Effective as of January 1, 1996, the Company entered into a lease for Blue Cross of California's headquarters facility in Woodland Hills, California, which provides for a term expiring in December 2019 with two options to extend the term for up to two additional five-year terms. In 1997, the Company entered into a lease, which expires in December 2019, for a new facility located in Thousand Oaks, California housing certain corporate and specialty services. This facility was completed in January 1999. The Company and its subsidiaries have additional offices in the greater Los Angeles and Ventura County area. As a result of the Company's national expansion efforts, the Company leases or owns offices in various other locations, including Atlanta and Columbus, Georgia; St. Louis, Missouri; Springfield, Charlestown and Andover, Massachusetts; the greater Chicago, Illinois area; Dearborn, Michigan; Houston and Plano, Texas; and Milwaukee, Wisconsin. As a result of the PrecisionRx acquisition, the Company owns an approximately 79,000 square foot mail-order pharmacy distribution facility in the greater Fort Worth, Texas area.
The Company is one of the nation's largest publicly traded managed health care companies. As of December 31, 2003, WellPoint had approximately 15.0 million medical members (including approximately 1.0 million BlueCard "host" members) and approximately 45.6 million specialty members. Through its subsidiaries, the Company offers a broad spectrum of network-based managed care plans to the large and small employer, individual, Medicaid and senior markets. The Company's managed care plans include PPOs, HMOs, POS plans, other hybrid plans and traditional indemnity plans. In addition, the Company offers managed care services, including underwriting, actuarial services, network access, medical management and claims processing. The Company also provides a broad array of specialty and other products and services, including pharmacy benefits management, dental, vision, life insurance, preventive care, disability insurance, behavioral health, COBRA and flexible benefits account administration. With its recent acquisition of Cobalt Corporation ("Cobalt"), the Company now also offers workers' compensation insurance products and is currently the largest Medicare Part A fiscal intermediary in the nation, processing claims for providers in all 50 states. The Company markets its products in California primarily under the name Blue Cross of California, in Georgia primarily under the name Blue Cross Blue Shield of Georgia, in various parts of Missouri (including the greater St. Louis area) primarily under the name Blue Cross Blue Shield of Missouri, in Wisconsin primarily under the names Blue Cross Blue Shield of Wisconsin and CompcareBlue and in various parts of the country under the names UNICARE and HealthLink.
On September 24, 2003, the Company completed its acquisition of Cobalt (see Note 3 to the Consolidated Financial Statements). At closing, the acquisition was valued at approximately $884.9 million, which was paid with $439.6 million in cash and approximately 7.3 million shares of WellPoint Common Stock, of which approximately 2.1 million shares were issued to affiliates of WellPoint. As of September 30, 2003, Cobalt served approximately 675,000 medical members and
On January 31, 2002, the Company completed its acquisition of RightCHOICE (see Note 3 to the Consolidated Financial Statements). At closing, the acquisition was valued at approximately $1.5 billion, which was paid with $379.1 million in cash and approximately 16.5 million shares of WellPoint Common Stock. As of January 31, 2002, RightCHOICE served approximately 2.2 million medical members in Missouri, Arkansas, Illinois, Indiana, Iowa, Kentucky and West Virginia. RightCHOICE, through its HealthLink subsidiary, also provides network rental, administrative services, workers' compensation managed care services and other non-underwritten health benefit programs.
In an effort to pursue the expansion of the Company's business outside the state of California, the Company acquired two businesses in 1996 and 1997, the Life and Health Benefits Management Division of Massachusetts Mutual Life Insurance Company and the Group Benefits Operations (the "GBO") of John Hancock Mutual Life Insurance Company. The acquisitions of Rush Prudential Health Plans and a mail-order pharmacy, which now does business as PrecisionRx, in 2000, the acquisition of Cerulean Companies, Inc. in 2001, the acquisitions of RightCHOICE and MethodistCare in 2002 and the acquisition of Cobalt in 2003 were also components of this expansion strategy.
taken or implemented in the future will be successful in addressing any concerns that may arise with respect to the performance of certain businesses.
The Company's consolidated results of operations for the year ended December 31, 2003 include its acquired operations of RightCHOICE for the entire year, while operating results for the year ended December 31, 2002 include the results of RightCHOICE from January 31, 2002, the date of acquisition. On September 24, 2003, the Company completed its acquisition of Cobalt. The Cobalt merger was effective as of September 30, 2003 for accounting purposes. Accordingly, the Company's consolidated results of operations for the year ended December 31, 2003 include the results of Cobalt from September 30, 2003.
The following table sets forth selected operating ratios. The medical care ratio for health care services and other benefits is shown as a percentage of premium revenue. All other ratios are shown as a percentage of premium revenue and management services and other revenue combined.
(a)Membership numbers are approximate and include some estimates based upon the number of contracts at the relevant date and an actuarial estimate of the number of members represented by the contract.
(f)Membership numbers as of December 31, 2002 have been reclassified to reflect the zip code of the subscriber of HealthLink's commercial insurer accounts. These members were previously included in the commercial insurers' state of domicile. As of December 31, 2002, Missouri and Illinois members would have been higher by 111,239 and 23,246, respectively, while California, Georgia, Texas and Other States would have been lower by 1,450, 420, 8,728 and 123,887, respectively.
Membership data as of December 31, 2002 shown in the table have not been revised to reflect this change in methodology.
(i)ASO Membership represents members for which the Company provides administrative services only and does not assume full insurance risk.
(j)Medi-Cal (the California Medicaid program) membership is included in California-Large Group. Medicaid membership for Virginia, Puerto Rico and Other are included in Other States-Large Group. Healthy Families, MRMIP (Major Risk Medical Insurance Program) /AIM (Access for Infants and Mothers) / IHRP (Interim High Risk Program) and California Kids membership is included in California-Large Group. Specialty Membership
(A)Specialty membership as of December 31, 2003 included 712,861 specialty members from the Cobalt acquisition. Comparison of Results for the Year Ended December 31, 2003 to the Year Ended December 31, 2002
Premium revenue increased 18.2%, or $2,950.5 million, to $19,156.7 million for the year ended December 31, 2003 from $16,206.2 million for the year ended December 31, 2002. Excluding premium revenue attributable to the acquired RightCHOICE business of $110.1 million for the month of January 2003 and premium revenue attributable to the acquired Cobalt business of $358.5 million for the quarter ended December 31, 2003, premium revenue increased $2,481.9 million or 15.3% on a Same-Store basis. Excluding insured member months attributable to the acquired Cobalt business for the quarter ended December 31, 2003 and the acquired RightCHOICE business for the month of January 2003, insured member months increased approximately 4.9% for the year ended December 31, 2003 compared to the year ended December 31, 2002. This growth in premium revenue occurred across all regions of the Health Care segment, but was more pronounced in the California and Georgia regions due mainly to an increase in insured member months and the implementation of premium increases.
management services revenue from the California and Georgia regions of $54.0 million and $31.0 million, respectively. The increase in the California region resulted from an increase in administrative services member months of 12.9% and an increase of 12.8% in the administrative services per member per month rate. The increase in the Georgia region resulted primarily from a 10.7% increase in the administrative services per member per month rate. These increases were partially offset by a decrease in the Central Region of $28.8 million on a Same-Store basis, which resulted primarily from a decrease in administrative services member months of 14.6%; partially offset by an increase in per member per month rates of 5.4%.
Investment income consists of gross investment income, net of investment expenses and net realized investment gains or losses. Investment income was $258.2 million for the year ended December 31, 2003, compared to $314.0 million for the year ended December 31, 2002, a decrease of $55.8 million or 17.8%. The decrease was primarily due to net realized gains for the year ended December 31, 2003 of $12.0 million as compared to net realized gains for the year ended December 31, 2002 of $55.4 million. Net realized gains for the year ended December 31, 2002 included a pre-tax investment gain of $64.9 million from the Company's investment in Trigon Healthcare, Inc. Excluding net realized gains and losses, investment income for the year ended December 31, 2003 and 2002 was $246.2 million and $258.6 million, respectively. The $12.4 million decline was due to lower investment yields on higher average fixed maturity investment balances and an increase in tax-exempt bond holdings. The Company believes the disclosure of investment income excluding realized gains or losses is useful to investors because this measurement allows management and investors to analyze the performance of the fixed-income portion of the Company's investment portfolio.
The following table depicts health care services and other benefits by reportable segment:
Health care services and other benefits increased 16.8%, or $2,217.7 million, to $15,428.8 million for the year ended December 31, 2003 from $13,211.1 million for the year ended December 31, 2002. Excluding health care services and other benefits attributable to the acquired RightCHOICE business of $86.1 million for the month of January 2003 and acquired Cobalt business of $299.0 million for the quarter ended December 31, 2003, health care services and other benefits increased $1,832.6 million or 13.9%, on a Same-Store basis, as compared to the increase in premium revenue of 15.3%.
The Company's medical care ratio was 80.5% for the year ended December 31, 2003 compared to 81.5% for the year ended December 31, 2002. The medical care ratio attributable to the Health Care segment was 81.1% for the year ended December 31, 2003, compared to 81.9% for the year ended December 31, 2002. The medical care ratio attributable to the Specialty segment was 62.3% for the year ended December 31, 2003 compared to 68.4% for the year ended December 31, 2002. Health care services and other benefits expense and medical care ratio information is provided for each segment so investors can compare the performance of each segment to the other segment and to the Company as a whole. With respect to the Health Care segment, excluding premium revenue of $109.4 million and health care services and other benefits expense of $85.7 million attributable to the acquired RightCHOICE business for the month of January 2003 and excluding premium revenue of $318.7 million and health care services and other benefits expense of $270.4 million attributable to the acquired Cobalt business for the quarter ended December 31, 2003, the Company's medical care ratio
attributable to the Health Care segment for the year ended December 31, 2003 was 81.1% as compared to 81.9% for the year ended December 31, 2002. This decrease in the medical care ratio is attributable to the implementation of premium increases during the year ended December 31, 2003. The health care services and other benefits expense includes an estimate of claims incurred during the period that have not been reported to the Company. This estimate is actuarially determined based on a variety of factors and is inherently subject to a number of highly variable circumstances. Consequently, the actual results could differ materially from the amount recorded in the consolidated financial statements. See "Critical Accounting Policies" for a discussion of this item and its potential effect on the Company's reported results of operations.
The general and administrative expense ratio decreased to 12.3%, based on general and administrative expenses of $2,477.7 million for the year ended December 31, 2003 from 12.7%, based on general and administrative expenses of $2,166.7 million for the year ended December 31, 2002. Excluding general and administrative expense of $75.6 million and combined premium revenue and management services and other revenue of $406.1 million attributable to the acquired Cobalt business for the quarter ended December 31, 2003 and general and administrative expense of $19.5 million and combined premium revenue and management services and other revenue of $123.5 million attributable to the acquired RightCHOICE business for the month of January 2003, the Company's general and administrative expense ratio was 12.2% for the year ended December 31, 2003 compared to 12.7% for the year ended December 31, 2002. The decrease in the general and administrative expense ratio resulted from administrative efficiencies from technology investments and systems convergence efforts and fixed administrative costs spread over a larger membership base.
The selling expense ratio for the year ended December 31, 2002 decreased to 4.0%, compared to 4.1% for the year ended December 31, 2001. The acquired Cerulean business experienced a lower selling expense ratio due primarily to its lower percentage of individual and small employer group business. The acquired RightCHOICE business also experienced a slightly lower selling expense ratio than the Company's core businesses. Excluding selling expense attributable to the acquired RightCHOICE business of $52.0 million and combined premium revenue and management services and other revenue of $1,295.7 million for the eleven months ended December 31, 2002 and selling expense attributable to the acquired Cerulean business of $16.3 million and combined premium revenue and management services and other revenue of $576.4 million from January 1, 2002 to March 15, 2002, the selling expense ratio remained unchanged at 4.0% and 4.1% for the years ended December 31, 2002 and 2001, respectively.
Other expense, net decreased $19.6 million to $55.1 million for the year ended December 31, 2002, compared to $74.7 million for the year ended December 31, 2001. The decrease resulted from lower amortization of goodwill and other intangible assets due to the implementation of Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"), which accounted for $41.3 million of the decrease in amortization expense, an increase in income from the Company's share of its investments in joint ventures of $4.4 million and a decrease in minority interest expense of $3.9 million related to an equity interest in the Atlanta CHPN. (See "Item 1. Business-Managed Health Care Networks and Provider Relations-Blue Cross Blue Shield of Georgia.") These decreases were partially offset by the following items: (i) an increase in amortization
of intangible assets with definite useful lives of $16.2 million, primarily due to recent acquisitions, (ii) an increase in losses on the disposition of fixed assets of $5.7 million and (iii) an increase in net operating expenses of $7.9 million from an insurance general agency subsidiary owned by the Company.
Earnings per share including the extraordinary gain totaled $4.87 for the year ended December 31, 2002 and $3.27 for the year ended December 31, 2001. Earnings per share assuming full dilution including the extraordinary gain totaled $4.67 for the year ended December 31, 2002 and $3.15 for the year ended December 31, 2001.
Earnings per share for the year ended December 31, 2002 is based upon weighted average shares outstanding of 144.2 million shares, excluding potential Common Stock, and 150.9 million shares, assuming full dilution. Earnings per share for the year ended December 31, 2001 is based on 126.9 million shares, excluding potential Common Stock, and 132.4 million shares, assuming full dilution. The increase in weighted average shares outstanding primarily resulted from the issuance of shares related to the RightCHOICE acquisition and the Company's stock option and stock purchase plans.
The Company's consolidated assets increased by $3,318.1 million, or 28.9%, to $14,788.7 million as of December 31, 2003 from $11,470.6 million as of December 31, 2002. The increase in total assets was partially attributable to the acquisition of Cobalt, which accounted for $1,301.9 million, or 39.2%, of the increase. The total acquired assets of Cobalt of $1,301.9 million were reduced by acquisition-related adjustments of $341.1 million, primarily related to cash paid to holders of Cobalt common stock of $427.5 million offset by debt incurred to finance the acquisition of $125.1 million. Excluding Cobalt, the increase in total assets was primarily due to growth in cash and investments of $1,913.9 million as a result of operating cash flows attributable to net income and an increase in advances on security lending deposits. The remaining increase in total assets, excluding Cobalt, was driven by an increase in property and equipment, prepaid assets and other non-current assets. Cash and investments totaled $8.8 billion as of December 31, 2003, or 59.7% of total assets.
Overall claims liabilities, which is composed of medical claims payable and reserves for future policy benefits, increased $458.8 million, or 17.0%, to $3,164.4 million as of December 31, 2003 from $2,705.6 million as of December 31, 2002. This increase was due to claim liabilities associated with the Cobalt acquisition of $294.8 million and an increase in the claims liabilities associated with the Company's core businesses of $164.0 million, primarily resulting from a Same-Store increase in insured
Net cash used in investing activities for the year ended December 31, 2003 totaled $2,235.9 million, compared with $1,306.5 million for the year ended December 31, 2002. The net cash used in investing activities during the year ended December 31, 2003 was primarily attributable to the purchase of investments of $10.7 billion, the acquisition of new businesses, primarily Cobalt and Golden West, net of cash acquired, of $425.7 million, and the purchase of property and equipment, net of sales proceeds, of $146.7 million, which were partially offset by proceeds from investments sold and matured of $9.0 billion.
In April 2002, the Company commenced a commercial paper program providing for the issuance of up to $1.0 billion in aggregate maturity value of short-term indebtedness (known generally as "commercial paper"). The commercial paper is being issued by the Company without registration under the Securities Act of 1933, as amended (the "1933 Act") in reliance upon the exemption from registration contained in Section 4(2) of the 1933 Act. The commercial paper is issued in denominations of $100,000 or integral multiples of $1,000 in excess thereof and will bear such interest rates, if interest-bearing, or will be sold at such discount from their face amounts, as agreed upon by the Company and the dealer or dealers acting in connection with the commercial paper program. The commercial paper may be issued with varying maturities up to a maximum of 270 days from the date of issuance. The commercial paper ranks equally with all other unsecured and unsubordinated indebtedness of the Company. As of December 31, 2003 and December 31, 2002, the outstanding commercial paper borrowings totaled $429.8 million and $199.8 million, respectively, with various maturity dates and had interest rates ranging from 1.10% to 1.27% as of December 31, 2003 and interest rates ranging from 1.60% to 1.65% as of December 31, 2002. The weighted average yield on the outstanding commercial paper as of December 31, 2003 and December 31, 2002 was 1.25% and 1.62%, respectively. The Company intends to maintain commercial paper borrowings of at least the amount outstanding at December 31, 2003 for more than one year. Accordingly, for financial reporting purposes, the commercial paper has been classified under non-current liabilities in the Consolidated Balance Sheets. Under the Company's merger agreement with Anthem, Inc., however, the Company has agreed to repurchase, prior to the closing of the merger with Anthem, any outstanding commercial paper issued by the Company or any of its subsidiaries.
The 2012 Notes may be redeemed, in whole or in part, at the Company's option at any time. The redemption price for any 2012 Notes redeemed will be equal to the greater of the following amounts: 1) 100% of the principal amount of the 2012 Notes being redeemed on the redemption date; and 2) the sum of the present values of the remaining scheduled payments of principal and interest on the 2012 Notes being redeemed on that redemption date (not including any portion of any payments of interest accrued to the redemption date) discounted to the redemption date on a semi-annual basis at the Treasury rate as determined by the Reference Treasury Dealer (J.P. Morgan Securities Inc. or Deutsche Banc Alex Brown or their respective successors), plus 25 basis points. In each case, the redemption price will also include accrued and unpaid interest on the 2012 Notes to the redemption date.
On June 15, 2001, the Company issued $450.0 million aggregate principal amount at maturity of 63/8% Notes due June 15, 2006 (the "2006 Notes"). The net proceeds of this offering totaled approximately $449.0 million. The net proceeds from the sale of the 2006 Notes were used to repay indebtedness under the Company's revolving credit facilities. The 2006 Notes bear interest at a rate of 63/8% per annum, payable semi-annually in arrears on June 15 and December 15 of each year commencing December 15, 2001. Interest is computed on the basis of a 360-day year of twelve 30-day months.
In order to reduce the interest expense associated with the 2006 Notes, the Company, on January 15, 2002, entered into a $200.0 million notional amount interest rate swap agreement, which matures on June 15, 2006. The swap agreement is a contract to exchange a fixed 63/8% rate for a LIBOR-based floating rate (weighted average variable rate of 2.46% and 3.02% for the years ended December 31, 2003 and 2002, respectively).
Certain of the Company's subsidiaries are required to maintain minimum capital requirements prescribed by various regulatory agencies, including the California Department of Managed Health Care and the Departments of Insurance in various states, including California, Georgia, Missouri, Wisconsin and Delaware. As of December 31, 2003 (or the most recent date with respect to which compliance is required), those subsidiaries of the Company were in compliance with all minimum capital requirements.
The Company enters into operating leases primarily for office space, electronic data processing and office equipment. The Company also enters into contracts for various goods and services, including outsourced services, maintenance services, information technology support and license fees.
(C)Purchase obligations reflected in the table above consist primarily of contracts for fixed or variable prices for outsourced services, maintenance services, information technology support and license fees. Purchase obligations that are not significant or that contain clauses allowing for cancellation without significant penalty are not included in the table above. In addition, the Company is subject to various contracts with certain health care providers for the provision of health care services to its members. Such contracts involve payments to or from the Company, generally on a monthly basis, in the ordinary course of business and are not included in the above table.
(D)Contractual obligations relating to other long-term liabilities on the Company's Consolidated Balance Sheets for which payments are uncertain are not reflected in the table above.
(A)The $250.0 million facility expires on March 26, 2004. Any amount outstanding under this facility as of March 26, 2004 may be converted into a one-year term loan at the option of the Company. The Company is currently in negotiations to extend the term of this facility to March 25, 2005. The Company believes that cash flow generated by operations and its cash and investment balances, supplemented by the Company's ability to borrow under its existing revolving credit facility, commercial paper program or through public or private financing sources, will be sufficient to fund continuing operations and expected capital requirements for the foreseeable future.
The transaction is subject to customary closing conditions, including, among other things, approval of WellPoint's and Anthem's shareholders, various regulatory agencies and the Blue Cross and Blue Shield Association.
The Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations thereunder provide that the merger may not be completed until pre-merger notification filings have been made with the Federal Trade Commission, and the Antitrust Division of the U.S. Department of Justice, and the specified waiting period thereunder has expired or is terminated. Even after the waiting period expires or is terminated, the Department of Justice and the Federal Trade Commission will have the authority to challenge the merger on antitrust grounds before or after the merger is completed. Each of Anthem and WellPoint filed a notification and report form for the merger with the Federal Trade Commission and the Department of Justice in January 2004 and the waiting period expired on February 26, 2004.
In August 2003, the Company received a Grand Jury subpoena from the United States Attorney's office in the District of Maryland requesting various documents relating to the CareFirst transaction.
The Company has responded to the request and intends to cooperate fully with the United States Attorney's office. The Company has no reason to believe it is a target of the proceedings.
In connection with the Recapitalization, BCC received a ruling from the IRS that, among other things, the BCC Conversion qualified as a tax-free transaction and that no gain or loss was recognized by BCC for federal income tax purposes. If the ruling were to be subsequently revoked, modified or not honored by the IRS (due to a change in law or for any other reason), WellPoint, as the successor to BCC, could be subject to federal income tax on the difference between the value of BCC at the time of the BCC Conversion and BCC's tax basis in its assets at the time of the BCC Conversion. The potential tax liability to WellPoint if the BCC Conversion is treated as a taxable transaction is currently estimated to be approximately $696.0 million, plus interest (and possibly penalties). WellPoint and the California Foundation entered into an Indemnification Agreement that provides, with certain exceptions, that the California Foundation will indemnify WellPoint against the net tax liability as a result of a revocation or modification, in whole or in part, of the ruling by the IRS or a determination by the IRS that the BCC Conversion constitutes a taxable transaction for federal income tax purposes. In the event a tax liability should arise against which the California Foundation has agreed to indemnify WellPoint, there can be no assurance that the California Foundation will have sufficient assets to satisfy the liability in full, in which case WellPoint would bear all or a portion of the cost of the liability, which could have a material adverse effect on WellPoint's financial condition.
During the quarter ended September 30, 1998, the Company received a private letter ruling from the IRS with respect to the treatment of certain payments made at the time of the Recapitalization and the acquisition of the commercial operations of BCC. The ruling allowed the Company to deduct as an ordinary and necessary business expense the $800.0 million cash payment made by BCC in May 1996 to one of two newly formed charitable foundations. As a result of and in reliance on the ruling, the Company experienced a reduction in its income tax expense of $85.5 million and the Company reduced its goodwill resulting from the Recapitalization by $194.5 million during the year ended December 31, 1998. The Company filed for refund claims of approximately $198.6 million of previous year income tax payments and reduced income tax payments during 1998 and 1999 by approximately $81.4 million. In August 1999, the Company received a cash refund (including applicable accrued interest) of approximately $183.0 million, which was reflected in the statement of cash flows for such year. The Company has refund claims pending of approximately $39.3 million (excluding interest).
On November 30, 2000, RightCHOICE completed a reorganization (the "RightCHOICE Recapitalization") with its majority stockholder, RightCHOICE Managed Care, Inc., a Missouri corporation ("Old RightCHOICE"). As part of the RightCHOICE Recapitalization, the Missouri Foundation for Health (the "Missouri Foundation") became the holder of approximately 80% of
(b)Reflects estimated potential changes in medical claims payable caused by changes in annualized claims trend used for the estimation of per member per month claims for the most recent four months. In addition, assuming a hypothetical 1% difference between the Company's December 31, 2003 estimated claims liability and the actual claims incurred, net income for the year ended December 31, 2003 would increase or decrease by $16.5 million, while diluted net income per share would increase or decrease by $0.11 per share.
The Company has made several acquisitions in the past several years that included a significant amount of goodwill and other intangible assets. Under generally accepted accounting principles in effect through December 31, 2001, these assets were amortized over their useful lives and were tested periodically to determine if they were recoverable from operating earnings on an undiscounted basis over their useful lives.
In June 2001, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 141, "Business Combinations" ("SFAS No. 141") and Statement of Financial Accounting Standards No. 142, "Goodwill and Other Intangible Assets" ("SFAS No. 142"). SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for using the purchase method. The provisions of SFAS No. 141 also apply to all business combinations consummated after June 30, 2001. SFAS No. 142, which became effective for fiscal years beginning after December 15, 2001, eliminates amortization of goodwill and other intangible assets with indefinite useful lives. Rather, these assets are subject to impairment tests at least annually. The Company is required to make estimates of fair value and apply certain assumptions, such as a discount factor in applying these annual impairment tests. Such estimates could produce significantly different results if other assumptions, which could also be considered reasonable, were to be used. Intangible assets with definite useful lives are being amortized using a straight-line basis or the timing of related cash flows over periods ranging from 1.5 to 25 years. An intangible asset subject to amortization must be reviewed for impairment pursuant to Statement of Financial Accounting Standards No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."
The Company regularly evaluates the appropriateness of investments relative to its internal investment guidelines. The Company operates within these guidelines by maintaining a well-diversified portfolio, both across and within asset classes. The Company has from time to time retained an independent consultant to advise the Company on the appropriateness of its investment policy. The Company performs a quarterly evaluation of its investment securities, using both quantitative and qualitative factors to determine whether a decline in investment value is other-than-temporary. When a decline in an investment's fair value is determined to be other-than-temporary, a loss is recorded against investment income. When determining whether a decline in an investment's fair value is other-than-temporary, the Company considers the extent and duration to which a security's market value has been less than its cost, the financial condition and future earnings potential of the issuer, recommendations and opinions from outside investment managers and the current economic environment. For the years ended December 31, 2003, 2002 and 2001, the Company recorded investment losses that the Company believed to be other-than-temporary of approximately $31.2 million, $41.9 million and $21.1 million, respectively. The Company believes that it has performed an adequate review for impairment of the investment portfolio and that investments are carried at fair value. Changing economic and market conditions in the future, however, may cause the Company to reassess its judgment regarding impairment, which could result in realized losses relating to other-than-temporary declines being charged against future income.
The location in this annual report on Form 10-K of the Company's Consolidated Financial Statements is set forth in the "Index" on Page.
(A)The Company has revised its medical membership counting methodology to include estimated "host" members using the national BlueCard program. Host members are generally members who
reside in a state in which a WellPoint subsidiary is the Blue Cross and/or Blue Shield licensee and who are covered under an employer-sponsored health plan issued by a non-WellPoint controlled Blue Cross Blue Shield licensee. Host members are computed using, among other things, an estimate of the average number of BlueCard claims received per member per month. Total BlueCard host members as of quarter end for the years ended December 31, 2002 and 2003 were as follows: