Sugar Coating

From Joe San Filippo
President & COO
Nationwide Health Plans


In California yesterday, we announced plans for the consolidation and reduction of several functions within Nationwide Health Plans. These changes are necessary to address the financial challenges we are facing due to losses in our health business. Last month in my associate newsletter, I noted some of these challenges:
We experienced losses last year on the Farm Bureau plans in both Ohio and California, causing us to take significant rating actions in both states. Rate increases and numerous plan design changes will continue in 2006 in an effort to return to profitability.
The California small group business grew much faster than anticipated and began to generate substantial losses, which have increased to more than $1 million a month. These losses need to be addressed at this time to ensure the survival of our company.

The key elements of our plan include reducing the overhead expenses associated with administering the Farm Bureau health insurance plans in both Ohio and California and reducing our exposure in the California small group health brands by 40 percent.

Our plan impacts the following departments and functions:
Sales/Marketing - reorganized department (this reorganization was announced and implemented earlier this year).
Medical Management - reduced services and staff in Ohio (already complete).
Call Center & Operations - consolidating call center operations and claims processing from California to Ohio.
Provider Maintenance - consolidating provider maintenance in Ohio.
Finance- realigning audit anti-fraud and accounting support.
Rate Increases - enforcing significant rate increases and eliminating commissions on self-funded accounts.
Product Portfolio - refocusing our product portfolio within our health business by discontinuing some of the products (e.g. richer benefit plans and employer groups larger than 100 lives) that do not line up with the strategy of focusing on small employers and products to support high-deductible health plans.

These changes affect approximately 16 percent of our associates and, while difficult, are necessary steps for us to take in improving our overall profitability. Job eliminations are an unfortunate consequence of a challenging market environment. All associates who are impacted by this plan will be eligible to receive severance and benefits packages.

This plan helps us focus on our new strategic direction as a national provider of solutions focused on reducing health insurance and workers’ compensation costs for individuals and employers within the following areas:
Small Commercial Strategy – assist employers with solutions to reduce health care costs.
Worksite Offerings – incorporate our company’s special risks insurance products into the health and productivity business model.
MCO and State Fund – increase our market share, based on the number of employers signed up during the open enrollment period.
Consumer Directed Health Plans – continued support around our Farm Bureau relationships.

I encourage you to meet with your manager and human resources representative on how this plan affects you personally. We will continue to share details with you about our new strategic direction.