Leading North Carolina into a healthy state

Annual Report 08

Walk beforeyou run.Everyone startssomewhere.“We believe strongly that most people can take basic and inexpensive steps to improve their own health, and we worked hard to help them do that in 2008.” Bob Greczyn

3-4 M

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31-32 Company Leadership

33-34 Financial Stability

23-24 Working Toward Healthier Communities

25-26 BCBSNC Foundation

27-28 Contributions as a Corporate Citizen

29-30 Blue Going Green

17-18 Promoting Good Health

19-20 Shaping North Carolina Into a Healthy State

21-22 Encouraging Preventive Health

15-16 Promoting Good Health7-10 W

alking the Talk Across North

Carolina

11-14 Walking the Talk - Customer Service

5-6 W

alking the Talk - B

CBSNC Mission, V

ision and Values

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Tabl

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Con

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Annual Report 08

There’s widespread agreement that our health care system is in great need of improvement, but what would you think if we told you that better health was within the grasp of most North Carolinians?

We believe strongly that most people can take basic and inexpensive steps to improve their own health, and we worked hard to help them do that in 2008. Taking care of North Carolina’s health is a job we take seriously in tough economic times and when health care costs so much.

So, you might ask, how are you setting the example? How do you walk the talk? Fair question.

We literally walked the talk in 2008, completing a march across North Carolina, from the mountains to the coast, to demonstrate that the simple act of daily walking can improve health and change lives. We heard from thousands of people along the way, people who had transformed their health through walking or those who were ready to do so.

We set the example in our own workspaces — instilling in employees the idea that a healthier North Carolina starts with them. We made employee health one of our top corporate goals, and we provided our workforce with multiple on-site opportunities to become physically active, eat right and learn about wellness. We used the lessons we’ve learned to encourage employers statewide to implement low-cost, effective and popular workforce health options.

Walking the talk:A message from the chairman and CEO

Bob Greczyn

4

We stressed the importance of customers taking full advantage of their preventive health benefits. We sent hundreds of thousands of reminders to customers to encourage them to get recommended check-ups and health screenings. We helped members with drug costs by waiving copayments for generic drugs for the treatment of four leading chronic conditions.

We worked with doctors and hospitals across the state to improve the safety and effectiveness of the health care system. That included helping physician practices adopt electronic prescribing, which promotes accuracy and safety in medicine dispensing. We continued our cooperative work with the N.C. Hospital Association to reduce the cost and incidence of medical errors. At the same time, the Blue Cross and Blue Shield of North Carolina Foundation announced a renewal of its commitment to increase the availability of free clinics, as well as continuing its support of efforts to recruit health professionals to medically underserved areas.

We worked toward greater levels of service excellence, serving as a reliable health insurer when our customers need us most. We answered 5.4 million calls and processed more than $10.7 billion in claims.

While we work on the cutting edge of health programs for our members, we emphasize old-fashioned prudence in our financial practices, ensuring that we can pay claims and remain a stable company in both good and difficult times.

We also believe the coming year will provide a real opportunity to extend health coverage to every American. Blue Cross and Blue Shield of North Carolina will be a constructive part of the discussion.

Whether our path is winding or smooth, we intend to walk the talk toward better health for decades to come.

Robert J. Greczyn, Jr. President & CEO

Jeffrey L. Houpt, M.D.Chairman of the Board

Jeff Houpt

What we stand forBCBSNC introduced new mission, vision and values statements in 2008. They reflect our increasing emphasis on promoting health and wellness, impressing our customers with excellent service and demonstrating values like integrity, excellence, and teamwork.

Promoting health,

wellnessand values

Mission + Blue Cross and Blue Shield of North Carolina is a leading health services

company. We deliver quality products, information, and services to help our customers improve their health and well-being.

Vision + Our focus on North Carolina — its people, employers, doctors, hospitals

and communities — keeps us uniquely able to anticipate and respond to our customers’ needs.

+ We make a difference through our work and collaborative efforts to improve health care and the quality of life for our customers and all North Carolinians. Through the BCBSNC Foundation, we work with communities and organizations across North Carolina to support their efforts to improve the health of the people of our state.

Values+ Customer Focus – We believe every interaction with customers is an

opportunity to exceed their expectations and create customer loyalty.

+ Passion – We are passionate about our work and making a meaningful difference in the health and well-being of the communities we serve.

+ Integrity – We act with honesty and integrity at all times. We will say what we are going to do and then do what we say.

+ Teamwork – We value and reward outstanding, dedicated people. We seek diverse perspectives, collaborate and communicate openly, and value life/work flexibility.

+ Excellence – We continuously improve our performance, take personal initiative, provide opportunities for growth, and hold people accountable for results.

6

ASHEVILLEHICKORYCHARLOTTEWINSTON-SALEM

GREENSBORO

CHAPEL HILL

DURHAM

RALEIGHGREENVILLEKINSTONGOLDSBOROFAYETTEVILLE

WILMINGTON

Walking the talk

ASHEVILLEHICKORYCHARLOTTEWINSTON-SALEM

GREENSBORO

CHAPEL HILL

DURHAM

RALEIGHGREENVILLEKINSTONGOLDSBOROFAYETTEVILLE

WILMINGTON

Walking the talk across North Carolina

It takes real commitment to walk a million steps to promote physical activity. When you turn that into more than 650 million steps, you’ve got a real movement toward better health.

In spring 2008, Kathy Higgins and Gary Marino each traveled more than 600 miles on foot — from Asheville to Wilmington — as part of the Million Step MarchSM1 (MSM). In doing so they inspired thousands of people to put on their walking shoes and join the march, in person and online.

“It wasn’t about us; it was about the people we could touch,” said Higgins, vice president of Community Relations for BCBSNC. “Once we told people what we were doing, it was a natural

opportunity to listen to them. People have a pent-up need to connect and talk about the possibility of change.”

Along the way, Higgins and Marino hosted more than 4,500 North Carolinians at community, school and worksite events. Another 6,400 people signed up online to participate in the march. They logged more than 650 million steps, or more than 325,000 miles walked in total. That’s enough steps to lap the world about 13 times.

“I think the Million Step March connected with people in a very real way, which many health campaigns don’t,” said Marino, a nationally known walking advocate and anti-obesity

crusader. “Inspiration, motivation and support are what changes people over a long period of time, and I think we provided that.”

The march motivated people across the state to share personal stories about their own battles with weight and health and how their lives were changed with physical activity. Jeanne Ridpath was one of 10 BCBSNC employees invited to join the march for a week, after writing an essay about her personal lifestyle changes. Ridpath had lost 90 pounds three years earlier through physical activity, including water aerobics, and controlling portions at mealtime.

“I could not have fathomed that I would have walked 10 miles a day,” said Ridpath, who now walks about two miles daily. “I ended the march feeling that if I could do that, I could do anything.”

Along with the daily walks she started since the Million Step March, Ridpath participates in daily exercise classes at BCBSNC’s on-site fitness center.

8

Gary Marino and Kathy Higgins in front of the MSM TruckMSM in Wilmington

85600325,0

00Total miles walked by Million Step March participants

Miles walked by Gary Marino and

Kathy Higgins each

650Million combined steps walked by

Million Step March participants

Walking the talk

Bob Greczyn, Gary Marino and Kathy Higgins

at the finish line

Gary Marino and Asheville Mayor Terry Bellamy

at the MSM in Asheville

MSM in Raleigh with Carolina

Hurricanes mascot ”Stormy”

MSM Web site

David Jones, a retired state employee from Snow Hill, was inspired by the Million Step March. He caught up with Marino and Higgins when they came through his town and also joined the march through Greenville and Kinston, as well as the finale in Wilmington. Then in October, he started his own walk from Snow Hill to Raleigh, about 75 miles, to draw attention to childhood obesity. Now he’s planning a walk to Washington, D.C. to raise awareness of rural health problems.

“Everybody can do something; it’s as simple as getting up and going for a walk,” said Jones, who walks about six miles a day. “When you spend some time on yourself every day being physically active, it pays off in the long run.”

Some employees at Classic Leather, a furniture manufacturer in Conover, watched the march closely. The company started walking clubs in 2007, allowing employees to walk during work hours. Classic Leather also brings in a nutritionist regularly for classes. Participation started slowly, but now dozens participate. Some employees have lost more than 50 pounds as a result of the focus on walking and nutrition.

“It’s a big plus that employees can do it on-site and not lose time at work,” said Tina Penley, benefits administrator and safety officer for the company. “Everybody wins because when people become healthier, we have fewer problems with things like heart disease and diabetes.”

Frances Davis was a walker who took the time to share her story on the Million Step March Web site. She started walking seriously after having gastric bypass surgery in 2007. Along the way, she has lost more than 160 pounds and no longer suffers from high blood pressure, sleep apnea or diabetes. Once walking just a few hundred steps would completely exhaust her; now she does about 10,000 steps a day, rain or shine.

“Walking became the most natural thing,” said Davis, a Mecklenburg County government employee. “It feels so good to be able to walk. When you were in so much physical pain and out of breath before, you just appreciate it. All it takes is a good pair of sneakers and some music, of course.”

85600325,0

00Total miles walked by Million Step March participants

Miles walked by Gary Marino and

Kathy Higgins each

650Million combined steps walked by

Million Step March participants

Million Step March

10

Girl Scouts, N.C. Coastal Pines, receive

$75,000 MSM grant

Bob Greczyn, Gary Marino and Kathy Higgins

at the finish line

In tough economic times, some companies may decide to cut costs by scrimping on service. Not us. When customers call with a problem or a question, our aim is to be a knowledgeable, caring and helpful resource to assist them in making the best use of their coverage and the health care system.

It’s a gigantic undertaking. Our membership of more than 3.7 million is larger than the population of 23 states.1

In 2008, we continued our commitment to customer service excellence, with an emphasis of getting it right the first time with every customer call. Our goal is to provide “unexpected and welcomed” service. That commitment is personal with customer service professionals like Jim Barry, who is among the employees who have gotten fan mail. “This is only the second time in my life that I received such exemplary services that I simply had to write the company,” said one customer, who praised Barry for going out of the way to provide crucial information.

“I give customers information that they can use to make good decisions,” Barry said. “If you get me on the phone, you’re going to get a lot of information. My favorite example is helping people understand what that card in their wallet means. Suddenly, it clicks for them, and that’s a wonderful experience.”

Customer Service

Walking the talk as a North Carolina company

20042003

4.0 mil.

3.5 mil.

3.0 mil.

2.5 mil.

2.0 mil.

1.5 mil.

1.0 mil.

0.5 mil.

02005

BCBSNC membership growth

2006 2007 200820042003

$12 bil.

$10 bil.

$8 bil.

$6 bil.

$4 bil.

$2 bil.

$02005

BCBSNC claims paid

2006 2007 2008

“I give customers information

that they can use to make good

decisions,” Barry said. “If you

get me on the phone, you’re

going to get a lot of information.

My favorite example is helping

people understand what that

card in their wallet means.

Suddenly, it clicks for them, and

that’s a wonderful experience.”

12

20042003

50 mil.

45 mil.

40 mil.

35 mil.

30 mil.

25 mil.

2005

Number of claims processed

2006 2007 2008

14

Excellent service means that we also have the people and capability for handling our enormous responsibilities to our customers and our state. Our membership has roughly doubled this decade, and we enrolled nearly 130,000 new customers in 2008.

During 2008, we answered nearly 5.4 million calls, most of which were answered by a customer service professional in well under a minute. Keeping call waits short is important, but what really matters is the quality of our interactions with customers. In 2008, we scored better than 98 percent in accuracy on customer inquiries.2 Our customer service centers take calls from customers, workplace benefit administrators, health care providers and agents.

We also processed more than 46 million claims with a value of more than $10.7 billion, a claims volume increase of more than 10 percent over 2007. Despite the volume, we’re able to process most claims within just a few days. In 2008, 93 percent of our claims were received electronically.

We set our goals and determine our success based on customer feedback about our service. Every month, more than 80 leaders at BCBSNC make unsolicited calls to randomly selected customers. The point of these calls is to listen and learn. Since 2004, we’ve personally reached 16,000 customers through this call program. We also use a variety of other tools to see how well we’re meeting customer needs.

We think it’s particularly important for us to reach out to customers right after they’ve contacted Customer Service, so they can give us their thoughts while their service experience is still fresh in their minds. So, in 2008, we began a survey to ask customers to rate their satisfaction with their recent call and indicate whether or not their questions were answered effectively and efficiently.We also randomly survey our general membership to see how we’re doing. In 2008, 86 percent of customers surveyed said they would likely recommend us as a health insurer.3

Going straight to the source gives us insight that we can use to continually increase customer satisfaction.

Walking the talk as a North Carolina company

Walking the talk in improved health

employee wellness

employee wellness

16

Setting the ExampleStarting in our own offices, through the workplaces we serve and the communities where we live, improving health remained one of our guiding principles in 2008.

That principle is embodied in the new employment brand we launched in 2008, A healthy North Carolina starts with youSM1. It describes the example we set and the service we provide as the state’s leading health insurer.

We do that at work by offering employees convenient opportunities to get fit, eat right and learn to manage their own health. More than 92 percent of our employees participated in voluntary, incentive-based wellness sessions, learning how to read nutrition labels, start an exercise program or manage stress. More than 90 percent participated in health screenings and a health risk assessment.

That effort has resulted in better health for our employees. With senior executives leading the way, about one fourth of BCBSNC employees participated in our Walk the Talk wellness challenge. Of employees who sought to lose weight, 500 dropped a combined 1,700 pounds. Our employees also made progress against a corporate goal for improving overall health indicators for our workforce.

Laura Hughes, a program innovation manager in our Healthcare Division, used the opportunity to break out of her exercise rut. She and her husband decided to try flag football in a local adult recreation league. They’re thinking about kickball in 2009.

“Walk the Talk was a motivator; nobody wants to be the weakest link,” Hughes said. “It forced me to do something new. That’s where flag football came in. We never won a game, but it was fun and physically challenging.”

Promoting good

health

18

Promoting Good HealthThrough our own experiences and information, we’ve worked hard to spread the workplace-wellness message across North Carolina. Our 2008 State of Preventive Health summit focused on programs that almost all employers can implement to improve the health of their employees. We surveyed employees at firms across the state and found that the wellness programs they value most don’t require a great deal of cost or administrative effort: paid-time off for doctor’s visits, healthy cafeteria and snack options, and physical activity opportunities during the workday. We’ve got more work to do to get that message out, as only about a third of the workplaces in the state offer those basic programs.

Promoting Cost-Effective Drug OptionsWe continued our industry-leading efforts to promote cost-effective prescription drug choices, particularly for customers with chronic conditions. In 2008 — as part of our Medication DedicationSM1 program — we began waiving generic copayments for customers taking medication to treat congestive heart failure, high blood pressure, high cholesterol and diabetes. We also significantly reduced copayments for brand-name drugs for these conditions. During the year, nearly 15 percent of our eligible customers switched from a brand-name to a generic medication for those conditions. We estimate that participating customers saved $13 million in out-of-pocket prescription drug costs for their prescription drugs during the year.

Understanding the difficulty consumers are having affording health care and other expenses during an economic downturn, we announced in December 2008 that we would waive all generic drug copayments for the first six months of 2009 for insured and participating self-insured customers. We estimate that this will save customers at least $22 million, at a time when those savings will really matter. For 2008, 65 percent of our customers’ prescriptions were generic, up from 44 percent in 2003. Generic drugs can cost up to 80 percent less4 than their brand-name counterparts, while providing identical safety and effectiveness.5

ShapingNorth Carolinainto a healthy state

7.8 million - Number of prescriptions filed electronically (since 2006)

$7.5 million - Dollar amount of BCBSNC Foundation grants

$10.7 billion - Value of claims processed250,000 - Preventive care reminders sent

19 - Number of towns and counties designated as Fit Communities (since 2006)

93 percent - Percent of claims filed electronically

65 percent - Generic prescription rate for BCBSNC customers

3.7 million - Total customers in North Carolina

20

Nearly 22,700 - Network physicians and specialists

More than 92 percent - Employees participating in wellness sessions

85 - Cents per premium dollar spent on medical care

4,593 - Child care visits provided by BCBSNC back-up day care center

65 - Undergraduate and graduate degrees earned by employees through Blue UniversitySM

$13 million - Customer savings through Medication Dedication program

150,000 - Number of customers who received assistance with chronic conditions from BCBSNC

More than 490,000 - Free flu vaccines provided to BCBSNC members

An ounce ofpreventionis worth a pound of

cure

Encouraging Preventive CareAlong with helping customers afford the medications they need, we provide them with support and information to help them better manage chronic conditions and make good choices about nutrition, physical activity and preventive health care.

This kind of assistance is particularly important for customers with chronic conditions such as diabetes, asthma and heart disease. We work with these customers to encourage them to follow medical guidelines for physician visits, medication and treatment plans. We also support them in the day-to-day challenges of managing their conditions. During 2008, we communicated with more than 150,000 customers with chronic conditions as part of this support.

In 2008, we sent about 250,000 preventive health reminders to customers who were overdue for health screenings, such as mammograms, Pap tests, colonoscopies, vaccines, and diabetes and vision screenings. The reminders are based on recommended screenings for a given customer’s age and health circumstances.

We provided more than 490,000 free flu vaccines to eligible customers with preventive health benefits, as part of our annual Stick it to the Flu®1 campaign, which encourages customers to get flu shots at doctors’ offices, worksite clinics, health departments or from participating pharmacists who provide immunizations.

We worked to encourage as many customers as possible to take advantage of our free Member Health PartnershipsSM1 program, which give them customized resources and support, based on the health and lifestyle issues of most concern to them. As a result of a year-long campaign, we doubled the number of customers actively taking part in the programs.

22

Our company’s vision extends beyond our membership to promote a better quality of life in our entire state. In 2008, that vision ranged from recognizing communities for creating healthy environments to working with doctors and hospitals to improve the safety, quality and effectiveness of the health care system.

We continued to work cooperatively with North Carolina’s hospitals to reduce the costs and incidence of medical errors. This followed our previous work with the N.C. Hospital Association to support the establishment of the N.C. Center for Hospital Quality

and Patient Safety and the nationwide 100,000 Lives campaign, a medical safety initiative that saved an estimated 2,500 lives in North Carolina and reduced hospital-related patient infections over an 18-month period.6

Our efforts to improve health care system effectiveness included BCBSNC’s support of a two-year effort to increase the use of potentially life-saving treatments for patients rushed to emergency rooms with heart attacks. The consortium reported a 17 percent improvement in the time it took patients to get angioplasties, a 22 percent improvement in

speed of administering blood clot-busting drugs, and a 41 percent improvement in the time it took to transfer patients who needed to go to other hospitals. The RACE (Reperfusion of Acute Myocardial Infarction in Carolina Emergency Departments) project monitored about 2,000 patients and involved 68 hospitals across the state.7

We promoted prescription drug accuracy, safety and convenience for our customers, as well as medical office efficiency, through the expansion of our electronic prescribing initiative. We offered physician offices across North Carolina access to free software,

Working toward

healthiercommunities and a

betterhealth care system

discounts on handheld devices and financial incentives to encourage their transition from paper to wireless prescriptions. In 2008, the number of physicians in our network filing electronic prescriptions reached 2,025, double the number in 2007. Since February 2006, participating physicians have submitted more than 7.8 million prescriptions electronically. Based upon the data we’ve received, we estimate that in 44 percent of the electronic filings, the technology alerted doctors to potential drug-to-drug interactions. In 18 percent of the electronic prescriptions, the technology let doctors know about less expensive generic alternatives to prescribed drugs.

Across the state, 19 towns and counties can proudly display Fit Community signs as a result of our cooperative work with the N.C. Health and Wellness Trust Fund to recognize places that make it more convenient for their residents to choose good health.8 Their health-focused efforts include promoting farmers’ markets and cooking classes; requiring sidewalk construction in new developments; and building easily accessible parks and bike paths.

24

44%

2003

Percentage of BCBSNC member prescriptionsfilled by a generic drug

2004 2005 2006

47%51%

58%60%

2007

65%

2008

Dedicated to improving the

healthand well-being ofNorth Carolina

The BCBSNC Foundation entered into a second, five-year collaboration with the North Carolina Association of Free Clinics to expand the reach and impact of free clinics across the state. Since the joint effort began in 2004, an additional 23 clinics have opened and patient visits have increased by almost 71 percent. These 77 clinics serve people in 79 counties and have provided more than $200 million in free health services over the past three years.9 According to a study by Wake Forest University, every dollar invested in a free clinic results in $4.82 worth of care.10

The BCBSNC Foundation is also in the midst of a joint effort with the N.C. Medical Society Foundation to recruit physicians and other health professionals to rural and other high-need areas of the state. During 2008, the Community Practitioner Program placed 16 health professionals in medically underserved regions and provided more than 411,000 patient visits.11 The program pays up to half the education debt of doctors, physician assistants and other professionals who agree to work in areas where there is a shortage of medical care.

The BCBSNC Foundation also provided dozens of smaller grants to groups providing health screenings in rural areas, nutrition education to teens at risk of obesity, health outreach to migrant workers, after-school meals, and physical activity programs and equipment. Since 2000, the BCBSNC Foundation has invested more than $46 million into North Carolina communities through 294 grants.

In 2008, the BCBSNC Foundation introduced the Foundation Fellows Program and selected a dozen BCBSNC employees to take part in the Foundation’s work. These Fellows bring diverse perspectives to the organization’s work and participate in grant-making recommendations, among other duties. Randon Pender, a nurse case manager for BCBSNC’s Medicare programs, said she particularly enjoyed the BCBSNC Foundation’s work to address health disparities.

“I was impressed with the magnitude of the community involvement of the company and the BCBSNC Foundation,” Pender said. “We’re not just talking about it. We’re putting resources out there to make things happen.”

The BCBSNC Foundation is a separate, independent, nonprofit foundation dedicated to improving the health and well-being of North Carolinians. Its grant-making focus areas include the health of vulnerable populations; healthy, active communities; and community impact through nonprofit excellence, which focuses on strengthening North Carolina nonprofits.

The Blue Cross and Blue Shield of North Carolina Foundation celebrated its eighth year in 2008, distributing $7.5 million in grants and continuing to work with and support organizations in improving the health and well-being of North Carolinians.

26

Contributionsas a corporate citizen

28

Our employees contributed more than 27,000 hours in volunteer time to charitable projects and organizations in 2008, everything from Meals on Wheels to animal rescue.

Eight hundred of those hours helped to build a Habitat for Humanity®2 house for a Durham family. BCBSNC sponsored the house, and more than 200 employees picked up hammers and paintbrushes to complete it. Leading the way among those weekend volunteers was Richard Dumas, who volunteers with Habitat on most Saturdays as a house crew leader.

Dumas got involved with Habitat more than 10 years ago, an outgrowth of his volunteer church work in housing ministries. He traditionally encourages the prospective homeowners to imagine where their furniture will go as the house is built to help them feel fully at home when it is done. Dumas also encourages volunteers to sign their names to rafters,

beams or other construction material in the home as a memorial to their effort and results.

“When you attend the house dedication finally, and it’s there, it’s a home — it’s not wood, it’s not sticks — it’s an emotional moment,” said Dumas, who works as a senior project manager in BCBSNC’s Inter-Plan Programs Department. “It’s really a beautiful house that we built for a family in need.”

The house was completed in December in the environmentally friendly Hope Crossing neighborhood in Durham.

Since 1998, BCBSNC employees have contributed more than 263,000 hours to local causes and charities, time with an estimated value of nearly $4.5 million.

Jessica Kelly has volunteered with the United Way for more than five years,

currently chairing a committee that helps determine funding needs and priorities in Durham. “I liked the fact that the United Way touched every aspect of the community, that you knew your money was going to help an organization and wouldn’t be frittered away,” said Kelly, a senior risk advisor with the BCBSNC Audit and Risk Management Department. “It’s gratifying to see volunteers and agencies working together to really solve community problems.”

In recognition of growing community needs, BCBSNC and its employees contributed $1 million to the United Way, the company’s largest campaign ever, bringing its total contributions to the organization to $7.5 million over the past 10 years. Employees also contributed 22,000 pounds of food to the Food Bank of Central and Eastern North Carolina and donated 500 units of blood to the American Red Cross — enough to potentially help 1,500 people.

Bluegoing green

We announced a major push to reduce our environmental impact, the centerpiece of which is a 100,000-square-foot “green” office building. We broke ground in 2008 and made major progress toward completion of the building, which will use 65 percent less energy and about half the water of our other traditional office buildings.

The building, scheduled to open in June 2009, will provide needed space to house our workforce and to consolidate some business functions now in separate buildings. Its features will include energy-efficient lighting fixtures, maximum use of natural light, energy- and water-conserving ventilation systems, use of captured rainwater for toilets and other non-drinking uses, as well as dedicated parking spaces for carpoolers and energy-efficient vehicles.

Companywide, we’re redesigning our ventilation systems, using green cleaning materials and placing recycling containers at each employee’s desk. Our goal is to reduce companywide energy use by 25 percent and water use by 20 percent by the end of 2010.

A North Carolina Economic ResourceThe year was a tough one for North Carolina and for many of our customers, as headlines noted increasing unemployment, layoffs, company mergers and bankruptcies. Particularly in difficult times, we keenly understand the importance of a stable BCBSNC to our state’s economy.

In 2008, the jobs we provided to North Carolinians reached nearly 4,900 during the year, an increase of about 70 percent since 2000.

The more than $10.7 billion we paid in claims in 2008 was equal to about half of the entire budget for the state of North Carolina.12

At a time when governments at all levels are struggling with sluggish revenues, we remain a reliable taxpayer. Our 2008 tax bill was $162.4 million. Since 2000, we’ve paid more than $1 billion in taxes to the local, state and federal governments.

2,910

2002 2003

BCBSNC Jobs in North Carolina

2004 2005 2006

3,3343,520

4,0514,357

2007

4,497

2008

4,847

30

Robert J. Greczyn, Jr.President and Chief Executive Officer

Maureen Kelley O’Connor Chief Administrative Officer,General Counsel andCorporate Secretary

Daniel E. GlaserChief Financial Officer

Company Leadership Executive Leadership Team

J. Bradley WilsonChief Operating Officer

John T. RoosChief Sales andMarketing Officer

Jeffrey L. Houpt, M.D., ChairmanProfessor of PsychiatryImmediate Past CEO, UNC Health Care System, and Dean, School of Medicine, Chapel Hill

Robert J. Greczyn, Jr.President and Chief Executive OfficerBlue Cross and Blue Shield of North Carolina

Jeffrey T. BarberRetired Managing PartnerPricewaterhouseCoopers, Raleigh

Andrea BazánPresidentTriangle Community Foundation, Durham

Roberta B. BowmanSenior Vice President and Chief Sustainability OfficerDuke Energy Corporation, Charlotte

Walter DavenportCertified Public Accountant Retired Partner, Cherry, Bekaert & Holland, Raleigh

Lloyd V. Hackley, Ph.D. President and CEOLloyd V. Hackley and Associates, Chapel Hill

Frank B. Holding, Jr. Chairman and Chief Executive OfficerFirst Citizens Bank, Raleigh

C. Daryl HollisIndependent Business ConsultantHendersonville

Harold L. Martin, Sr., Ph.D.Senior Vice President, Academic AffairsUniversity of North Carolina General AdministrationKernersville

Felix C. McDanielCertified Public Accountant (inactive) andRetired Chief Financial Officer, Henderson

John O. McNairyPresident and Chief Executive OfficerTidewater Transit, Kinston

Lars Steven NelsonPartner and Managing DirectorWakefield Group, LLC, Chapel Hill

Cissie StevensRetired Education Administrator, Asheville

James T. Williams, Jr.PartnerBrooks, Pierce, McLendon, Humphrey and Leonard, LLPGreensboro

Board of Trustees

Financialstability in difficult times

34

We never wish for difficult economic times, but we’re prepared for them. Our customers should expect nothing less from their health insurer. Because of our conservative financial strategy, we maintain a strong safety net for our customers, and continue our role as a reliable corporate citizen for our state.

Like all businesses, we are affected by the downturn. But at year’s end, we maintained about 3.5 months of claims and expenses in reserves. That’s less than our 25-year average of 4.1 months, but we believe it is a prudent level in light of our responsibilities to our customers. Our workforce is holding steady at nearly 4,900 jobs.

We continue to take a hard look at our expenses to make sure we are operating most efficiently. During 2008, we maintained the percentage of revenues we spend on operating expenses, while also maintaining high levels of service and health support for our customers. We also increased the percentage of premiums we spend on the health care of our customers, reaching just over 85 percent in 2008, with most of the rest used for customer service. In all, we spent more than $10.7 billion on health care claims.

Our profits remained well under 5 cents per each dollar of revenue. Our 2008 net income ratio was 3.6 percent, compared to 4.3 percent for 2007. Although our profit margin was down, it was still the kind of reasonable return that helps ensure we’ll be able to meet our customers’ needs over the long term.

We protected our customers’ premium dollars. While some companies experienced staggering investment losses, the total return on our investment portfolio was down less than six percent in 2008. That was far less than the steep drop in the overall financial markets.

BCBSNC is a fully taxed company, and our 2008 local, state and federal tax bills totaled $162.4 million.

The company that would become today’s Blue Cross and Blue Shield of North Carolina was started more than 75 years ago with $250 and a vision of a healthier North Carolina. It’s a job that requires a lot more resources now, and we’re committed to maintaining the kind of stability that allows us to continue living that vision every day.

20042003 2005

Months in reserves

2006 2007

3.8 3.73.73.7

4.0

2008

3.5

77.9%

20042003 2005

Percentage of premiums spent on medical claims

2006 2007 2008

80.1%80.2%82.2%

84.3%85.1%

Headquarters1830 US 15-501 NorthChapel Hill, NC 27514(919) 489-7431bcbsnc.com

Mailing AddressP.O. Box 2291Durham, NC 27702-2291

Customer Service Center1965 Ivy Creek BoulevardDurham, NC 27707

Madison Park Operations5660 University ParkwayWinston-Salem, NC(800) 942-5695

1 2007 resident population from U.S. Census Bureau, The 2009 Statistical Abstract. Downloaded 3/3/09 from: http://www.census.gov/compendia/statab/ranks/rank01.html.

2 BCBSNC internal data, 2008, based on Blue Cross and Blue Shield Association standards for speed and accuracy of response to questions and requests from customers.

3 BCBSNC internal data, 2008, based on monthly random surveys of BCBSNC customers throughout 2008. Eighty-six percent of those surveyed said they would “definitely” or “probably” recommend BCBSNC.

4 U.S. Food and Drug Administration, Generic Initiative for Value and Efficiency. Downloaded 3/3/09 from: http://www.fda.gov/oc/initiatives/advance/generics.html.

5 U.S. Food and Drug Administration, Office of Generic Drugs. Downloaded 3/3/09 from: http://www.fda.gov/cder/ogd/

6 N.C. Center for Hospital Quality and Patient Safety, 2009

7 Reperfusion of Acute Myocardial Infarction in Carolina Emergency Departments (RACE). Downloaded 3/3/09 from: http://www.nccacc.org/news/news1.html.

8 NC Health and Wellness Trust Fund, 2009. Downloaded 3/3/09 from: http://www.fitcommunitync.org/designees.aspx.

9 N.C. Association of Free Clinics, 2008

10 “An Evaluation of the BCBSNC Foundation’s Monetary Contribution to the NC Association of Free Clinics,” 2008. Study commissioned by BCBSNC Foundation.

11 N.C. Medical Society Foundation, 2008.

12 2008-2009 N.C. budget was approximately $21.4 billion. Source: N.C. General Assembly, Session Law 2008-107. Downloaded 3/3/09 from: http://www.ncga.state.nc.us/Sessions/2007/Bills/House/PDF/H2436v9.pdf.

An independent licensee of the Blue Cross and Blue Shield Association. ®, SM Marks of theBlue Cross and Blue Shield Association. SM1, ®1 Marks of Blue Cross and Blue Shield of North Carolina. ®2 Mark of Habitat for Humanity International. TM Mark of United Way of America U6129, 4/09