BlueCross BlueShield of Tennessee Agrees to Extend TennCare Contract.

CHATTANOOGA, Tenn.--(BUSINESS WIRE)--July 30, 1999--

BlueCross BlueShield of Tennessee (BCBST) announced today that it has reached agreement in principle with the state to extend its participation in TennCare under the current risk arrangement through June 2000. The company and state officials have been intensely negotiating for several weeks. The agreement came after a meeting among BCBST officials and a team of state leaders including the governor, lieutenant governor, speaker of the House, state treasurer, state comptroller and commissioner of state Department of Finance and Administration.

"In response to our concerns about structural problems with TennCare, state leaders committed to work on swift reforms if we would commit to continue our energetic involvement in the program," BCBST CEO Thomas Kinser said.

Kinser said that BlueCross' participation in TennCare is consistent with the company's mission of providing affordable health care coverage to Tennesseans. He said that the crux of the negotiations was balancing that mission with the financial risk of the health care costs for the 608,000 Tennesseans served by BCBST's TennCare program. Kinser stated the company is proud of its service to Tennessee's neediest citizens through TennCare.

The breakthrough came as Gov. Don Sundquist, Lt. Gov. John Wilder, and House Speaker Jimmy Naifeh offered a letter of assurance and the state offered an amendment that shortened the contract period from a year to six months.

BCBST is the largest participant in the nearly six-year-old TennCare program, serving almost half of the enrollees. The current BlueCross contract was to expire on Jan. 31, 2000, and the company had until today to let the state know of its intentions beyond that date. It is estimated that the state has saved $500 million a year for the past five years through TennCare. BCBST is Tennessee's leader in health care financing. Founded in 1945, the Chattanooga-based not-for-profit organization now serves more than 2.8 million people. The company paid more than 33 millions claims and $2.6 billion in health care benefits in 1998. BCBST has more than 4,300 employees statewide. -0-

             BlueCross BlueShield of Tennessee Fact Sheet

--   BlueCross BlueShield of Tennessee (BCBST) has participated in the
     state's TennCare program since the program's inception in 1994.

--   In 1998, BCBST provided health care benefits for 2.8 million
     Tennesseans. The company paid more than 33 million claims and
     $2.6 billion in health care benefits.

--   Of those 2.8 million members, more than 600,000 are enrolled in
     the BCBST TennCare program called Volunteer State Health
     Plan/BlueCare.

--   The geographical breakdown of the 600,000 BlueCare enrollees:

        -- West Tennessee - 128,512
        -- Middle Tennessee - 156,824
        -- East Tennessee - 321,165

--   10,243 dentists, doctors and specialists provide care to
     Tennesseans through provider contracts with BCBST.

--   128 hospitals, surgery centers and ambulatory care centers
     provide care to Tennesseans through provider contracts with
     BCBST.

--   BCBST is one of the most efficiently managed MCOs participating
     in TennCare. According to the Department of Commerce and
     Insurance, BCBST had the lowest administrative costs in 1998, 9.6
     percent.

--   BlueCare processes 97% of claims within 14 days of receipt.
     Ninety-nine percent of claims are paid within 30 days. Of those
     claims, over 98% are paid accurately by both dollar and
     statistical measures.

--   In the last year, BlueCare has been called 1,327,728 times. The
     average speed of answer for these calls is 16.5 seconds, with a
     busy rate of 10% and an abandon rate of only 3%.

--   On an independent survey of BlueCare members, 90% reported
     overall satisfaction with BlueCare. Ninety-seven percent said
     that they would recommend BlueCare to their family or friends.

--   Childhood immunization rates for the BlueCare population have
     risen from 43% in 1995 to 77% in 1997.

--   Mammography rates for the BlueCare population have risen from 27%
     in 1995 to 48% in 1998.

--   The External Quality Review Organization (EQRO) found no
     deficiencies in a March, 1999 review, and gave BlueCare positive
     marks for Quality Improvement and Utilization Management
     programs.

--   BlueCross BlueShield of Tennessee has approximately 4,300
     employees statewide. Of those employees, 750 work
     specifically on BlueCare.

--   BlueCross BlueShield of Tennessee is Tennessee's leader in
     health care financing. The not-for-profit company was
     founded in 1945, and is headquartered in Chattanooga,
     Tennessee.

Text of Letter from Gov. Don Sundquist, Lt. Gov. John Wilder, and

House Speaker Jimmy Naifeh to

BlueCross BlueShield of Tennessee

Board Chairman Nelson Andrews and

CEO Tom Kinser

Dear Tom and Nelson:

We appreciate and recognize your company's long-standing commitment to the TennCare program since its inception. Your hard work and diligent efforts have helped us create what is, in many ways, a model program for the nation.

We gratefully accept your generous offer to put at risk your company's total earnings from the program to date.

The purpose of this letter is to memorialize conversations between you and Commissioner John Ferguson and to communicate to you that we will commit to use our collective good faith efforts to adequately fund the TennCare Program, including payments from the TennCare Reserve Fund, to maintain the financial viability of the Managed Care Organizations, including BlueCross.

It is our understanding that you have agreed to extend your participation in the program through July 1, 2000, to give us the opportunity to reform the program and make it what we all envisioned for the benefit of the citizens of Tennessee.

Sincerely, Don Sundquist John Wilder Jimmy Naifeh