Dale Wolf CEO and President of Coventry, gave a 20+ minute overview of the company's results for 2005 and plans for 2006 at an investor conference last week in San Francisco. The entire call can be heard until mid April 2006.

Wolf was notably proud of the results Coventry has delivered and the disciplined culture that in his view has been key to the company's success. He noted that Coventry is now established as a national player - with local health plans in central and south Atlantic and central Midwestern states, the rest of the states are PPO via First Health. In total there are 17 plans in 20 states, 2.5 million members, and these plans derive 75% of revenues from commercial, rest from Medicare and Medicaid. Wolf made one brief mention of Coventry's Consumer Directed Health Plans…(this may have been due to the brief nature of the session; however there was a lot more discussion of CDHPs in the May investor call...)

In 2006 they are expanding on the health plan businesses and FH acquisitions that give them a national footprint with 15% growth projected in EPS. Total revenue increase of 19% in 2006, membership growth 1-3%, revenues to $7.8 billion.

Health Plans
Coventry's competitors are Blues, United in most markets and Aetna in fewer markets. Performance has been outstanding for a number of years due to Coventry's strategy based on "low cost wins"; Coventry is not looking to win based on strategy or service differentiation but rather on low cost. In health plans that means both admin and medical costs.

Wolf's slides showed a Medical Loss Ratio for 2005 at 79.7%, due to 8-9.5% medical trend that has been consistent at Coventry for many years.

Admin expense pmpm is the industry's lowest; 11% YTD first 3 Q of 2005. The "low cost wins" mantra and premium growth drives a solid operating margin of 10.6%, which Wolf characterized as "industry leading".

Medicaid
Unlike other Medicaid plans, Coventry's offerings are primarily administrative, providing support to state Medicaid agencies that need a vendor to administer part or all of the program. Coventry sees this business as very sound; they are the largest seller of PBM services to Medicaid with 50% of states. Competitors are EDS and ACS.

First Health group health business
FEHPB revenue and growth will be flat - in the FEHBP Coventry has the number 2 market share in indemnity program - this is the Mailhandlers plan.
PPO - Compete w Multiplan and PHCS etc to rent networks to large employers and TPAs etc nationally, expect to see 30% growth overall in this sector.

Sees corporate accounts as dropping 27% to to $115 million, network issues are driving some of those problems and they are working to get these issues resolved.

Part D
Wolf is expecting membership of 700k excluding Medicare Advantage from auto assignment of dual eligibles. They are expecting to see more growth from voluntary purchasers (as opposed to those automatically enrolled) through agency sales through medicare supplement insurance companies.

Coventry will continue to do acquisitions as cash is strong, they have lots of experience and expertise in integrating acquisitions. Part D will add a lot of revenue as well as Medicare Advantage, but they will be careful to not get overweighted in either Medicare or Medicaid.

What's the net?

Coventry's health plans are doing well, in part by raising prices and also by keeping costs as low as possible. Part D will be a major revenue driver in 2006; Coventry will continue to focus on small and mid-sized commercial accounts and likely avoid the national accounts business.