EXHIBIT 99
CAUTIONARY STATEMENTS
The statements contained in this Form 10-Q include forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995
(the "PSLRA"). When used in this Form 10-Q and in future filings by the
Company with the Securities and Exchange Commission, in the Company's press
releases, presentations to securities analysts or investors, and in oral
statements made by or with the approval of an executive officer of the
Company, the words or phrases "believes," "anticipates," "intends," "will
likely result," "estimates," "projects" or similar expressions are intended
to identify such forward-looking statements. Any of these forward-looking
statements involve risks and uncertainties that may cause the Company's
actual results to differ materially from the results discussed in the
forward-looking statements.
The following discussion contains certain cautionary statements regarding our
business that investors and others should consider. This discussion is
intended to take advantage of the "safe harbor" provisions of the PSLRA. In
making these cautionary statements, we are not undertaking to address or
update each factor in future filings or communications regarding our business
or results, and are not undertaking to address how any of these factors may
have caused results to differ from discussions or information contained in
previous filings or communications. In addition, any of the matters
discussed below may have affected the Company's past, as well as current,
forward-looking statements about future results. The Company's actual
results in the future may differ materially from those expressed in prior
communications.
HEALTH CARE COSTS. We use a large portion of our revenue to pay the costs of
health care services or supplies delivered to our members. Total health care
costs we incur are affected by the number of individual services rendered and
the cost of each service. Much of our premium revenue is priced before
services are delivered and the related costs are incurred, usually on a
prospective annual basis. Although we try to base the premiums we charge in
part on our estimate of future health care costs over the fixed premium
period, competition, and regulations and other circumstances may limit our
ability to fully base premiums on estimated costs. In addition, many factors
may and often do cause actual health care costs to exceed what was estimated
and reflected in premiums. These factors may include increased use of
services, increased cost of individual services, catastrophes, epidemics, the
introduction of new or costly treatments, general inflation, new mandated
benefits or other regulatory changes, and insured population characteristics.
In addition, the earnings we report for any particular quarter include
estimates of covered services incurred by our enrollees during that period
for claims that have not been received or processed. Because these are
estimates, our earnings may be adjusted later to reflect the actual costs.
Relatively insignificant changes in the medical care ratio, because of the
narrow margins of our health plan business, can create significant changes in
our earnings.
Our medical care ratio has generally increased over the past several fiscal
periods. We are addressing the medical care ratio by altering benefit
designs, recontracting with providers, and aggressively increasing both our
contemporaneous and retrospective claim management activities. Our inability
to implement these changes successfully could lead to further increases in
our medical care ratio.
In addition, our operating results may be affected by the seasonal changes in
the level of health care use during the calendar year. Although there are no
assurances, per member medical costs generally have been higher in the first
half than in the second half of each year.
INDUSTRY FACTORS. The managed care industry receives significant negative
publicity. This publicity has been accompanied by increased legislative
activity, regulation and review of industry practices. These factors may
adversely affect our ability to market our products or services, may require
us to change our products and services, and may increase the regulatory
burdens under which we operate, further increasing the costs of doing
business and adversely affecting profitability.
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COMPETITION. In many of our geographic or product markets, we compete with a
number of other entities, some of which may have certain characteristics or
capabilities that give them a competitive advantage. We believe the barriers
to entry in these markets are not substantial, so the addition of new
competitors can occur relatively easily, and consumers enjoy significant
flexibility in moving to new managed care providers. Certain Company
customers may decide to perform functions or services we provide for
themselves, which would decrease our revenues. Certain Company providers may
decide to market products and services to our customers in competition with
us. In addition, significant merger and acquisition activity has occurred in
the industry in which we operate as well as in industries that act as
suppliers to us, such as the hospital, physician, pharmaceutical and medical
device industries. To the extent that there is strong competition or that
competition intensifies in any market, our ability to retain or increase
customers or providers, or maintain or increase our revenue growth, pricing
flexibility, control over medical cost trends and our marketing expenses may
be adversely affected.
AARP CONTRACT. Under our long-term contract with the American Association of
Retired Persons ("AARP"), we provide Medicare supplemental, hospital
indemnity health insurance and other products to AARP members. As a result
of the agreement, the number of members we serve, products we offer, and
services we provide has grown significantly. Our portion of the AARP's
insurance program represents approximately $3.5 billion in annual net premium
revenue from approximately 4 million AARP members. The success of the AARP
arrangement will depend, in part, on our ability to service these new
members, develop additional products and services, price the products and
services competitively, and respond effectively to federal and state
regulatory changes. Additionally, events that adversely affect the AARP
could have an adverse effect on the success of our arrangement with the AARP.
MEDICARE OPERATIONS. In the second quarter of 1998, we experienced a
significant rise in the medical care ratio for our Medicare operations. The
increase in medical costs was primarily due to the business growth in new
markets with higher and more volatile medical cost trends, coupled with lower
reimbursement rates. In response, we announced in October 1998 our decision
to withdraw Medicare product offerings from 86 of the 206 counties we
currently serve. The decision, effective January 1, 1999, will affect
approximately 60,000, or 13%, of current Medicare members. As a consequence
of this withdrawal, we are precluded from re-entering these counties with
Medicare product offerings until 5 years after the effective date.
We will continue to offer Medicare products in strong and economically viable
markets. However, our ability to improve the financial results of all of our
Medicare operations will depend on a number of factors, including future
premium increases, growth in markets where we have achieved sufficient size
to operate efficiently, benefit design, provider contracting, and other
factors. There can be no assurance that we will be able to successfully
prevent future losses on our Medicare operations.
REALIGNMENT OF OPERATIONS. As previously indicated would be necessary, we
recognized a charge in the second quarter of 1998 to earnings for our
realignment. In January 1998, we initiated a significant realignment of our
operations into six businesses. As part of the realignment, we are shifting
resources and activities to more directly support the operations of our
businesses. Although we do not expect our realignment efforts to negatively
affect our product offerings, provider relations, billing and collection
disciplines, claims processing and payment activities, or other business
functions, there can be no assurance that such negative effects may not
occur. Our second quarter charge to earnings for costs associated with the
realignment was $725 million. Although we believe such charges are adequate,
there can be no assurance that the costs associated with our realignment
efforts will not exceed the charges we have taken for such costs.
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GOVERNMENT PROGRAMS AND REGULATION. Our business is heavily regulated on a
federal, state and local level. The laws and rules governing our business
and interpretations of those laws and rules are subject to frequent change.
Broad latitude is given to the agencies administering those regulations.
Existing or future laws and rules could force us to change how we do
business, restrict revenue and enrollment growth, increase its health care
and administrative costs and capital requirements, and increase our liability
for medical malpractice or other actions. We must obtain and maintain
regulatory approvals to market many of our products. Delays in obtaining or
failure to obtain or maintain these approvals could adversely affect our
revenue or the number of our members, or could increase our costs. A
significant portion of our revenues relate to federal, state and local
government health care coverage programs. These types of programs, such as
the federal Medicare program and the federal and state Medicaid programs,
generally are subject to frequent change, including changes that may reduce
the number of persons enrolled or eligible, reduce the amount of
reimbursement or payment levels, or may reduce or increase our administrative
or health care costs under such programs. Such changes have adversely
affected our results and willingness to participate in such programs in the
past and may also do so in the future.
The Company also is subject to various governmental reviews, audits and
investigations. Such oversight could result in the loss of licensure or the
right to participate in certain programs, or the imposition of fines,
penalties and other sanctions. In addition, disclosure of any adverse
investigation or audit results or sanctions could damage our reputation in
various markets and make it more difficult for us to sell our products and
services. The National Association of Insurance Commissioners (the "NAIC")
is expected to adopt rules which, if implemented by the states, will require
certain capitalization levels for health care coverage provided by insurance
companies, HMOs and other risk bearing health care entities. The
requirements would take the form of risk-based capital rules. Currently,
similar risk-based capital rules apply generally to insurance companies.
Depending on the nature and extent of the new minimum capitalization
requirements ultimately implemented, there could be an increase in the
capital required for certain of our subsidiaries and there may be some
potential for disparate treatment of competing products. Federal solvency
regulation of companies providing Medicare-related benefit programs may also
be applied.
PROVIDER RELATIONS. One of the significant techniques we use to manage
health care costs and utilization and monitor the quality of care being
delivered is contracting with physicians, hospitals and other providers.
Because our health plans are geographically diverse and most of those health
plans contract with a large number of providers, we currently believe our
exposure to provider relations issues is limited. In any particular market,
however, providers could refuse to contract, demand higher payments, or take
other actions that could result in higher health care costs, less desirable
products for customer and members, or difficulty meeting regulatory or
accreditation requirements. In some markets, certain providers, particularly
hospitals, physician/hospital organizations or multi-specialty physician
groups, may have significant market positions or near monopolies. In
addition, physician or practice management companies, which aggregate
physician practices for administrative efficiency and marketing leverage,
continue to expand. These providers may compete directly with us. If these
providers refuse to contract with us, use their market position to negotiate
favorable contracts, or place us at a competitive disadvantage those
activities could adversely affect our ability to market products or to be
profitable in those areas.
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LITIGATION AND INSURANCE. We may be a party to a variety of legal actions
that affect any business, such as employment and employment
discrimination-related suits, employee benefit claims, breach of contract
actions, tort claims, shareholder suits, including securities fraud, and
intellectual property related litigation. In addition, because of the nature
of our business, we are subject to a variety of legal actions relating to our
business operations. These could include: claims relating to the denial of
health care benefits; medical malpractice actions; provider disputes over
compensation and termination of provider contracts; disputes related to
self-funded business, including actions alleging claim administration errors
and the failure to disclose network rate discounts and other fee and rebate
arrangements; disputes over copayment calculations; and claims relating to
customer audits and contract performance. Recent court decisions and
legislative activity may increase our exposure for any of these types of
claims. In some cases, substantial non-economic or punitive damages may be
sought. We currently have insurance coverage for some of these potential
liabilities. Other potential liabilities may not be covered by insurance,
insurers may dispute coverage, or the amount of insurance may not be enough
to cover the damages awarded. In addition, certain types of damages, such as
punitive damages, may not be covered by insurance and insurance coverage for
all or certain forms of liability may become unavailable or prohibitively
expensive in the future.
INFORMATION SYSTEMS. Our business depends significantly on effective
information systems, and we have many different information systems for its
various businesses. Our information systems require an ongoing commitment of
resources to maintain and enhance existing systems and develop new systems in
order to keep pace with continuing changes in information processing
technology, evolving industry standards, and changing customer preferences.
In addition, we may from time to time obtain significant portions of our
systems-related or other services or facilities from independent third
parties, which may make our operations vulnerable to such third parties'
failure to perform adequately. As a result of our acquisition activities, we
have acquired additional systems and have been taking steps to reduce the
number of systems and have upgraded and expanded our information systems
capabilities. Failure to maintain effective and efficient information
systems could cause loss of existing customers, difficulty in attracting new
customers, customer and provider disputes, regulatory problems, increases in
administrative expenses or other adverse consequences.
THE YEAR 2000. We are in the process of modifying our computer systems to
accommodate the Year 2000. We currently expect to complete this modification
enough in advance of the Year 2000 to avoid adverse impacts on our
operations. We are expensing the costs incurred to make these modifications.
Our operations could be adversely affected if we were unable to complete our
Year 2000 modifications in a timely manner or if other companies with which
we do business fail to complete their Year 2000 modifications in a timely
manner.
ADMINISTRATIVE AND MANAGEMENT. Efficient and cost-effective administration
of our operations is essential to our profitability and competitive
positioning. While we attempt to effectively manage such expenses,
staff-related and other administrative expenses may rise from time to time
due to business or product start-ups or expansions, growth or changes in
business, acquisitions, regulatory requirements or other reasons. These
expense increases are not clearly predictable and may adversely affect
results. We believe we currently have an experienced, capable management and
technical staff. The market for management and technical personnel,
including information systems professionals, in the health care industry is
very competitive. Loss of certain managers or a number of such managers or
technical staff could adversely affect our ability to administer and manage
our business.
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MARKETING. We market our products and services through both employed sales
people and independent sales agents. Although we have many sales employees
and agents, the departure of certain key sales employees or agents or a large
subset of such individuals could impair our ability to retain existing
customers and members. In addition, certain of our customers or potential
customers consider rating, accreditation or certification of the Company by
various private or governmental bodies or rating agencies necessary or
important. Certain of our health plans or other business units may not have
obtained or maintained, or may not desire or be able to obtain or maintain,
such rating accreditation or certification, which could adversely affect our
ability to obtain or retain business with these customers.
ACQUISITIONS AND DISPOSITIONS. The Company has made several large
acquisitions in recent years and has an active ongoing acquisition and
disposition program under which it may engage in transactions involving the
acquisition or disposition of assets, products or businesses, some or all of
which may be material. These acquisitions may entail certain risks and
uncertainties and may affect ongoing business operations because of unknown
liabilities, unforeseen administrative needs or increased efforts to
integrate the acquired operations. Failure to identify liabilities,
anticipate additional administrative needs or effectively integrate acquired
operations could result in reduced revenues, increased administrative and
other costs, or customer confusion or dissatisfaction.
DATA AND PROPRIETARY INFORMATION. Many of the products that are part of our
knowledge and information-related business depend significantly on the
integrity of the data on which they are based. If the information contained
in our databases were found or perceived to be inaccurate, or if such
information were generally perceived to be unreliable, commercial acceptance
of our database-related products would be adversely and materially affected.
Furthermore, the use by our knowledge and information-related business of
patient data is regulated at federal, state, and local levels. These laws
and rules are changed frequently by legislation or administrative
interpretation. These restrictions could adversely affect revenues from
these products and, more generally, affect our business, financial condition
and results of operations.
The success of our knowledge and information-related business also depends
significantly on our ability to maintain proprietary rights to our products.
We rely on our agreements with customers, confidentiality agreements with
employees, and our trade secrets, copyrights and patents to protect our
proprietary rights. We cannot assure that these legal protections and
precautions will prevent misappropriation of our proprietary information. In
addition, substantial litigation regarding intellectual property rights
exists in the software industry, and we expect software products to be
increasingly subject to third-party infringement claims as the number of
products and competitors in this industry segment grows. Such litigation
could have an adverse affect on the ability of our knowledge and
information-related business to market and sell its products and on our
business, financial condition and results of operations.
STOCK MARKET. The market prices of the securities of the Company and certain
of the publicly-held companies in the industry in which we operate have shown
volatility and sensitivity in response to many factors, including general
market trends, public communications regarding managed care, legislative or
regulatory actions health care cost trends, pricing trends, competition,
earnings or membership reports of particular industry participants, and
acquisition activity. We cannot assure the level or stability of our share
price at any time, or the impact of the foregoing or any other factors may
have on our share price.
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