The CareFirst/WellPoint Merger

In November 2001, CareFirst BlueCross BlueShield (CareFirst) signed a definitive agreement to merge with WellPoint Health Networks, Inc. (WellPoint). CareFirst believes conversion to for-profit and subsequent merger with WellPoint - one of the nation's most respected health care companies - will strengthen the company's ability to meet customer needs, slow the rate of future premium increases, and preserve a local "Blues" presence throughout the region for years to come.

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Why WellPoint?

• WellPoint's customer focus -known nationally
  
• Strong financially - continuous growth in market share, networks, revenues and profits
  
• Commitment to Blue brands
  
• Commitment to local decision-making
  
• Strong in senior, individual and small group markets
  
• Strong belief in the broker system
  
• National networks
  
• Track record of successful mergers

Elements of the Agreement

As part of the agreement, CareFirst must convert to a for-profit company. Upon approval of the conversion, WellPoint will pay 1.3 billion to acquire CareFirst. This money would be shared among the three jurisdictions - Delaware, Washington, DC and Maryland - in which CareFirst, affiliated Blues plans are headquartered.

The $1.3 billion will provide the largest per-capita benefit of any not-for-profit conversion yet - and would create an opportunity for elected officials to address unmet health care needs throughout the region.

The agreement requires the approvals of insurance regulators in the three jurisdictions as well as the U.S. Congress. The formal review-and-approval process has just begun and is expected to take at least 18 months.

Importantly, WellPoint believes that health care decisions should be made locally. The agreement maintains local headquarters, makes Maryland the headquarters of WellPoint's new Southeast Region, and calls for CareFirst's President and CEO William Jews to head all Southeast operations.

Why are Blues Plans Converting?

Conversion of Blues plans to for-profit status is not uncommon. In fact, more than 28 million Americans are members of Blues plans that are for-profit - or considering becoming for-profit - organizations.

Blues plans convert for a variety of reasons. Most commonly, Blues plans convert to for-profit status to enable them to compete on equal footing with large for-profit national insurers. To build membership and control premium growth, Blues need access to the same types of financial resources that allow for-profit plans to invest heavily in technology and development of new products.

What the Merger Means…

Understandably, most people want to know what the CareFirst/WellPoint merger really means. We believe the conversion to for-profit status and subsequent merger with WellPoint will produce tangible benefits for the communities we serve, our members and business accounts and health care providers.

For the Community
Communities throughout the CareFirst service area stand to benefit directly from the merger of CareFirst and WellPoint. The $1.3 billion purchase price paid by WellPoint will be used to establish charitable funds in Delaware, Washington, DC and Maryland. These funds can be used to:

• Meet the healthcare needs of the underserved
  
• Expand programs such as Maryland Senior RX Plan that serve seniors and the needy
  
• Support graduate medical education and research

The community will also benefit through the additional $24 million in taxes paid for a for-profit CareFirst. And, CareFirst will continue to be an active, contributing corporate citizen - with more than 6,500 employees living and working in communities throughout the region.

For our Members and Business Accounts
As a for-profit company aligned with WellPoint, CareFirst will be able to achieve economies of scale and other synergies that will enable us to operate more efficiently, reduce administrative costs and slow the rate of premium increases. In addition, as part of one of the nation's most innovative health care companies, CareFirst members and business accounts will benefit through:

• Enhanced products and services, such as customized products offering increased flexibility and choices of deductibles and co-pays. Innovative disease management, pharmacy discount, and alternative medicine programs are among the types of programs that will benefit members.
  
• Investments in technology that will allow us to answer customer calls more quickly and accurately.
  
• Improved on-line capabilities, such as 24-hour, 7-day-a-week enrollment, claims tracking and physician selection.

For Health Care Providers
CareFirst's ability to invest in technology will also produce benefits for physicians and hospitals. Over time and with improved technology CareFirst will be able to:

• Process and pay claims faster
  
• Provide on-line, real time verification and claims status review
  
• Reduce administrative hassles

And, because our affiliated Blues plans in Delaware, Washington, DC and Maryland will maintain their local headquarters and operations, decision-making on health care matters will remain locally based.