Oct 28, 2009
Executives
Angela F. Braly - President and Chief Executive Officer Wayne S.
Deveydt - Executive Vice President and Chief Financial Officer Ken R. Goulet - Executive Vice President and President of Commercial Business Unit Brian A.
Sassi - Executive Vice President and President of Consumer Business Michael E. Kleinman - Vice President of Investor Relations
Analysts
John Rex - J.P. Morgan Justin Lake - UBS Doug Simpson - Morgan Stanley Joshua Raskin - Barclays Capital Charles Boorady - Citi Matthew Borsch - Goldman Sachs Scott Fidel – Deutsche Bank Securities Christine Arnold – Cowen and Company Carl McDonald – Oppenheimer and Company Anna Gupta – Sanford Bernstein Tom Carroll – Stifel Nicolaus Michael Baker – Raymond James Peter Costa – FTN Equity Capital Markets
Operator
Ladies and gentlemen, thank you for standing by and welcome to the WellPoint Conference Call. At this time all lines are in a listen-only mode.
Later, there will be a question-and-answer session, and instructions will be given at that time. (Operator Instructions).
As a reminder, this conference is being recorded. I would now like to turn the conference over to the company’s management.
Michael E. Kleinman
Good morning and welcome to WellPoint’s third quarter earnings conference call. I’m Michael Kleinman, Vice President of Investor Relations.
With me this morning are Angela Braly, our President and Chief Executive Officer; and Wayne DeVeydt, Executive Vice President and Chief Financial Officer. Angela will begin this morning’s call with an overview of our third quarter results, actions, and accomplishments, and also provide some perspective on current legislative proposals impacting the industry.
Wayne will then offer a detailed review of our third quarter financial performance and current guidance which will be followed by a question-and-answer session. Ken Goulet, Executive Vice President and President of our Commercial Business and Brian Sassi, Executive Vice President and President of our Consumer Business are available to participate in the question-and-answer session.
We will be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of WellPoint.
These risks and uncertainties can cause actual results to differ materially from current expectations. We advise listeners to review the risk factors discussed in our press release this morning and in our quarterly and annual filings with the SEC.
I will now turn the call over to Angela.
Angela F. Braly
Thank you, Michael, and good morning. Today, we are pleased to announce our third quarter 2009 net income of $730 million or $1.53 per share.
These results included net investment gains of $0.03 per share and an impairment charge of $0.28 per share for certain intangible assets. Net income in the third quarter of 2008 was $821 million or $1.60 per share and included net investment losses of $0.71 per share and impairment charge of $0.17 per share related to certain intangible assets in our state-sponsored business, and income tax benefit totaling $0.90 per share.
Our third quarter results were better than expected, driven mostly by improving results in our consumer segment. We’ve maintained our guidance for the full year 2009 reflecting the impairment charge and continued utilization increases due to higher COBRA membership and elevated flu activity.
Medical membership totaled $33.9 million at September 30, 2009, a decrease of 1.5 million members from September 30, 2008. Memberships declined by 366,000 during the third quarter 2009 which was in line with our expectations in total with fully insured memberships slightly better than new projected and self-funded slightly unfavorable.
80% of the third quarter enrolment decline occurred in the commercial segment. Our commercial employer based business continues to be impacted by lapses and in-group membership attrition resulting predominantly from economic conditions.
We experienced net negative in-group change of 164,000 commercial members during the quarter. While the unemployment rate has begun to stabilize, the number of out-of-work Americans continues to rise, and we do not expect the employment situation to improve until late in 2010.
Additionally, many companies are evaluating changes to benefit design and employee cost-sharing arrangement in an effort to lower overall costs. We believe these factors will continue to place pressure on our commercial enrolment levels next year despite the fact that we continue to win in the marketplace as demonstrated by our successful 2010 National Accounts selling season.
We have had an outstanding sales year for National Accounts. In total, we have already signed more than 30 new groups for 2010 and expect net growth of more than 400,000 National Account members on January 1 excluding expected gains and BlueCard membership.
While we expect broader economic conditions and additional layoffs to impact national membership throughout the year, 2010 will likely mark the 9th consecutive year in which our national business grew significantly. We have an unmatched value proposition for this marketplace, offering access to the broadest provider network in the country with cost-effective discounts, good customer service, innovative consumer-friendly products, and tools to enhance both the cost and quality of healthcare for our customers.
We continue to gain share in the national accounts market while retaining nearly 90% of our overall customer base. This reinforced our strong value proposition and gives us optimism that our commercial business will be favorably impacted once employment begins to increase.
If this occurs toward the end of 2010 as a number of economists current predict, we could return to a pattern of in-group membership growth by 2011 as we have historically experienced. We continue to expand customer retention programs and introduce new products in targeted areas in an effort to enhance memberships.
For commercial business important product options were introduced this quarter in many of our key markets. We refreshed local group portfolios in Virginia, Indiana, Ohio, and Wisconsin.
This included the introduction of new buy-down options for these markets which have increased importance in the current economy. We also refined our group offerings in California including new options in our popular employee elect portfolio and introduced a new health incentive account in Kentucky.
Earlier this month we rolled out our SmartSense and Premier health plans to the individual market in Missouri. These plans have been successful in attracting new individuals from the ranks that we uninsured in California and other states.
We will continue to refine our product portfolio over the next year to help drive new membership and revenue. We’re pricing our products with discipline and believe the marketplace remains competitive, but generally rational.
We’re seeing competitors raise rates in some of our key geographies and we expect this to benefit our sales going forward. While we have increased our underlying medical cost trend forecast are merely to reflect projected higher utilization, we continue to price our products to exceed total cost trends and have been incorporating rising utilization assumptions in our pricing.
The benefit expense ratio for the third quarter 2009 was 81.1%, a decline of 140 basis points from the same period last year. We recognized higher than anticipated favorable reserve releases of approximately $112 million in the third quarter of 2009 which favorably impacted the benefit expense ratio by 80 basis points.
The decline was also driven by operating improvement in the Senior and state-sponsored businesses which were partially offset by the increase in the benefit expense ratio for local group business. The increase in local group reflects the impact of the recession on business mix shift and utilization patterns and was most significant in California where the unemployment rate is about 12%.
COBRA members have increased flatly during the quarter and comprised approximately 2.2% of our commercial fully insured membership at September 30, 2009, about 60 basis points higher than at year-end 2008. COBRA members generally have much higher-than-average benefit expense ratio.
We expect COBRA membership to rise slightly into next year in line with our expectations for unemployment. While the flu was not a significant driver at third quarter results, we did incur higher than average flu-related costs and we continue to expect a more severe flu season to impact the fourth quarter this year.
In July we became the first health plan to announce coverage for the administration of the H1N1 flu vaccine, and more recently we announced that first-dollar coverage will be provided for administration of this vaccine to all fully insured WellPoint members. We also moved the antiviral medication, Tamiflu and Relenza, to a more economic tier in plan formulary.
These actions support public health efforts and are consistent with our goal of keeping plan members as healthy as possible. We have experienced and expect higher COBRA membership, elevated flu cost, and increased healthcare utilization towards the end of this year, although we believe that these costs have been appropriately factored into our reserve levels at September 30, 2009, and our earnings guidance.
We remain comfortable with our assumptions for operating performance in the fourth quarter. Results in our consumer segment continue to run better than our projections this year particularly in the Senior business.
The significant operational and process improvements we have made in this segment resulted in Centers for Medicare & Medicaid Services or CMS lifting marketing and enrolment sanctions against the company in September. This is a testament to the hard work and dedication of our senior business associates.
We are currently marketing our 2010 Medicare Advantage and Part D plans for the annual election period that begins on November 15th. We continue to view the senior market as a long-term growth opportunity and believe that our competitive strength as a Blue licensee positions us particularly well for the growing number of baby boomers who will begin turning 65 in just over a year.
We have also made significant progress in our state-sponsored business. We have exited certain contracts for which actuarially-sound reimbursement could not be obtained, and implemented strategic actions in ongoing programs that have improved results.
We achieved acceptable margins during the third quarter in most of our key states after having lost money in State-sponsored business during 2008. We expect State-sponsored enrollment to remain high through the recession and expect this market segment to expand as a result of healthcare reform.
We remain actively engaged in our nation’s healthcare reform debate and continue to support responsible and sustainable efforts to improve the healthcare system. As an industry, we were among the first to the table nearly a year ago when we recommended meaningful reforms in an effort to increase access to coverage while containing cost trends and improving the quality of care.
Unfortunately, the legislation currently being considered in Congress does not meet this objective and includes a number of proposals that will have the unintended consequence of increasing healthcare costs that will be reflected in higher premiums for many individuals, families, and businesses. We have offered significant market reforms as an industry including a proposal to accept all applicants for insurance coverage without regard to current or prior health conditions.
However, we know from experience that such a change can only be successful if it is accompanied by respective and enforceable requirement for participation in the risk pool. Without such a requirement those fortunate enough to be in good health are discouraged from buying coverage until they become ill.
This ultimately drives up the cost of care for everyone like it is done in New York where premiums in the individual market are multiples of those in most of our other Blue states. We are similarly concerned about the impact that the new industry taxes will have on the cost of healthcare.
WellPoint already pays more than $1.8 billion per year in Federal and State taxes and fees including premium taxes and other assessments that are built into the cost of healthcare. Proposed legislation contemplates adding $6.7 billion in new annual taxes on the insurance sector, $4 billion in new annual taxes on medical device companies, and $2.3 billion in new annual taxes on pharmaceutical companies, the cost of which will be absorbed primarily by individuals and businesses who are currently insured.
Proposed legislation also includes an excise tax on high-value insurance plans that may drive employers to select lower-value benefit options or significantly increased employee cost sharing for their associates. More plans will be classified as Cadillac or high-value plans over time due to inadequate annual inflation indexing.
There are also significant cuts to the Medicare Advantage program in the bill which will result in reduced benefits and higher cost sharing for many seniors. We reviewed the provisions in the legislation that would have a direct impact on premium and applied these new taxes, fees, and other items to existing premiums for a group of products in order to determine the actual impact the proposed legislation would have on individual, family, and small business premiums in each of our 14 Blue states.
This analysis supports the findings of numerous other independent studies and highlights the overall premium impact that can be anticipated as a result of the proposed legislation. We have posted this information on our website and shared it with congressional members and their staff at their request and in continuation of our efforts to provide data to help inform the legislator debate.
As a whole this legislation will significantly increase healthcare costs and force many Americans to accept changes to the insurance plans they currently have and value. These changes would be accelerated by the inclusion of a public plan option that would further exacerbate cost shifting from government programs to those with private health coverage.
We are hopeful that Congress takes this opportunity to develop truly bipartisan health reform legislation and we remain committed to working with our elected officials on comprehensive and sustainable changes to our nation’s health care system. We are focused on strategic initiatives that will enhance our success regardless of the outcome of healthcare reforms.
Chief among these is the need to become more efficient in our operations so that can continue managing through this difficult economy while investing our resources optimally for long-term success. Given the decline in membership we had experienced during the recession and our expectation for continued high unemployment levels over the next several quarters, we recognize the need to adjust the size of our work force and overhead structure.
As a result we have initiated restructuring activities that will continue into the fourth quarter, and we expect that the savings generated from these initiatives will allow us to make investments in key strategic areas during 2010 particularly an information technology. We are committed to simplifying and optimizing our operations through the use of technology.
We expect these and other investments to help contain medical cost trends while improving outcomes and lowering administrative expenses as a percentage of revenue over time, thus enhancing our competitive advantages. We also expect our pending transaction with Express Scripts to improve our competitive position in the marketplace.
We continue to expect this transaction to close this quarter. The transition planning is nearly complete and leaders from both organizations have worked collaboratively to develop detailed processes for successfully migrating our pharmacy members through Express Scripts beginning January 2010.
We’re confident that our members will experience significant benefits from this strategic alliance. In another strategic action designed to enhance future results, our UniCare subsidiaries will be exiting the commercial health insurance markets in Illinois and Texas.
We have entered into an agreement with Healthcare Service Corporation or HCSC which operates the Blue Cross and Blue Shield license fee in Illinois and Texas under which HCSC will upon completion of all regulatory approvals offer guaranteed replacement coverage to UniCare’s commercial and individual members in those states. We expect that members transitioning to HCSC will experience significant benefits including gaining access to HCSC’s extensive provider networks with leading discounts.
While UniCare remains financially sound, marketplace dynamics have made it increasingly difficult for UniCare to provide affordable, high-quality products to commercial customers in those states. We know from our value proposition in WellPoint’s 14 Blue states that a plan must have sufficient scale to obtain optimal provider arrangements and deliver maximum value to commercial and individual customers.
We expect most of UniCare’s commercial and individual members in Illinois and Texas to transition on December 31, 2009. All other UniCare and HealthLink members including those in standalone specialty products, Senior or State-sponsored products are not impacted by this agreement.
In summary, we’re pleased with our performance to date in 2009 and are taking actions to position our company for 2010 and beyond. With the best assets in the business and a company-wide focus on creating the best healthcare value for our customers, we expect continued success.
We’re currently in the process of preparing our final business plans for 2010 and intend to provide details about our 2010 outlook on our fourth quarter ’09 earnings conference call when we expect to have better clarity around the resolution of healthcare reform and at our Investor Day in Indianapolis scheduled for February 23, 2010. Please contact our investor relations office to register for Investor Day.
I’ll now turn the call over to Wayne DeVeydt for a detailed look at our third quarter financials and updated guidance.
Wayne S. Deveydt
We had a very solid third quarter 2009 that exceeded our expectations. Premium income was $14.1 billion in the quarter, a $160 million or 1% decrease from the prior year quarter, primarily due to fully insured membership declines and our withdrawal from certain unprofitable State-sponsored programs, partially offset by premium rate increases across all medical lines of business and increased reimbursement in the Federal Employees Program.
Administrative fees were $969 million in the third quarter of 2009, up $44 million or 5% over the prior year quarter, primarily due to revenues generated by DeCare following our acquisition and improved pricing for self-funded commercial business, partially offset by lower revenues in the national government services business and our exit from the Connecticut Medicaid program. As Angela noted earlier, our benefit expense ratio decreased by 140 basis points to 81.1% in the third quarter of 2009 from the prior year quarter.
This reflected high than expected prior period reserve development in 2009 and improvements in our senior and State-sponsored programs, partially offset by the increase in the benefit expense ratio for local group. We now expect our consolidated benefit expense ratio to be 82.6% for the full year of 2009, a decrease of 30 basis points from our prior guidance, primarily due to the favorable third quarter reserve development and improving results in our consumer segment.
The benefit expense ratios projected to rise sequentially in the fourth quarter due to the nonrecurring nature of the third quarter reserve releases, the seasonality in our commercial product design, and our expectations for increased healthcare utilization towards the end of the year. For the full-year 2009 we now expect in underlying local group fully insured medical cost trend would be 9% plus or minus 50 basis points.
This is an increase from my most recent projection, about half of which is related to COBRA membership and half related to expected elevated flu activity. Unit cost increases continue to be the primary driver of medical cost trends; however, utilization has risen through the first nine months of the year, and we expect utilization to remain elevated through the fourth quarter.
Inpatient hospital trends in the low double-digit range and is 85% related to increases in cost per admission and 15% utilization driven. Unit costs are rising due to an elevated average case acuity and higher negotiated rate increases with hospitals.
Utilization has increased in recent months across several categories, and we’re experiencing higher admission rates and longer lengths of stay in facility. We continue to manage inpatient trends for contracting in clinical management initiatives including our 360-Degree healthcare management program.
Cost trends for outpatient services are in the low to mid teens and are about 65% unit cost driven and 35% utilization. Price increases as well as more procedures being performed on each visit continue to apply upward pressure on per-visit cost.
We’ve seen increased utilization in the surgery, radiology, emergency room, and infusion pharmacy categories. We utilized medical management programs to encourage appropriate utilization of outpatient services.
We continue to expand radiology management through our American Imaging Management subsidiary. We also announced this quarter that our Resolution Health and Health Management Corporation products will be offered exclusively to members of our affiliated health plans.
This will allow us to more effectively dedicate our resources to improving the health and care management services delivered to members in our 14 Blue states. Physician service trends in the mid single digit range and is equally driven by unit cost and utilization.
We used fee schedules to contract with many physicians and are collaborating with physicians to pay for performance initiatives and quality of care programs. Pharmacy trend is in the mid to high single digit range and is 85% unit cost related and about 15% utilization driven.
We are continuing our efforts to increase generic and mail order penetration and expect that our new strategic alliance with Express Scripts will favorably impact pharmacy cost trends in 2010 and over the life of the contract. We continue to price up business so that expected premium yield defeats total cost trend where total cost trend includes medical cost in selling, general, and administrative expense.
Earlier this year, we recognized the utilization was increasing across our commercial population and we’ve been reflecting higher utilization of our pricing since that time. Selling, general, and administrative expense was $2.4 billion in the third quarter of 2009, an increase of $177 million or 8% from the prior year quarter.
The SG&A expense ratio increased by 130 basis points to 15.8% over the same period. The SG&A cost increase was as a result of higher compensation cost and increased technology and customer service spending.
As Angela described, we initiated restructuring activities during the third quarter in response to business conditions including a $1.2 million member year-to-date decline in enrollment and to position the company for long-term success. These efforts are expected to produce savings in 2010.
It is imperative that we right-size our cost structure as we are facing increased regulatory mandates in the coming year such as new claim quoting specifications for ICD-10 and other potential requirements as a result of the healthcare reform. Compliance with regulations is expensive and creating a more cost effective structure will generate competitive advantages over time and help drive the greatest long-term value for our customers and our shareholders.
Net investment income was $197 million in the third quarter of 2009, $80 million or 8% lower than the prior year quarter primarily due to lower yields on short-term investments. Net realized gains of $52 million in the third quarter were driven by the sale of equity securities and we recognized OTTI losses of $31 million, the majority of which related to equity securities.
The overall investment portfolio continued to perform well during the third quarter finishing the quarter in a net unrealized gain position of $745 million. During the third quarter, we initiated an impairment review of certain intangible assets that declined in value as a result of the upcoming sale of NextRx and an expected decline in 2010 membership associated with our unit care subsidiaries.
This review resulted in a pre-text charge of $206 million. Since the NextRx transaction is expected to close by the end of the year and the amount of impairment was able to be reasonably estimated to recognize an impairment charge in the third quarter.
Conversely we will not able to recognize the gain on sale until the transaction closes. Income tax expense was $387 million in the third quarter of 2009, an increase of $658 million from the prior year quarter.
Recall that tax rate reported for the third quarter of 2008 was unusually low due to the favorable settlements that occurred last year. We currently expect our full year 2009 tax rate to be 34.6%.
Turning now to our medical reserves, we have included in our press release a reconciliation and roll-forward of our medical claims payable reserves. This disclosure is comparable to the reconciliation provided in our second quarter press release.
We report prior year redundancies in order to demonstrate the adequacy of prior year reserves. Medical claims reserves established at December 31, 2008, continued to develop favorably.
For the nine months ended September 30, 2009, we had significant positive prior year reserve development of $752 million. As expected this level of positive reserve development is significantly higher than the $264 million we experienced for the nine months ended September 30, 2008, and further demonstrates that we addressed the claims visibility issues we experienced in the end of 2007 following certain system migrations.
During the third quarter, we recognized an estimated $112 million of higher than anticipated favorable reserve releases that were not re-established at September 30, 2009; $64 million of which was recorded in the commercial segment and $48 million in the consumer segment. Year-to-date through September 30, 2009, we estimate that we recognize $212 million of higher than anticipated reserve releases that were not re-established, most of which relates to the consumer segment.
We continue to establish reserves in a conservative manner and we believe that our September 30th balance sheet has an appropriate level of conservatism for COBRA, flu, and other items. Days in claims payable as of September 30, 2009, was 46.4 days, an increase of 0.5 days from 45.9 days as of June 30, 2009.
This increase was driven by seasonality and the timing of claims payment partially offset by reserve releases due to the higher than anticipated favorable development. Medical claims inventories declined by 1.6% during the third quarter.
At September 30, 2009, our subsidiaries remained very well capitalized with statutory capital of $6.5 billion higher than state regulatory requirements and approximately $3.3 billion higher than Blue Cross and Blue Shield requirements. Cash flow from operations was strong in the quarter at $1.4 billion or two times net income.
Year-to-date through September 30, 2009, operating cash flow reached approximately $3 billion or 1.5 times net income. We now expect to generate more than $3.1 billion in operating cash flow in 2009.
As of September 30, 2009, we had approximately $1.1 billion of cash in investments held at the parent company and available for general corporate use. Our debt to capital ratio end of September was 27.9%, down from 29.2% at the end of the second quarter.
We expect to receive $1.3 billion in ordinary dividends from our subsidiaries during the fourth quarter this year and an additional $3 billion in cash following the close of the NextRx transaction. During the third quarter, we repurchased 13.4 million shares of our common stock for $693 million where we purchased 6.7 million additional shares during the first three weeks of October for $313 million.
On a year-to-date basis through October 23, 2009, we had repurchased 47.5 million shares or 9.4% of our shares outstanding at the end of 2008 for approximately $2.1 billion. We expect to repurchase up to $2 billion of our shares following closing of the NextRx transaction subject to board approval and market condition including healthcare reform.
We routinely evaluate alternative methods for deploying capital to our shareholders and continue to believe that share repurchases are the most effective at the current time given our company’s cash generation and the EPS accretion potential at recent stock prices. Let’s now turn to our updated outlook for 2009.
We now expect year end 2009 medical enrollments to be $33.6 million including $18.3 million self-funded customers and $15.3 million fully insured. Note that our updated membership guidance reflects a delay in the conversion of an 870,000 member experience rated low-margin municipal account from fully insured to self-funded status.
We now expect this account to begin self-funding on January 1, 2010 rather than October 1, 2009. Operating revenue is now expected to total approximately $60.9 billion.
The benefit expense ratio is now expected to be approximately 82.6%. The SG&A ratio is expected to be approximately 15.7%.
Earnings per share are now expected to be in the range of $5.06 to $5.12 on a GAAP basis which includes the $0.52 per share of investment losses incurred year-to-date to September 30th and the third quarter impairment charge of $0.28 per share and includes no investment gains or losses, impairment charges, or restructuring charges beyond those recorded to the first 9 months nor does it include the expected gain on the sale of NextRx. We also now expect operating cash flow to exceed $3.1 billion for full year 2009.
As Angela noted, we are currently preparing our final business plans for 2010. We foresee a number of headwins and tailwins impacting next year such as the economy including its impact on commercial number of months, expectations for an elevated flu season that will likely carry into the first quarter of 2010, high levels of COBRA membership, higher than anticipated reserve releases in 2009 that are not expected to recur in 2010, and Medicare Advantage reimbursement cuts, these being offset by some tailwins that we see around our operational efficiency initiatives and the sale of NextRx and use of proceeds.
There is also uncertainty surrounding the potential impact of healthcare reform legislation which could have an adverse impact on our performance. Given the potential changes in healthcare reform and the wide range of possible impacts from COBRA and the flu, we believe it is imprudent for us to provide guidance for 2010 at this time.
We plan to provide more details on 2010 during our fourth quarter ’09 conference call and at the Investor Day in February, and we expect to have better clarity concerning healthcare reform. I will now turn the conference call back over to Angela to lead the question-and-answer session.
Angela F. Braly
Operator please open the queue for questions.
Operator
(Operator Instructions). Our first question comes from the line of John Rex - J.P.
Morgan.
John Rex - J.P. Morgan
I think in the past your directional view on operating for 2010, it would be extremely difficult to grow operating earnings in 2010 given kind of the headwin and tailwin that you took us through there, is that kind of ex-reform, ex-flu, is that basically still what you’d like to leave us with and in terms of thinking about that?
Angela F. Braly
Our experience tells us that you appreciate us being as accurate as we can be and there are so many changes occurring in the fourth quarter that we want to spike those out; in second quarter call, we said we’re not expecting an operating gain growth in 2010, and Wayne can go through the reasons again, but the fourth quarter is going to bring a number of changes as you know healthcare reform, our Express Scripts transactions, the adjustments we’re making within WellPoint to position us for the future, and so with those levels of uncertainty, our projections for the fourth quarter in terms of COBRA and flu, we just want to be very thoughtful about that; Wayne do you want to reiterate any of that?
Wayne S. Deveydt
Just a couple of things, when you think about the commercial book in general though, the member month is really the issue, so while we don’t expect to recovering the economy next year, if you look at most predictions out there from leading economists, they would say might improve by the end of the year, so medical membership itself may not look that different year-over-year but the actual member months will be down next year, so in and of itself, it does create a headwin, nonetheless we have some pricing to offset some of that, but it does create a headwin. Clearly the Medicare cuts and Brian can expand on that later during the call, will create a headwin while we’ve taken initiatives to modify benefits and of course price up, we do have a margin compression there; and we don’t believe the flu in COBRA will be a tailwin until 2011 and we essentially believe that the flu at the pace we expected to occur in the fourth quarter will carry over into the first quarter, so it becomes somewhat neutral year-over-year on a comp basis, COBRA becomes neutral year-over-year on a comp basis, and the real tailwin that occurs in 2011, so we are taking some G&A initiatives as Angela indicated to fund some investments and to offset some of these headwin, but I think it is fair to say that operating earnings will be down next year.
Angela F. Braly
And the reserve releases won’t repeat.
Wayne S. Deveydt
And at this point you cannot expect reserve release to repeat albeit we do have a strong balance sheet.
John Rex - J.P. Morgan
I just want to kind of bridge the gap here in the context of this; the cost trend indication signal is being a little contradictory in the quarter, be it on the better med cost ratio, you’re raising your cost trend view, can you help us bridge that and maybe how much of that is due to the Medicare risk adjuster payments in the quarter and maybe just kind of help us figure that out?
Angela F. Braly
John, what we’re doing is we’re looking prospectively as we raise the trend, and the increase, we’re looking at utilization and attributing about half of that to COBRA utilization and half to flu. Do you want to be more specific Wayne?
Wayne S. Deveydt
Brian feel free to jump in on the MAPs, but what I would say John is while we did do well on the risk core adjusters in the quarter, they were not a significant driver of our better than expected results. What we are seeing in the cost trends and I understand the question because when you look at underlying cash flow and the strength of the cash flow and earnings, it does raise a question of why raise medical trend, but what I would tell you is in the last few weeks of the quarter, we have seen a fairly significant spike in H1N1 or flu-like claims both physician visits as well as prescription Tamiflu, so we are taking a cautious view; so when you look at our medical trend, it includes a very significant increase in flu-related costs in the fourth quarter as well as COBRA; now whether or not those ultimately pan out remains to be seen, but a big movement in the trend is exactly related to those two items and it’s about 50:50.
Operator
Our next question in queue is from the line of Justin Lake - UBS.
Justin Lake - UBS
Wayne S. Deveydt
As you know Justin we don’t typically talk about margins by segment; what I would tell you though is, and I’ll let Ken highlight at least how the pricing is and how we’re performing in terms of our segments, but what I would tell you is the commercial segment is a little bit misleading when you look at the year-over-year deterioration; as you recall, a year ago we did not have incentive comp which was of course performance based and our performance last year did not warrant such, this year you do have incentive comps; this is creating kind of what I will call a comp differential that distorts the year-over-year decline. That being said though, we are having some real challenges in the commercial book because of the H1N1 and the COBRA, but with that I’ll ask Ken to comment on what we’re seeing market-wise.
Ken R. Goulet
On the performance for commercial, as Wayne indicated, when you look quarter year-over-year, the comps did have an impact and was one of the drivers. The other was our fully insured business is going down as a result of economic conditions and there has been a significant decline in literally the size of the pie, it’s probably the best way to put it; our market share continues to stay stable or grow, meaning we’re beating our competitors; however, the number of insured lags is going down as the recession drives lay-offs in the commercial group of business; so, that carries into 2010 and the member months that we’ve lost this year, let’s say mid year carries into a full year loss next year, and that’s what we’re looking at.
Our margins, as Wayne indicated, we don’t go area by area, but we are pricing for expected trends and are able to carry rational pricing to offset the cost increases in price.
Wayne S. Deveydt
The other thing I would add is keep in mind that it was fourth quarter of last year that we saw the significant lay-offs start to occur in this economy, and so what you’re seeing for the first time now is the first quarter full year member month impact of all those lay-offs; so, you’re getting all of fourth quarter last year which is no longer repeating now in the third quarter plus the first quarter heavy lay-offs; so, this kind of gives you at least a feel for the impact that you can have on a year-over-year basis when the member months go down.
Angela F. Braly
And the stimulus still included the subsidies for COBRA which carried through this year and then we do anticipate in the fourth quarter and this is part of what we’re attributing to the utilization related to COBRA in the fourth quarter that as that subsidy begins to expire might use their services before the COBRA goes off or at least the subsidized COBRA goes off.
Justin Lake - UBS
Just a quick followup on the 2010 question; you were very clear in saying that operating income will be down year-over-year, I just want to make sure I understand, is it going to be down year-over-year let’s call it $215 million reserve release, so if I pull that out, is it still going to be down year-over-year just on the continuing operations?
Wayne S. Deveydt
Yes, at this point Justin I would expect it to be, but again the assumption is that we have no further conservatism on our balance sheet and I think we need some time to see how that pans out.
Justin Lake - UBS
That makes perfect sense.
Operator
Our next question in queue will come from the line of Doug Simpson - Morgan Stanley.
Doug Simpson - Morgan Stanley
Angela, could you just expand a little bit on your comments, talking about the small employer market, what are you hearing from those customers, their view of reform, how much awareness is there in that segment about the cost shift from the commercial market to the government market; are they raising the questions to you and to your agents out there in the field as they’re thinking about the potential for cost hikes?
Angela F. Braly
I think that’s a really important question and I do think there’s a difference in the small group market and the large group market. Clearly, costs are critical in the small group market and part of the reform discussion that we’re having with them and with the broker and agent community is this actually has presented now a legislation to suggest that their costs are going up, and so, it’s extremely important to them and I think they are concerned, a number of them are quite active both through our channels of communication as well as through their own.
Ken, do you have anything to add in terms of small group market?
Ken R. Goulet
I would just reiterate what Angela said, I think our clients are becoming more and more aware of the potential impact of reform are seeking information and recognize the impact it may have on them going forward; so there are more information sharing, more correlations amongst the groups and others to discuss it and to talk with their legislatures. I would just say there is a thirst for information.
Doug Simpson - Morgan Stanley
Could you just expand on the comment about unit care exit in Texas and Illinois, can you remind us how much remaining unit care exposure there is or business there is, and it seems like you’re focused on markets where you have a critical mass, just any more color you have on your thoughts about that business going forward?
Angela F. Braly
Let me speak about the decision overall because there are pieces of unit care, we’re not selling the asset, the entity, we run some of our specialty business and our senior business through unit care, so, transfer in Illinois and Texas is about 400,000 commercial and individual members in Illinois and Texas, so we have a significant block that either HealthLink which is our network rental business and some unique accounts that will be retaining, but from our perspective, this is more consistent with our strategic direction and really making sure that we’re really efficient and effective in markets where we’re blue we see the advantage of our scale, we see the advantage of our market depth, and that was a challenge for us in Illinois an Texas and we think its great for these members to be able to transfer to HCSC.
Wayne S. Deveydt
Doug, what I would add is while we’re not disclosing terms of the transaction, this membership did not drive significant operating earnings at all for us, and so what I would do is focus on our core and at the same time it will free up several hundred million of capital that is currently being tied up under that membership base.
Operator
Your next question in queue will come from the line of Joshua Raskin - Barclays Capital.
Joshua Raskin - Barclays Capital
Just a quick followup on the flu; I think in your prepared remarks, Wayne I think you said that flu was not a significant driver in the third quarter, and then I think in answer to one of the questions you said there was a significant uptake in the last couple of weeks; so, just trying to put those together and maybe with the dollar amount impact of excess flu in 3Q and what is the dollar amount expectation for 4Q?
Wayne S. Deveydt
Remember on the second quarter call we had estimated that we had about $20 million or so of flu related cost in the first half of the year; we estimated about $20 million of additional flu related costs for the second half of the year; what I would say is July and August came in very normal, meaning, really wasn’t an outlier; we weren’t being surprised by anything and September early on looked okay, and last week September though in looking at the pharmacy data which you know is we can get a real time first indicator, it really spiked, and with that pharmacy, you typically end up having a doctor visit which we won’t see till October; so, in the quarter itself, it did not have a significant impact, but what I would say is that the $20 million we estimated for the second half of the year we pretty much believe that we have used that in the quarter which is why then we’ve taken up much more cautious view into the fourth quarter and increased medical trend by 9 plus or -50, and again, half of that is we believe is related to flu; whether or not that ultimately pans out remains to be seen, but I wanted you to know that the real spike occurred very late in the quarter but did not have an impact on the quarter itself; it’s the fact that it spiked that concerned us that will continue into the fourth quarter.
Joshua Raskin - Barclays Capital
Okay, so you’re saying that $20 million was just for the last 2 weeks in September and then it sounds like the run rate continues, it’s going to be multiples of that in the fourth quarter?
Wayne S. Deveydt
Some of the $20 million was in July and August, but the vast majority of it was in the last several weeks, and so for that reason is why we’re taking a much more cautious view on the fourth quarter.
Joshua Raskin - Barclays Capital
That makes sense; just on the 400,000 net lives in national accounts, wondering if you could help us understand, I think that excludes BlueCard, but is that a net number, sort of net of expected change in in-group or is that just new sales number?
Ken R. Goulet
The 400,000 plus for national accounts is a net number of net gains minus anticipated losses in first quarter from in-group change or lay-offs in addition to any groups we’ve lost as well; so, it is a net gain. Over the course of the year, it will go down some as we continue to have lay-offs in our large group business.
Operator
Our next question in queue will come from the line of Charles Boorady - Citi.
Charles Boorady - Citi
First, I just want some clarification on the response to a previous question someone asked and then my question is going to be around your characterizing Medicare as a headwin, I wondered if that was just Medicare Advantage of do you continue to believe that improvements in med-sub can offset the decline in Medicare Advantage for next year? So, maybe you can address that one, and I’ll ask for the clarification later.
Brian A. Sassi
As far as the headwins for Medicare Advantage, as you are aware, in addition to the 5% revenue cuts, we had to offset regular trend and that created a $400 million plus headwin for us; we pulled the leverage that we could relative to benefit design changes, increasing cost sharing, and price, but we still had a significant headwin in the $100 million plus range that we were not able to offset, and with respect to med-sub, we’ve made a number of improvements, increased our focus on med-sub, and I think we’ve changed the trajectory that we have but in no way will that offset the MA headwins.
Charles Boorady - Citi
The clarification was on the cost trend going to 9% from 8% or up a 100 bips while the benefit ratio guidance calls for an improvement even excluding the reserve development from that; so, I’m wondering is there an inconsistency there and how you’re guiding for the loss ratio versus what you’re guiding for the cost trend or is there some other offsetting factor like impact of non-health risk businesses on the benefit ratio or pricing or any additional reserve releases that are contemplated?
Wayne S. Deveydt
No, we’re not assuming any additional reserve releases, but even with the releases you’ve seen that our DCPs are up in the quarter; so, whether or not those develop to be positive remains to be seen, but I think we’ve got a strong balance sheet and nothing is assumed there. What I would say the primary difference is the trend is the commercial trend only versus MLR obviously breaks in the continued positive results we expect to see within our consumer business, specifically our Medicaid State Sponsored as well as senior business that continues at this point, and that’s really what is helping to drive down the MLR on a consolidated basis.
Charles Boorady - Citi
You did mention on the senior part the CMS change in part D related to lock-in pricing, was that one of the headwins embedded or is that not a headwin for you next year?
Wayne S. Deveydt
Can you just clarify?
Charles Boorady - Citi
CMS changed the part D in a way that if you had had a captive PBM, it would have allowed you to profit more from that relationship than you will be able to going forward, and I just wondered if that’s something that would be a headwin for you going into next year?
Wayne S. Deveydt
It’s a little bit of a headwin but nothing really significant. What I would say, Charles, though is that to our Blue’s plans that is not a headwin, it would have been to the PBM, and as you know, we expect to close our transaction on our PBM this quarter; so, it ultimately does not become a headwin on the fact that we sold the PBM, had we maintained it, we would have seen a further headwin there.
Operator
Our next question in queue will come from the line of Matthew Borsch - Goldman Sachs.
Matthew Borsch – Goldman Sachs
I’m just wondering how you’re thinking about the proposed industry fee at this point, recognizing that it’s proposed to actually go into effect in two months or so under the current senate finance plan. Are you reflecting some of that in pricing now given that it’s going to be very challenging to add that as a surcharge retroactively?
Can you just talk to your approach there?
Angela Braly
Obviously it’s a concern to us because it would be a headwind for 2010 particularly if it’s imposed. It’s not clear how exactly it would be imposed and how it would be allocated, and a lot of our pricing for 2010 is already out the doors, so we wouldn’t be able to price for it completely.
We do have pricing flexibility as you know in terms of the fully insured book, in terms of how it’s spread over the quarters, so we’d have some opportunities to do that, and it’s unclear in terms of what parameters there might be around our ability to pass it on as a straight fee or line item, so to speak. So there’s more to come there, but we do see it as a potential headwind.
Matthew Borsch – Goldman Sachs
Just to relate it to health reform as a followup, can you give us a size of the portion of your commercial book that is individual small group, small group being however you want to define it, but I guess for reform purposes it’s 50 or fewer employees?
Angela Braly
In terms of the micro group market, there’s this conversation about individual and small group potentially being 50 plus. We have about 2.2 million individual members and closer to 2.6 million in the 50 and below small group market.
Operator
Your next question comes from the line of Scott Fidel – Deutsche Bank Securities.
Scott Fidel – Deutsche Bank Securities
Can you talk about whether you’re seeing any traction in Washington with the analysis that you put out last week just showing how the impact on commercial membership would be on premiums and clearly not a lot of coverage of that initially, but are you seeing some traction with policymakers on that report?
Angela Braly
I think we are. We think it’s really a statement of what was pretty obvious to us, but it was important that we share that with our legislators.
They had really asked us for it, and we’ve been using it as a proxy before we had specificity around the legislation and our experience in the various states so we could compare, for example, what the premiums might be in Indiana versus what they are in New York or Maine, and that was a proxy, but given that we had more clarity, we thought it was important to really do the analysis, and we’re sharing that and I do think people are understanding that it addresses many of the questions they had. We cover all the bases.
We cover the impact of what it means to have everybody in the risk pool or not, what it means to bring people up to a minimum benefit level, so even in states like New York, there are changes because you bring people up off of hospital-only products or really benefit levels that wouldn’t achieve the requirements that are being discussed now. So I would say yes I believe that people are really understanding the issues there, and what it really highlights is that we’re not addressing yet in this legislation the underlying drivers of healthcare costs, and we’re adding on taxes and fees to those who are already insured.
So I would say, yes, that we’re going to continue to have those discussions and we’ve been having those discussions, but I think this is important data. It’s available on our website, so we encourage people to go see it.
Scott Fidel – Deutsche Bank Securities
I have a followup; have you seen any incremental change in the third quarter relative to the second quarter due to the claims intensity issue relative to the up-coding and changing of provider billing practices? Any improvement in that?
Is that getting worse in the third quarter relative to the first half?
Wayne S. Deveydt
I would say it’s not getting worse. There’s actually probably some slight improvement because, again, what we’re really seeing as the drivers right now is pretty much related to the flu and COBRA, so I’d say the underlying is actually improving slightly, and I think it’s a combination of medical management procedures we’ve put forward really as well as just a little more stabilization in the rate at which individuals are losing their jobs.
Again, as people become unemployed, there is always a run on healthcare, but we’re seeing that tail off as unemployment is starting to flatten out.
Operator
Your next question comes from the line of Christine Arnold – Cowen and Company.
Christine Arnold – Cowen and Company
I’m really struggling with the underlying MLRs. If we exclude all the positive development here, is it safe to say that the Medicare Advantage MLR and Medicaid improved year over year and commercial deteriorated, or did they all improve?
Brian A. Sassi
Christine, that is correct. The consumer segments have improved year over year, and the commercial has actually deteriorated, with the vast majority of the deterioration being related to the COBRA and the H1N1.
Christine Arnold – Cowen and Company
And both Medicaid and Medicare on an underlying basis excluding the positive development improved?
Brian A. Sassi
Yes.
Christine Arnold – Cowen and Company
On SG&A, it sounds like you’re going to be making investments next year. You’re doing restructuring starting this year that will benefit next year.
Would you expect the dollar value of SG&A costs to improve, stay the same, or rise year over year in 2010?
Wayne S. Deveydt
One thing I don’t want to do is get ahead of our board on some of our investments. What I would tell you is that ultimately we’d like to see it at least remain flat.
It’s important to recognize that we’re going to through a process of identifying what might be a G&A investment that ultimately benefits the overall bottomline. A good example would be risk score adjusters where we made major investments this year.
That really includes increasing G&A, but the offsetting benefits of the additional revenue that it generated and the operating earnings improvement were significant. So to the extent that if it were to rise, we’d fully expect to give you some granularity around where we’re making those investments and the returns we expect to achieve.
It’s also important to recognize that we bought DCare this year mid-year, so next year you get a full year G&A run rate impact, if you will, yet at the same time you do have offsetting revenue and margin associated with it. So there are a couple of moving parts, but I think the big picture, Christine, would be you can’t sell a PBM, have some of your membership from Unicare move away, and then at the same time the membership declining in the commercial markets and expect G&A to go up.
Operator
Your next question comes from the line of Carl McDonald – Oppenheimer and Company.
Carl McDonald – Oppenheimer and Company
One thing that you didn’t mention as a potential headwind for 2010 was commercial margin pressure. Could you walk through why you’re comfortable with cost trends rising throughout the year and then the latest 50 basis point increase that you’re going to be able to catch that rising trend with the trend in pricing, particularly given how much of it is already renewed?
Angela Braly
I’ll let Wayne handle that, Carl. One of the things that wouldn’t be in that assumption is if there is a tax that is imposed in the commercial market, it would have the impact of affecting margins.
Wayne S. Deveydt
Carl, it’s a very good question, and I think we all would agree that probably the biggest concern in this industry is that cost trend is rising but you don’t pass it fast enough. It’s one of the reasons that despite our inventories as of the beginning of the first quarter being at historic all-time lows, we’ve continued to accelerate and decline our days work on hand, so we can get visibility as quick as possible.
So our inventories in the quarter are actually down another 1.6% over our all-time lows that we had earlier in the year. That being said, we’ve also taken a more cautious view on what we see in the future, so as we said in the second quarter, we actually thought medical trend was starting to rise and we started pricing for it immediately with that cautious outlook, and I think it’s one of the reasons why in the quarter, if you look, it’s not just release of reserves that improved the results, but you can seen underwriting cash flows incredibly strong for the first nine months of the year.
So I think we’re getting ahead of it faster than others are. I think it’s because we have better visibility, and I think we’re taking a cautious outlook as we said in our medical trend, and we will be pricing with that cautious outlook.
So if we’re right, we’re at least ahead of it. If we’re wrong and it’s not as bad as we thought, then we’re pricing ahead of trend even more than we had expected, but at this point, Carl, I think we’ve done a pretty good job of getting ahead of it, and I think it’s showing in our underlying earnings.
Carl McDonald – Oppenheimer and Company
In terms of the share repurchase with the Express proceeds, have you given any more thought to whether that repurchase is going to be over the course of next year or if it would be something accelerated at the beginning?
Angela Braly
We’re really not in a position to say what the timing of that repurchase would be, and we’ll continue to have that discussion and make that decision as the closing occurs.
Operator
Your next question comes from the line of Anna Gupta – Sanford Bernstein.
Anna Gupta – Sanford Bernstein
For Medicare Advantage, have you been receiving any feedback so far from brokers? I understand that 600,000 seniors have been displaced, are you seeing whether they are switching other brands or are they choosing to move to fee for service or med supp, and the other related question was around group conversion to MA given your strength in the employee market.
Brian A. Sassi
It’s still very early on in the selling season, but I can tell you that early returns in terms of leads from our ongoing marketing programs are positive. Our leads are coming in much more favorable than our sales plan, so I think that’s good news.
It’s too soon to tell what’s happening with plan switches because really there is no visibility into that, and could you repeat the question again relative to group?
Anna Gupta – Sanford Bernstein
On group conversion to MA, employer sponsored in a group business, are you seeing any conversions?
Brian A. Sassi
Yes. The selling season for group conversion kind of mirrors that of the large case market, and since we’re just back in the market beginning September, we did miss a portion of that.
We have seen some recent activity, and we have landed a very state account that will be effective January 1, 2010, and we’re still seeing some other activity on both the MA and the standalone part D there.
Anna Gupta – Sanford Bernstein
On the Unicare followup, does this in anyway signal a strategy from you to not focus so much on your non-blue business in terms of an organic growth?
Angela Braly
Anna, our strategy has always been focused on growth through acquisitions, potentially with a priority around blue transaction, and this transaction with respect to Unicare does not charge our ability to do a non-blue transaction, but it’s a strategy for us to focus on the strengths that we have to become more efficient and effective, and so I think it will create more opportunity for us to be successful, probably in a post-reform environment around doing potentially more blue transactions.
Operator
The next question comes from the line of Tom Carroll with Stifel Nicolaus.
Tom Carroll – Stifel Nicolaus
Also just to followup on the Unicare changes, I think Illinois and Texas were your largest markets for Unicare, maybe you could confirm that for us, I think about 100,000 each, and then is this an asset that you’ve consider selling at all?
Angela Braly
The asset, Unicare, the entity, we run some of our specialty business through the asset as well as some of our senior business through the asset. Health Link is excluded from this transaction as well as another couple of unique accounts that are excluded.
Actually there was more membership in Illinois to Texas. We’re seeing approximately 400,000 members will transfer pursuant to this transaction time.
Operator
The next question comes from the line of Michael Baker with Raymond James.
Michael Baker – Raymond James
I was wondering if you could update us on where you are with respect to your information systems. It sounds like there is going to be a pickup in activity related to that in the upcoming year, and if you can give us a sense of what kind of procedures you’ve put into place to ensure that you capture claims appropriately.
Angela Braly
Yes. I think that’s a really important process that we have been going through, and we have done a lot of process improvement around our IT stability and our change management around our technology, and we have in fact have had a number of migrations that actually go through quite quietly, but what we done around that is through our organization, and we have an operations counsel that focuses on this as well, done a lot of planning and preparation work for migration activity in 2010, so we do have membership moves that have taken place this year and some that are expected next year, and I think as we refine our expectations for investment, you’ll you see that some of those investments are going to be very focused on technology, and it’s not just around the move for technology, but it’s also investments in enhancing our ability to manage the cost of care.
We think as Wayne was saying we have more visibility than others. I think our actions are quicker, but we really want to continue to enhance our capabilities around healthcare value, creating more value, and being able to prove it.
Wayne was saying we have more visibility than others. I think our actions are quicker, but we really want to continue to enhance our capabilities around healthcare value, creating more value and being able to prove it.
Ken R. Goulet
Mike, one thing I would say to is that as we move to three core platforms, the vast majority of our membership is on those platforms already, over 70%, so if you really think about future migrations, we’re talking about very small membership groups at a time, so when we look at migrations in 2010, we’re looking at systems that will migrate 300,000 members, so the cost of administering and running that system is no less whether you have 300,000 members or 3 million members on it, but nonetheless, it’s not going to have a significant impact as we move the membership, and as Angela said, we have actually done a number of migrations this year with smaller systems without a glitch. I think we’ve got our processes down, and I also wanted to just make sure you and others knew that these are not what I would call major mega migrations of major platforms or major membership.
Angela Braly
And some of our success this year has been enhancing and strengthening the programs that are ultimately the target programs of our system, so we feel good about being ready for future migration activity.
Operator
The next question comes from the line of Peter Costa with FTN Equity Capital Markets.
Peter Costa – FTN Equity Capital Markets
This is a followup to that last question. You’ve talked I think in the past about spending $200 million or so on systems conversion in the next year, and you talked today about the restructuring in the fourth quarter as offsetting that.
Just how do I think about that? Should I expect a charge in the fourth quarter, or should we be expecting just some restructuring to occur in the fourth quarter and that’ll create a savings of about $200 million in next year’s SG&A?
Wayne S. Deveydt
I think you will see a charge in the fourth quarter related to the restructuring with the benefits then going into 2010. Those benefits will be used to cover these investments and further migrations on the systems and to serve as somewhat of an offset to some of these headwinds, as is our intention, so ultimately we do plan to, if you will, fund it through that.
That will result in a charge. Our earnings guidance does not have that charge in there as we’re going through the final steps of that right now.
It also does not have the final gain on sale from the PBM, so I think the charge will obviously be substantially smaller compared to the PBM gain on sale will be, so ultimately those will be net positives to earnings.
Peter Costa – FTN Equity Capital Markets
The impairment of intangible assets this quarter, presumably that was mostly related to Illinois and Texas and not really related to the PBM, is that accurate concerning if you’re talking about a gain for the PBM?
Wayne S. Deveydt
The vast majority of that was actually related to the PBM and the revenue. The way you look at the calculations is to base it on revenue, not necessarily the operating earnings, the way the GAAP accounting rules work.
So it’s the membership associated that was being driven over to the PBM has actually gone away. That actually takes the majority of that writeoff.
Very little of it is related to Unicare. Again, Unicare wasn’t driving much earnings to begin with.
The reason that might seem unusual is that, as Angela mentioned, we use the Unicare trademark/trade name for many things. We use it for our state sponsored, for our senior business, and it was also where we ran our part D membership through, and again when the PBM goes away, all the revenues associated with that will go away and ultimately result in an impairment charge.
Angela Braly
In closing, I would like to emphasize that we are performing well as an organization in a difficult economic environment. We have taken actions to significantly improve results in our consumer segment, and we recognized the economic issues impacting our commercial segment early in the year and have responded quickly and appropriately.
While we remain actively involved in healthcare reform, we are focused on initiatives that will make us a better and a more efficient company so that we can enhance customer and shareholder value in 2010 and over the long term. I want to thank all of you for your interest, your questions, and for participating in our call this morning.