References to the terms "we", "our" or "us" used throughout this Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, refer to WellPoint, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.

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

The structure of our MD&A is as follows:

II. Overview

III. Significant Transactions

IV. Membership - June 30, 2009 Compared to June 30, 2008

VI. Results of Operations - Three Months Ended June 30, 2009 Compared to the Three Months Ended June 30, 2008

VII. Results of Operations - Six Months Ended June 30, 2009 Compared to the Six Months Ended June 30, 2008

VIII. Critical Accounting Policies and Estimates

IX. Liquidity and Capital Resources

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

This MD&A should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2008 and the MD&A included in our 2008 Form 10-K, and in conjunction with our unaudited consolidated financial statements and accompanying notes as of and for the three and six months ended June 30, 2009 included in this Form 10-Q. Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, 2009 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2009.

I. Executive Summary

We are the largest health benefits company in terms of medical membership in the United States, serving 34.2 million medical members as of June 30, 2009. 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 BCBS in 10 New York City metropolitan and surrounding counties, and as Blue Cross or BCBS in selected upstate counties only), Ohio, Virginia (excluding Northern Virginia suburbs of Washington, D.C.) and Wisconsin. In a majority of these service areas we do business as Anthem Blue Cross, Anthem Blue Cross Blue Shield or Empire Blue Cross Blue Shield (in our New York service areas). 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 June 30, 2009 was $15.3 billion, a decrease of $0.2 billion, or 1%, compared to the three months ended June 30, 2008. These decreases were primarily due to fully-insured membership declines in our Local Group, UniCare, National, Senior and Individual businesses, and our

withdrawal from certain State-Sponsored programs, which were unprofitable. These decreases were partially offset by premium rate increases for all medical lines of business and increased reimbursement in the Federal Employees Program, or FEP.

Operating revenue for the six months ended June 30, 2009 was $30.6 billion, a decrease of $0.3 billion, or 1%, compared to the six months ended June 30, 2008. These decreases were primarily due to fully-insured membership declines in our Local Group, UniCare, National, Individual and Senior businesses, and our withdrawal from certain State-Sponsored programs, which were unprofitable. These decreases were partially offset by premium rate increases for all medical lines of business and increased reimbursement in FEP.

Net income for the three months ended June 30, 2009 was $693.5 million, a decrease of $57.0 million, or 8%, compared to the three months ended June 30, 2008. The declines in net income were primarily driven by reduced operating revenue, increased administrative expenses and increased net realized gains on investments and other-than-temporary impairment losses recognized in income, partially offset by lower benefit expense.

Net income for the six months ended June 30, 2009 was $1.3 billion, a decrease of $64.7 million, or 5% over the six months ended June 30, 2008. The declines in net income were primarily driven by increased net realized gains on investments and other-than-temporary impairment losses recognized in income, reduced operating revenue and increased administrative expenses, partially offset by lower benefit expense.

Our fully-diluted earnings per share, or EPS, was $1.43 for the three months ended June 30, 2009, which included $0.07 loss per share of net realized gains on investments and other-than-temporary impairment losses recognized in income and was a 1% decrease over the EPS of $1.44 for the three months ended June 30, 2008, which included $0.03 loss per share in net realized gains on investments and other-than-temporary impairment losses recognized in income. The decrease in EPS resulted primarily from lower net income partially offset by the lower number of shares outstanding in 2009 due to share buy back activity under our share repurchase program.

Our fully-diluted EPS was $2.59 for the six months ended June 30, 2009, which included $0.54 loss per share of net realized gains on investments and other-than-temporary impairment losses recognized in income and was a 4% increase over the EPS of $2.50 for the six months ended June 30, 2008, which included $0.09 loss per share in net realized gains on investments and other-than-temporary impairment losses recognized in income and $0.03 income per share in tax benefits from the settlement of audit issues. The increase in EPS resulted primarily from the lower number of shares outstanding in 2009 due to share buy back activity under our share repurchase program, partially offset by lower net income.

Operating cash flow for the six months ended June 30, 2009 was $1.6 billion, or 1.2 times net income. Operating cash flow for the six months ended June 30, 2008 was $1.2 billion, or 0.9 times net income. The increase in operating cash flow from 2008 was driven primarily by the net change in provider advances, decreased tax and incentive compensation payments and increased operating earnings, partially offset by higher spending for technology and customer service initiatives.

II. Overview

We manage our operations through three reportable segments: Commercial; Consumer; and Other.

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, or POS, plans; as well as 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 (including UniCare), National Accounts and certain other ancillary 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, disease management, wellness programs and other administrative services.

Our Consumer segment includes Senior, State-Sponsored and Individual businesses. Senior business includes services such as Medicare Part D, Medicare Advantage and Medicare Supplement, while State-Sponsored business includes our managed care alternatives for the Medicaid and State Children's Health Insurance Plan programs.

The Other segment includes our Comprehensive Health Solutions Business unit, or CHS, that brings together our resources focused on optimizing the quality of health care and cost of care management. CHS includes provider relations, care and disease management, employee assistance programs, including behavioral health, radiology benefit management, analytics-driven personal health care guidance and our pharmacy benefit management, or PBM, business, which includes NextRx, and our specialty pharmacy, PrecisionRx Specialty Solutions. Our Other segment also includes results from our Federal Government Solutions, or FGS, business. FGS business includes the FEP and National Government Services, Inc., or NGS, which acts as a Medicare contractor in several regions across the nation. The Other segment also includes other businesses that do not meet the quantitative thresholds for an operating segment as defined in Statement of Financial Accounting Standards, or FAS, No. 131, Disclosures about Segments of an Enterprise and Related Information, or FAS 131, as well as intersegment sales and expense eliminations and corporate expenses not allocated to the other reportable segments.

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 PBM 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.

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 which is recorded in benefit expense. Our cost of drugs can be influenced by the volume of prescriptions at our PBM companies, as well as cost changes, driven by prices charged by pharmaceutical companies and the mix of drugs sold.

Our results of operations depend in large part on our ability to accurately predict and effectively manage health care costs through effective contracting with providers of care to our members and our medical management programs. Several economic factors related to health care costs, such as regulatory mandates of coverage as well as direct-to-consumer advertising by providers and pharmaceutical companies, have a direct impact on the volume of care consumed by our members. While we price our business so that premium yield exceeds total cost trends, the potential effect of escalating health care costs as well as any changes in our ability to negotiate competitive rates with our providers may impose further risks to our ability to profitably underwrite our business, and may have a material impact on our results of operations.

III. Significant Transactions

Announcement to Sell PBM Operations

On April 13, 2009, we announced that we entered into a definitive agreement to sell our NextRx subsidiaries to Express Scripts, Inc., or Express Scripts, one of the largest PBM companies in North America, for $4.675 billion, consisting of at least $3.275 billion in cash, subject to customary working capital and indebtedness adjustments, and the balance in Express Scripts common stock. We expect to use the net after-tax proceeds from the sale for a variety of purposes, including share repurchases, repayment of current maturities of long-term debt and other general corporate purposes. In connection with the agreement, at closing, we will enter into a 10-year contract for Express Scripts to provide PBM services to us following the close of the Express Scripts transaction. The Express Scripts transaction is expected to close in the second half of 2009, subject to customary closing conditions and any required regulatory approvals.

Acquisition of DeCare Dental, LLC

On April 9, 2009, we completed our acquisition of DeCare Dental, LLC, or DeCare, a wholly-owned subsidiary of DeCare International. DeCare is one of the country's largest administrators of dental benefit plans and provides services directly and through partnerships and administrative agreements with 10 dental insurance brands, primarily as a third party administrator. DeCare also operates DeCare Systems Ireland, which offers custom enterprise software solutions, e-business applications and application performance tuning and is also the first American company to offer dental benefits in Ireland as Vhi DeCare Dental. DeCare manages benefits for over four million people and is expected to provide our customers with innovative dental products and enhanced customer service.

The acquisition was accounted for using the purchase method of accounting. Accordingly, the results of operations of DeCare have been included in our consolidated results for periods following April 9, 2009.

Bond Issue

On February 5, 2009, we issued $400.0 million of 6.000% notes due 2014 and $600.0 million of 7.000% notes due 2019 under our shelf registration statement. The proceeds from this debt issuance have been used for general corporate purposes, including, but not limited to, repayment of the current maturities of long-term debt and repurchasing shares of our common stock. The notes have a call feature that allows us to repurchase the notes at any time at our option and a put feature that allows a note holder to require us to repurchase the notes upon the occurrence of both a change of control event and a downgrade of the notes.

Suspension by The Centers for Medicare and Medicaid Services

Over the past several months, we have been working with The Centers for Medicare and Medicaid Services, or CMS, to resolve issues identified as a result of our internal compliance audits and findings from a 2008 CMS audit. Our work included detailed action plans to remediate such findings. Most of the proposed action plans have been reviewed and accepted by CMS. In addition, we engaged an independent third party to provide CMS with on-going assessments regarding our compliance, including verification of systems, processes and procedures.

On January 12, 2009, CMS notified us that we were suspended from marketing to and enrolling new members in our Medicare Advantage and Medicare Part D health benefit products until remediation efforts have been fully implemented and confirmed. The CMS letter identified the following areas for remediation:
enrollments and dis-enrollments; benefits administration; grievance and appeals; marketing; claims processing; coordination of benefits; billing and meeting call center and customer service requirements. This decision does not affect, for the most part, our current members enrolled in our Medicare products. We are in the process of validating our remediation efforts with CMS.

We do not currently expect that the CMS suspension will have a material adverse effect on our consolidated financial position or results of operations.

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 market, 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 six months ended June 30, 2009, we repurchased and retired approximately 27.4 million shares at an average per share price of $40.77, for an aggregate cost of $1.1 billion. On March 5, 2009, our Board of Directors authorized an increase of $1.5 billion in our stock repurchase program. As of June 30, 2009, $1.4 billion remained authorized for future repurchases. Subsequent to June 30, 2009, we repurchased and retired approximately 2.3 million shares for an aggregate cost of approximately $116.8 million, leaving approximately $1.3 billion for authorized future repurchases at July 22, 2009. 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.

Our medical membership includes seven different customer types: Local Group, Individual, National Accounts, BlueCard, Senior, State-Sponsored and FEP. BCBSA-branded business refers to members in our service, or geographic, areas licensed by the BCBSA. Non-BCBSA-branded business refers to UniCare members predominately outside of our BCBSA service areas.

• Local Group (including UniCare) consists of those employer customers with less than 5% of eligible employees located outside of the headquarter state, as well as customers with more than 5% of eligible employees located outside of the headquarter state with up to 2,500 eligible employees.

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

• National Accounts generally consist of multi-state employer groups primarily headquartered in a WellPoint service area with at least 5% of the eligible employees located outside of the headquarter state and with more than 2,500 eligible employees. Some exceptions are allowed based on broker relationships.

• 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 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 Plan 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.

The following table presents our medical membership by customer type, funding arrangement and reportable segment as of June 30, 2009 and 2008. Also included below are other businesses' key metrics, including prescription volume for our PBM companies and other membership by product. The medical membership and other businesses' metrics presented are unaudited and in certain instances include estimates of the number of members represented by each contract at the end of the period.

                                                      June 30
(In thousands)
Medical Membership                                 2009     2008        Change          % Change
Customer Type
Local Group                                       15,916   16,650         (734 )              (4 )%
Individual                                         2,191    2,344         (153 )              (7 )
National:
National Accounts                                  6,904    6,732          172                 3
BlueCard                                           4,812    4,782           30                 1

Total National                                    11,716   11,514          202                 2
Senior                                             1,234    1,304          (70 )              (5 )
State-Sponsored                                    1,777    2,077         (300 )             (14 )
FEP                                                1,387    1,385            2                -

Total Medical Membership by Customer Type         34,221   35,274       (1,053 )              (3 )

Funding Arrangement
Self-Funded                                       18,479   18,499          (20 )              -
Fully-Insured                                     15,742   16,775       (1,033 )              (6 )

Total Medical Membership by Funding Arrangement   34,221   35,274       (1,053 )              (3 )

Reportable Segment
Commercial                                        27,821   28,414         (593 )              (2 )
Consumer                                           5,013    5,475         (462 )              (8 )
Other                                              1,387    1,385            2                -

Total Medical Membership by Reportable Segment    34,221   35,274       (1,053 )              (3 )

Other Membership
Behavioral Health                                 22,998   23,410         (412 )              (2 )
Life and Disability                                5,437    5,553         (116 )              (2 )
Dental1                                            4,331    4,665         (334 )              (7 )
Managed dental1                                    4,041       -         4,041                -
Vision                                             2,826    2,574          252                10
Medicare Part D                                    1,667    1,854         (187 )             (10 )

PBM Prescription Volume Paid (Quarterly)
Retail Scripts                                    58,938   59,782         (844 )              (1 )
Mail Order Scripts2                                6,696    6,550          146                 2
Specialty Pharmacy Scripts                           200      165           35                21

Total Scripts                                     65,834   66,497         (663 )              (1 )

1 Dental membership as of June 30, 2009 includes DeCare members not included in managed dental membership, which were acquired on April 9, 2009. Managed dental membership includes members acquired through the DeCare acquisition for which we provide administrative services only.

2 Mail order scripts generally cover a 60 or 90 day supply with a weighted average supply of approximately 86 days. The mail order script volume shown in the above table has been adjusted to reflect a 30 day supply.

Medical Membership

During the twelve months ended June 30, 2009, total medical membership decreased 1,053,000, or 3%, primarily due to decreases in Local Group, State-Sponsored, Individual and Senior businesses, partially offset by increases in our National Accounts and BlueCard membership. The majority of the decline was in our Local Group business and primarily reflects in-group enrollment losses and lapses caused by higher unemployment resulting from the current economic downturn. In-group enrollment losses represent membership declines within a group that still remains our customer.

Self-funded medical membership decreased 20,000, or less than 1%, primarily due to withdrawal from the Connecticut Medicaid program and declines in self-funded Local Group membership resulting from in-group enrollment losses and lapses caused by higher unemployment, partially offset by an increase in self-funded National Account membership resulting from additional sales, BlueCard growth and ongoing conversions to self-funded arrangements.

Fully-insured membership decreased by 1,033,000 members, or 6%, primarily due to declines in fully-insured Local Group membership resulting from in-group enrollment losses and lapses caused by higher unemployment, reduced Individual membership, ongoing conversions to self-funded arrangements and withdrawal from . . .