References to the terms "we", "our", "us" or the "Company" used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, refer to WellPoint, Inc. (name changed from Anthem, Inc. effective November 30, 2004), an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.

Certain prior year amounts have been reclassified to conform to the current year presentation.

The structure of our MD&A is as follows:

II. Overview

III. Significant Transactions

IV. Membership - September 30, 2008 Compared to September 30, 2007

VI. Results of Operations - Three Months Ended September 30, 2008 Compared to the Three Months Ended September 30, 2007

VII. Results of Operations - Nine Months Ended September 30, 2008 Compared to the Nine Months Ended September 30, 2007

VIII. Critical Accounting Policies and Estimates

IX. Liquidity and Capital Resources

X. Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

I. Executive Summary

We are the largest health benefits company in terms of medical membership in the United States, serving 35.3 million members as of September 30, 2008. We are an independent licensee of the Blue Cross and Blue Shield Association, or BCBSA, an association of independent health benefit plans. We serve our members as the Blue Cross licensee in California and as the Blue Cross and Blue Shield, or BCBS, licensee for: Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (as the Blue Cross Blue Shield licensee in 10 New York City metropolitan and surrounding counties, and as the Blue Cross or Blue Cross Blue Shield licensee in selected upstate counties only), Ohio, Virginia (excluding Northern Virginia suburbs of Washington, D.C.) and Wisconsin. We also serve customers throughout the country as UniCare. We are licensed to conduct insurance operations in all 50 states through our subsidiaries.

Operating revenue for the three months ended September 30, 2008 was $15.3 billion, an increase of $0.3 billion, or 2%, over the three months ended September 30, 2007. These increases were primarily driven by premium rate increases for all medical lines of business, growth in our Medicare Advantage business and increased reimbursement in the FEP program. These increases were partially offset by the loss of the New York State prescription drug contract, our exit from the Ohio Medicaid program, the conversion of the Connecticut Medicaid program from fully-insured to self-funded and fully-insured membership declines in UniCare, National Accounts and Local Group businesses.

Operating revenue for the nine months ended September 30, 2008 was $46.2 billion, an increase of $1.3 billion, or 3% over the nine months ended September 30, 2007. These increases were primarily driven by premium rate increases for all medical lines of business, growth in our Medicare Advantage business and increased reimbursement in the FEP program. These increases were partially offset by the loss of the New York

Net income for the three months ended September 30, 2008 was $820.7 million, a decrease of $47.3 million, or 5%, over the three months ended September 30, 2007. Our fully-diluted earnings per share, or EPS, for the three months ended September 30, 2008 was $1.60, an increase of $0.15, or 10%, over the three months ended September 30, 2007. Included in EPS for the three months ended September 30, 2008 was $0.90 per share income from tax benefits, primarily from settlements with the Internal Revenue Service, or IRS, $0.71 per share loss from net realized investment losses, and $0.17 per share loss from intangible asset impairments. Additionally, net income was influenced by higher medical costs in 2008, which are further described below. The increase in EPS was primarily the result of having fewer shares outstanding during 2008, net of the impact of the items described above. The shares outstanding declined primarily due to share buyback activity under our share repurchase program.

Net income for the nine months ended September 30, 2008 was $2.2 billion, a decrease of $327.0 million, or 13%, over the nine months ended September 30, 2007. Our fully-diluted EPS for the nine months ended September 30, 2008, was $4.09, an increase of $0.03, or 1%, over the nine months ended September 30, 2007. Included in EPS for the nine months ended September 30, 2008 was $0.90 per share income from tax benefits, primarily from settlements with the IRS, $0.78 per share loss from net realized investment losses, and $0.17 per share loss from intangible asset impairments. Additionally, net income was influenced by higher medical costs in 2008, which are further described below. The increase in EPS results from the impact of our share repurchase program net of the impact of the items described above.

Operating cash flow for the nine months ended September 30, 2008 was $2.0 billion, or 0.9 times net income. Operating cash flow for the nine months ended September 30, 2007 was $3.2 billion, or 1.3 times net income. The decrease in operating cash flow from 2007 was driven primarily by increases in accounts receivable, lower net income in 2008 compared to 2007 and lower tax deductions related to reduced stock option exercises. The increase in accounts receivable was due to membership growth, certain contractual modifications and other actions we have taken in response to our system migrations. The reduction in net income reflects higher medical costs, which are further described below.

II. Overview

Beginning January 1, 2008, we implemented a new organizational structure designed to support our strategic plan, which reflects how our chief operating decision maker evaluates the performance of our business. As a result of this new organizational structure, we manage our operations through three reportable segments: Commercial; Consumer; and Other. For additional information, see Note 12, Segment Information, to our unaudited consolidated financial statements included in this report.

Our Commercial and Consumer segments both offer a diversified mix of managed care products, including preferred provider organizations, or PPOs; health maintenance organizations, or HMOs; traditional indemnity benefits and point-of-service plans, or POS plans; a variety of hybrid benefit plans, including consumer-driven health plans, or CDHPs, hospital only and limited benefit products.

Our Commercial segment includes Local Group, National Accounts, UniCare and certain other business operations (dental, vision, life and disability and workers' compensation). Business units in the Commercial segment offer fully-insured products and provide a broad array of managed care services to self-funded customers, including claims processing, underwriting, stop loss insurance, actuarial services, provider network access, medical cost management and other administrative services.

Our Consumer segment includes Senior, State-Sponsored and Individual business. Senior business includes services such as Medicare Part D, Medicare Advantage, and Medicare Supplement, while State-Sponsored business includes our Medicaid programs.

Our operating revenue consists of premiums, administrative fees and other revenue. Premium revenue comes from fully-insured contracts where we indemnify our policyholders against costs for covered health and life benefits. Administrative fees come from contracts where our customers are self-insured, or where the fee is based on either processing of transactions or a percent of network discount savings realized. Additionally, we earn administrative fee revenues from our Medicare processing business and from other health-related businesses, including disease management programs. Other revenue is principally generated from member co-payments and deductibles associated with the mail-order sale of drugs by our pharmacy benefit management companies.

Our benefit expense primarily includes costs of care for health services consumed by our members, such as outpatient care, inpatient hospital care, professional services (primarily physician care) and pharmacy benefit costs. All four components are affected both by unit costs and utilization rates. Unit costs include the cost of outpatient medical procedures per visit, inpatient hospital care per admission, physician fees per office visit and prescription drug prices. Utilization rates represent the volume of consumption of health services and typically vary with the age and health status of our members and their social and lifestyle choices, along with clinical protocols and medical practice patterns in each of our markets. A portion of benefit expense recognized in each reporting period consists of actuarial estimates of claims incurred but not yet paid by us. Any changes in these estimates are recorded in the period the need for such an adjustment arises. While we offer a diversified mix of managed care products, including PPO, HMO, POS and CDHP products, our aggregate cost of care can fluctuate based on a change in the overall mix of these products. Over the last few years, CDHP products have become more popular. CDHP products tend to have a lower benefit expense due to the benefit design of these products. It is possible the continued growth of CDHP products could influence our aggregate cost of care trends in future periods.

Our selling expense consists of external broker commission expenses and generally varies with premium volume. Our general and administrative expense consists of fixed and variable costs. Examples of fixed costs are depreciation, amortization and certain facilities expenses. Other costs are variable or discretionary in nature. Certain variable costs, such as premium taxes, vary directly with premium volume. Other variable costs, such as salaries and benefits, do not vary directly with changes in premium, but are more aligned with changes in membership. The acquisition or loss of a significant block of business would likely impact staffing levels, and thus associate compensation expense. Examples of discretionary costs include professional and consulting expenses and advertising. Other factors can impact our administrative cost structure, including systems efficiencies, inflation and changes in productivity.

Our cost of drugs consists of the amounts we pay to pharmaceutical companies for the drugs we sell via mail order through our PBM and specialty pharmacy companies. This amount excludes the cost of drugs related to affiliated health customers recorded in benefit expense. Our cost of drugs can be influenced by the volume of prescriptions at our PBM, as well as cost changes, driven by prices set by pharmaceutical companies and the mix of drugs sold.

During early 2008, we experienced higher than expected medical costs in several business lines, including less favorable than expected prior year reserve development. We also experienced lower than expected fully-insured enrollment, primarily due to declines in our National Accounts and Local Group businesses, including UniCare, and Individual business. Additionally, our results of operations were impacted by the changing economic environment. The impact of these factors on the results of operations is discussed throughout this MD&A. Certain of these impacts on medical costs may continue for the remainder of 2008. We continue to evaluate the long-term impact of these factors on our medical cost trend and overall results of operations.

During the third quarter of 2008, we recognized significant other-than-temporary impairments of certain equity and fixed maturity securities as a result of the volatility experienced in the capital markets. This is discussed throughout this MD&A. We continue to review our investment portfolios with application of our impairment review policy. Given the current market conditions and the significant judgments involved in determining fair value, there is a continuing risk that further declines in fair value may occur and additional material other-than-temporary impairments may be recorded in future periods.

This MD&A should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2007 and the MD&A included in our 2007 Annual Report on Form 10-K as filed with the U.S. Securities and Exchange Commission, or SEC, and in conjunction with our unaudited consolidated financial statements and accompanying notes included in this report. Results of operations, cost of care trends, investment yields and other measures for the three and nine month periods ended September 30, 2008 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2008.

III. Significant Transactions

Stock Repurchase Program

Under our Board of Directors' authorization, we maintain a common stock repurchase program. Repurchases may be made from time to time at prevailing market prices, subject to certain restrictions on volume, pricing and timing. The repurchases are effected from time to time in the open markets, through negotiated transactions and through plans designed to comply with Rule 10b5-1 under the Securities Exchange Act of 1934, as amended, or Exchange Act. During the nine months ended September 30, 2008, we repurchased and retired approximately 50.1 million shares at an average share price of $60.80, for an aggregate cost of $3.0 billion. As of September 30, 2008, $1.3 billion remained authorized for future repurchases. Our stock repurchase program is discretionary as we are under no obligation to repurchase shares. We repurchase shares under the program when we believe it is a prudent use of capital.

Tax Resolutions

During the third quarter of 2008, we settled disputes with the IRS relating to certain tax years and industry issues which we had been discussing with the IRS for several years. Also relating to the industry issues that were settled, we recorded additional tax benefits that had previously been denied by the IRS. The above settlement and deductions, as well as changes in the composition of the apportionment factor in our combined state income tax returns, resulted in a tax benefit of $0.90 per basic and diluted share for the three months ended September 30, 2008 and $0.88 and $0.87 per basic and diluted share for the nine months ended September 30, 2008, respectively.

Our customer type definitions were revised in the first quarter of 2008 in accordance with our new organizational structure, as described above. Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard, Senior, State-Sponsored and FEP.

• Local Group consists of those employer customers with less than 1,000 employees eligible to participate as a member in one of our health plans, as well as customers with generally 1,000 or more eligible employees with less than 5% of eligible employees located outside of the headquarter's state. In addition, Local Group includes UniCare local group members.

• Individual consists of individual customers under age 65 (including UniCare) and their covered dependents.

• Beginning January 1, 2008, we revised our definition of National Accounts to correspond with our new organizational structure. National Accounts customers now are generally multi-state employer groups primarily headquartered in a WellPoint service area with 2,500 or more eligible employees, of which at least 5% are located outside of the headquarter's state. Some exceptions are allowed based on broker relationships. Service area is defined as the geographic area in which we are licensed to sell BCBS products. National Accounts will continue to manage existing accounts under the previous definition of 1,000 or more eligible employees, and the new definition will be applied on a prospective basis only with new sales.

• BlueCard host members represent enrollees of Blue Cross and/or Blue Shield plans not owned by WellPoint who receive health care services in our BCBSA licensed markets. BlueCard membership consists of estimated host members using the national BlueCard program. Host members are generally members who reside in or travel to 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 BCBSA licensee (i.e., the "home" plan). We perform certain administrative functions for BlueCard members, for which we receive administrative fees from the BlueCard members' home plans. Other administrative functions, including maintenance of enrollment information and customer service, are performed by the home plan. Host members are computed using, among other things, the average number of BlueCard claims received per member per month.

• Senior members are Medicare-eligible individual members age 65 and over who have enrolled in Medicare Advantage, a managed care alternative for the Medicare program, or who have purchased Medicare Supplement benefit coverage.

• State-Sponsored membership represents eligible members with state sponsored managed care alternatives in Medicaid and State Children's Health Insurance programs.

• FEP members consist of United States government employees and their dependents within our geographic markets through our participation in the national contract between the BCBSA and the U.S. Office of Personnel Management.

In addition to reporting our medical membership by customer type, we report by funding arrangement according to the level of risk that we assume in the product contract. Our two funding arrangement categories are fully-insured and self-funded. Fully-insured products are products in which we indemnify our policyholders against costs for health benefits. Self-funded products are offered to customers, generally larger employers, who elect to retain most or all of the financial risk associated with their employees' health care costs. Some self-funded customers choose to purchase stop loss coverage to limit their retained risk.

                                                     September 30
(In thousands)
Medical Membership                                  2008     20071        Change         % Change
Customer Type
Local Group                                         16,683   16,649           34                0 %
Individual                                           2,341    2,432          (91 )             (4 )
National:
National Accounts                                    6,808    6,388          420                7
BlueCard                                             4,785    4,562          223                5

Total National                                      11,593   10,950          643                6
Senior                                               1,308    1,250           58                5
State-Sponsored                                      2,022    2,141         (119 )             (6 )
FEP                                                  1,390    1,383            7                1

Total Medical Membership by Customer Type           35,337   34,805          532                2

Funding Arrangement
Self-Funded                                         18,662   17,571        1,091                6
Fully-Insured                                       16,675   17,234         (559 )             (3 )

Total Medical Membership by Funding Arrangement     35,337   34,805          532                2

Reportable Segment
Commercial                                          28,515   27,885          630                2
Consumer                                             5,432    5,537         (105 )             (2 )
Other                                                1,390    1,383            7                1

Total Medical Membership by Reportable Segment      35,337   34,805          532                2

Other Membership
Behavioral Health                                   23,588   20,168        3,420               17
Life and Disability                                  5,507    5,665         (158 )             (3 )
Dental                                               4,618    5,008         (390 )             (8 )
Vision                                               2,632    2,367          265               11
Medicare Part D                                      1,870    1,596          274               17

PBM Prescription Volume Processed (Quarterly)2
Retail Scripts                                      96,759   86,382       10,377               12
Mail Order Scripts                                   6,532    7,149         (617 )             (9 )
Specialty Pharmacy Scripts                             244      163           81               50

Total Scripts                                      103,535   93,694        9,841               11

PBM Prescription Volume Paid (Quarterly)2
Retail Scripts                                      58,621   54,014        4,607                9
Mail Order Scripts                                   6,345    6,637         (292 )             (4 )
Specialty Pharmacy Scripts                             177      103           74               72

Total Scripts                                       65,143   60,754        4,389                7

1 Medical membership data for 2007 has been reclassified to conform to the 2008 presentation, except for the change in National Accounts membership definition, which is applied on a prospective basis.

2 Prescriptions processed represent all requests submitted to our PBM companies. Prescriptions processed may not ultimately agree to the amount paid for various reasons, including duplicative and non-covered submissions as well as situations where members do not pick up a filled prescription.

During the twelve months ended September 30, 2008, total medical membership increased approximately 532,000, or 2%, primarily due to increases in our National Accounts, BlueCard, Senior and Local Group businesses, partially offset by declines in State-Sponsored and Individual membership.

Self-funded medical membership increased 1,091,000, or 6%, primarily due to an increase in self-funded National Accounts membership resulting from additional sales, BlueCard growth and Local Group growth, as well as the conversion of the Connecticut Medicaid program from fully-insured to self-funded. Fully-insured membership decreased by 559,000 members, or 3%, primarily due to our exit from the Ohio Medicaid program, ongoing conversions to self-funded arrangements, including the conversion of the Connecticut Medicaid program from fully-insured to self-funded and declines in fully-insured Local Group membership.

Local Group membership increased 34,000 as our BCBSA-branded business increased by 272,000 members, but was partially offset by the loss of 238,000 members in our UniCare business.

Individual membership decreased 91,000, or 4%, with our UniCare business declining slightly more than BCBSA-branded business. The decline was due to competitive pricing pressures, competitive broker compensation in certain regions and overall economic conditions.

National Accounts membership increased 420,000, or 7%, primarily driven by additional sales and in-group growth as employers are increasingly attracted to the benefits of our distinctive value proposition, which includes extensive and cost-effective provider networks and a broad and innovative product portfolio. These increases were partially offset by lapses in a small number of accounts.

BlueCard membership increased 223,000, or 5%, primarily due to increased sales by other BCBSA licensees to accounts with members who reside in or travel to our licensed areas.

Senior membership increased 58,000, or 5%, primarily due to additional sales of our Medicare Advantage product, partially offset by a slight decline in Medicare Supplement membership.

State-Sponsored membership decreased 119,000, or 6%, primarily due to our exit from the Ohio Medicaid program.

Other Membership

Our Other products are often ancillary to our health business and can therefore be impacted by changes in our medical membership.

Behavioral health membership increased 3,420,000, or 17%, primarily due to the conversions of 2,402,000 members from a third-party vendor in January 2008 and growth in membership due to new sales of our behavioral health products.

Life and disability membership decreased 158,000, or 3%, primarily due to overall membership declines from a very competitive marketplace, reduction of members following employment declines at certain large customers and lapses due to the current economic environment. Life and disability membership is closely tied to Commercial medical fully-insured membership activity.

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