearing what you're seeing on the PBM side as it relates to -- I know there was a pick-up in RFP activity maybe on the win-loss side there, particularly in light of the award; and then I have a follow-up.

Question: Michael Baker - Raymond James - Analyst : And then, David, in terms of the follow-up, can you give us a sense of how buy-downs are tracking relative to your expectations?

Question: Michael Baker - Raymond James - Analyst : Thank you very much.

Question: Christine Arnold - Morgan Stanley - Analyst : I have two questions. The first is, it looks like the yield came down a little bit on the commercial [book of] business this quarter, relative to the last. And you said it wasn't only [to] buy-downs. Given the churn in the book, are you seeing new accounts coming in at lower price point products, so it's not technically a buy-down, but you're attracting some accounts to some of your innovative plans? Could you address the yield question when you have a second? streetevents@thomson.com 617.603.7900 www.streetevents.com 13 prior written consent of Thomson Financial.

Question: Christine Arnold - Morgan Stanley - Analyst : So then, [inaudible] before they got big rate increases, but they started out at a higher yield even before those [inaudible].

Question: Christine Arnold - Morgan Stanley - Analyst : Okay. And then my second point is to Leonard. Leonard, can you expand on your comments on the Medicare drug bill? Are you saying that a stand-alone drug benefit, from your perspective, doesn't work; or are you saying that there are things that need to be in place to make it work? Could you help us understand the issues?

Question: Christine Arnold - Morgan Stanley - Analyst : Okay. Final question on [[life] choice. I know you don't break it up separately, but can you give us a sense of accretion relative to your expectations? I know that it beat out your expectations for the full year in the first quarter. What -- can you give us a sense of your full-year expectations, if not this quarter?

Question: Christine Arnold - Morgan Stanley - Analyst : Thanks.

Question: Ellen Wilson - Sanford Bernstein - Analyst : Yes, I was wondering if you could comment on the ASO part of your business. Specifically, it seems to me that this environment would appear to be getting more competitive now versus the past. How is it that your competitors are winning business? Is there specifically, what are they doing to take business from you or to try to take business from you?

Question: Ellen Wilson - Sanford Bernstein - Analyst : And so the Healthlink accounts lost were sort of more problems with an admin cost per claim, situation?

Question: Ellen Wilson - Sanford Bernstein - Analyst : Okay. And then, once quick follow-up. Did you have any competitor plans leave your market sort of year to day-I know you had in the past several years, I've seen some exit. Were there any exits-

Question: Ellen Wilson - Sanford Bernstein - Analyst : Okay. And then, is there anyone giving up-when I say giving up meaningful share-obviously other than we know that. Any you seeing players giving up meaningful share, as people kind of regain strength at this point.

Question: Eric Vio - Wachovia Securities - Analyst : Thank you. Just a few questions. First, can you give us a little bit more detail, in the California market, compare the rate increase you guys just put through, [inaudible] that you referred to compared to the competitors rate increases that you mentioned, so we can get a sense of order of magnitude on those?

Question: Eric Vio - Wachovia Securities - Analyst : Oh, great. That's helpful. And, [inaudible] my second question is for you. Can you give us some sense of the types of discussions going on within the Blue Cross Blue Shield Association as they relate to some of the recent conversion [inaudible] [inaudible] But maybe if there were some comments regarding North Carolina's decision to withdraw their plans to convert. And what the general discussions are within the associations on that topic.

Question: Scott Videl - J.P. Morgan - Analyst : Yes, good morning. I had two questions for WellPoint. The first is if you could just update us on your possible contracting for 2004. And whether you think you could maybe see some improvement in unit pricing there.

Question: Scott Videl - J.P. Morgan - Analyst : Okay. That's helpful. And then my follow-up just has to do with Illinois and Texas. Can you talk about how performance is tracking in those markets? And then also what your expectations are for enrolment in those two markets, for 2003 and maybe looking out into '04.

Question: Scott Videl - J.P. Morgan - Analyst : And my understanding has been, it's looked like the pricing environment in Texas has firmed up pretty solidly this year. Would you say that you're seeing that down there?

Question: Roberta Goodman - Merrill Lynch - Analyst : Thanks. I wanted to follow-up on Eric's question. [inaudible] you referred to competitors who announced price increases recently and I was wondering if you could give us a sense of the magnitude of those increases, and whether these are major or minor competitors in the California market.

Question: Roberta Goodman - Merrill Lynch - Analyst : Okay and were these major players in the market, or smaller players in the market.

Question: Roberta Goodman - Merrill Lynch - Analyst : Okay, great.

Question: Ed Kroll - S.G. Cowen - Analyst : Good morning, I've got two quick ones. On the roll forward schedule-when will you present that to us next.

Question: Ed Kroll - S.G. Cowen - Analyst : Okay. So we're on a every six month-

Question: Ed Kroll - S.G. Cowen - Analyst : Okay. And then my follow-up is, I wonder if you could give us an update, or is it too early, on those generic coupons, the universal generic coupon program you have in California.

Question: Ed Kroll - S.G. Cowen - Analyst : Okay. But as far as the coupons that -you're sending to the doctors in California, and it wouldn't matter which health plan a consumer belongs to-is that program off the ground? Do you have any commentary on how that's doing?

Question: Ed Kroll - S.G. Cowen - Analyst : Thank you.