Since being named chair of the CareFirst, Inc. Board of Directors in mid-2004, I am pleased to report that CareFirst BlueCross BlueShield has continued to take meaningful steps to make health insurance coverage more affordable, to close gaps in health care access and quality, and to address the community’s health care needs. While CareFirst experienced dramatic changes in 2004, especially in the realm of governance, operationally the company recorded one of the finest years in its history. Enrollment grew to a record 3.3 million members and financial results were strong. New dental, vision and consumer-directed health care products were introduced for our beneficiaries and physicians and hospitals relationships were improved by efficiently and effectively processing more claims than ever before.

The 14 new members who were added to CareFirst’s governing Boards in 2004 represent a diverse range of business and community interests and offer new ideas and fresh perspective. These new Board members, working with the incumbent directors, quickly focused on setting a path for positioning the company over the long term, while carefully balancing CareFirst’s community responsibilities as a not-for-profit health plan. While enhancing our mission, CareFirst’s primary responsibility is to provide access to quality — and affordable — health care coverage to our members and potential customers throughout our market service area. We exist so that our policyholders can be assured that their health care coverage will be there for them when they need it most.

We also understand that CareFirst must reach out to the communities in which it operates. Guided by a newly established Mission Oversight Committee, the foundation was laid for a plan under which CareFirst would take bold, new steps in advancing an aggressive new community outreach initiative that we have called “CareFirst Commitment,” under which CareFirst will invest more than $90 million over the next year to help ease the burden of rising costs of health care and to further expand the company’s support of community-based access to health care.

A major component of CareFirst Commitment is the Board’s decision to reduce the 2005 earnings target by $60 million in order to moderate premiums for many of our customers. This commitment was further enhanced by the decision to absorb a new tax on HMO premiums, saving our HMO customers in Maryland nearly $20 million in 2005. The company will also work to expand access to safe, quality health care. Under a unique partnership with the national Bridges to Excellence initiative, CareFirst has committed $3.6 million over three years to recognize and reward physicians who adopt guidelines that promote quality of care and patient safety. Other initiatives are planned to better meet the needs of the increasingly diverse communities CareFirst serves.

In sum, you can be assured that all of CareFirst — its directors, executives and nearly 6,000 associates — will continue to work in creative and significant ways to earn your continued trust and confidence in 2005, just as it has for the prior 70 years.

Sincerely,

Michael R. Merson
Chairman, CareFirst, Inc. Board of Directors