================================================================================

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-Q

(Mark One)

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2002

[_]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________ to __________

Commission file number: 001-16751

ANTHEM, INC.
(Exact name of registrant as specified in its charter)

INDIANA 35-2145715
(State or other
jurisdiction of
incorporation or (I.R.S. Employer
organization) Identification Number)

120 MONUMENT CIRCLE,
INDIANAPOLIS, INDIANA 46204-4903
(Address of principal
executive offices) (Zip Code)

Registrant's telephone number, including area code (317) 488-6000

Not Applicable
(Former name, former address and former fiscal year, if changed since last
report)

Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [_]

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:

Title of Each Class Outstanding at May 3, 2002
------------------- --------------------------
Common Stock, $0.01 par
value 103,345,192 shares

================================================================================

Anthem, Inc.

Quarterly Report on Form 10-Q
For the Period Ended March 31, 2002

Table of Contents

Page
----

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements..................................................................... 1
Consolidated Balance Sheets as of March 31, 2002 (Unaudited) and December 31, 2001............ 1
Consolidated Statements of Income for the Three Months Ended March 31, 2002 and 2001
(Unaudited)................................................................................. 2
Consolidated Statements of Shareholders' Equity for the Three Months Ended March 31, 2002 and
2001 (Unaudited)............................................................................ 3
Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2002 and 2001
(Unaudited)................................................................................. 4
Notes to Consolidated Financial Statements (Unaudited)........................................ 5
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.... 13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk............................... 25

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings........................................................................ 25
ITEM 2. Changes in Securities and Use of Proceeds................................................ 29
ITEM 3. Defaults Upon Senior Securities.......................................................... 30
ITEM 4. Submission of Matters to a Vote of Security Holders...................................... 30
ITEM 5. Other Information........................................................................ 30
ITEM 6. Exhibits and Reports on Form 8-K......................................................... 30

SIGNATURES....................................................................................... 31

PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements

Anthem, Inc.
Consolidated Balance Sheets

March 31, December 31,
2002 2001
----------- ------------
(Unaudited)
(In Millions, Except
Share Data)

Assets
Current assets:
Investments available-for-sale, at fair value:
Fixed maturity securities..................................................... $3,768.5 $3,882.7
Equity securities............................................................. 192.4 189.1
-------- --------
3,960.9 4,071.8
Cash and cash equivalents......................................................... 456.3 406.4
Premium and self funded receivables............................................... 610.6 544.7
Reinsurance receivables........................................................... 77.6 76.7
Other receivables................................................................. 275.3 169.1
Other current assets.............................................................. 37.5 31.2
-------- --------
Total current assets................................................................. 5,418.2 5,299.9
Restricted cash and investments...................................................... 39.6 39.6
Property and equipment............................................................... 406.6 402.3
Goodwill............................................................................. 342.8 338.1
Other intangible assets.............................................................. 126.2 129.3
Other noncurrent assets.............................................................. 69.6 67.4
-------- --------
Total assets......................................................................... $6,403.0 $6,276.6
======== ========
Liabilities and shareholders' equity
Liabilities
Current liabilities:
Policy liabilities:
Unpaid life, accident and health claims....................................... $1,528.1 $1,411.3
Future policy benefits........................................................ 251.0 247.9
Other policyholder liabilities................................................ 56.1 57.3
-------- --------
Total policy liabilities.......................................................... 1,835.2 1,716.5
Unearned income................................................................... 328.7 320.6
Accounts payable and accrued expenses............................................. 245.8 331.0
Bank overdrafts................................................................... 360.2 310.7
Income taxes payable.............................................................. 54.1 52.4
Other current liabilities......................................................... 184.0 231.4
-------- --------
Total current liabilities............................................................ 3,008.0 2,962.6
Long term debt, less current portion................................................. 818.7 818.0
Retirement benefits.................................................................. 97.3 96.1
Other noncurrent liabilities......................................................... 353.0 339.9
-------- --------
Total liabilities.................................................................... 4,277.0 4,216.6
Shareholders' equity
Preferred stock, without par value, shares authorized--100,000,000; shares issued and
outstanding--none.................................................................. -- --
Common stock, par value $0.01, shares authorized--900,000,000; shares issued and
outstanding: 2002, 103,323,299; 2001, 103,295,675.................................. 1.1 1.1
Additional paid in capital........................................................... 1,960.9 1,960.8
Retained earnings.................................................................... 155.5 55.7
Accumulated other comprehensive income............................................... 8.5 42.4
-------- --------
Total shareholders' equity........................................................... 2,126.0 2,060.0
-------- --------
Total liabilities and shareholders' equity........................................... $6,403.0 $6,276.6
======== ========

See accompanying notes.

Anthem, Inc.
Consolidated Statements of Income
(Unaudited)

Three Months Ended
March 31
-------------------
2002 2001
-------- --------
(In Millions, Except
Per Share Data)

Revenues
Premiums............................................ $2,529.5 $2,268.9
Administrative fees................................. 201.0 213.0
Other revenue....................................... 18.1 11.5
-------- --------
Total operating revenue.......................... 2,748.6 2,493.4
Net investment income............................... 60.5 53.9
Net realized gains on investments................... 3.3 13.2
-------- --------
2,812.4 2,560.5
-------- --------
Expenses
Benefit expense..................................... 2,136.4 1,934.1
Administrative expense.............................. 505.6 499.4
Interest expense.................................... 17.6 14.4
Amortization of goodwill and other intangible assets 3.3 7.7
Demutualization expenses............................ -- 0.6
-------- --------
2,662.9 2,456.2
-------- --------
Income before income taxes and minority interest.... 149.5 104.3
Income taxes........................................ 49.2 34.4
Minority interest (credit).......................... 0.5 (0.7)
-------- --------
Net income.......................................... $ 99.8 $ 70.6
======== ========
Net income per share (1):
Basic............................................ $ 0.97 $ 0.68
======== ========
Diluted.......................................... $ 0.95 $ 0.68
======== ========

- --------
(1) Prior year amounts represent pro forma earnings per share prior to the
initial public offering.

See accompanying notes.

Anthem, Inc.
Consolidated Statements of Shareholders' Equity
(Unaudited)

Common Stock Accumulated
----------------- Additional Other Total
Number of Par Paid in Retained Comprehensive Shareholders'
Shares Value Capital Earnings Income Equity (1)
----------- ----- ---------- -------- ------------- -------------
(In Millions, Except Share Data)

Balance at December 31, 2001...... 103,295,675 $ 1.1 $1,960.8 $ 55.7 $ 42.4 $2,060.0
Net income........................ -- -- -- 99.8 -- 99.8
Change in net unrealized losses on
investments..................... -- -- -- -- (33.9) (33.9)
--------
Comprehensive income.............. 65.9
Adjustments related to the
demutualization................. 27,624 -- 0.1 -- -- 0.1
----------- ----- -------- -------- ------ --------
Balance at March 31, 2002......... 103,323,299 $ 1.1 $1,960.9 $ 155.5 $ 8.5 $2,126.0
=========== ===== ======== ======== ====== ========

Balance at December 31, 2000...... -- $ -- $ -- $1,848.6 $ 71.2 $1,919.8
Net income........................ -- -- -- 70.6 -- 70.6
Change in net unrealized losses on
investments..................... -- -- -- -- (9.5) (9.5)
--------
Comprehensive income.............. 61.1
----------- ----- -------- -------- ------ --------
Balance at March 31, 2001......... -- $ -- $ -- $1,919.2 $ 61.7 $1,980.9
=========== ===== ======== ======== ====== ========

- --------
(1) - Prior year amounts represent "Policyholders' surplus" prior to
demutualization.

See accompanying notes.

Anthem, Inc.
Consolidated Statements of Cash Flows
(Unaudited)

Three Months
Ended March 31
----------------
2002 2001
------- -------
(In Millions)

Operating activities
Net income.................................................. $ 99.8 $ 70.6
Adjustments to reconcile net income to net cash provided by
operating activities:
Net realized gains on investments........................ (3.3) (13.2)
Depreciation, amortization and accretion.................... 28.5 30.0
Deferred income taxes....................................... 13.6 12.2
Changes in operating assets and liabilities, net
of effect of purchases and divestitures:
Restricted cash and investments...................... -- (46.2)
Receivables................................................. (72.6) 39.5
Other assets................................................ (6.2) (0.6)
Policy liabilities.......................................... 118.8 48.7
Unearned income............................................. 8.2 85.8
Accounts payable and accrued expenses....................... (85.2) (48.2)
Other liabilities........................................... 79.6 (16.5)
Income taxes................................................ 2.1 16.5
------- -------
Net cash provided by continuing operations............... 183.3 178.6
Net cash used in discontinued operations................. -- (0.1)
------- -------
Cash provided by operating activities....................... 183.3 178.5

Investing activities
Purchases of investments.................................... (826.2) (979.3)
Sales or maturities of investments.......................... 730.3 891.3
Purchases of subsidiaries, net of cash acquired............. (10.6) --
Proceeds from sale of property and equipment................ 0.9 0.1
Purchases of property and equipment......................... (27.9) (11.3)
------- -------
Cash used in investing activities........................... (133.5) (99.2)

Financing activities
Adjustment to payments to eligible statutory members........ 0.1 --
------- -------
Cash provided by financing activities....................... 0.1 --
------- -------
Change in cash and cash equivalents......................... 49.9 79.3
Cash and cash equivalents at beginning of period............ 406.4 203.3
------- -------
Cash and cash equivalents at end of period.................. $ 456.3 $ 282.6
======= =======

See accompanying notes.

Anthem, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
March 31, 2002
(Dollars in Millions, Except Share Data)

1. Basis of Presentation

On November 2, 2001, Anthem Insurance Companies, Inc. ("Anthem Insurance")
converted from a mutual insurance company to a stock insurance company in a
process known as a demutualization. Concurrent with the demutualization, Anthem
Insurance became a wholly-owned subsidiary of Anthem, Inc. ("Anthem").
Effective with the demutualization, Anthem completed an initial public offering
of 55,200,000 shares of common stock. The shares issued in the initial public
offering are in addition to 48,095,675 shares of common stock (which will
ultimately vary slightly as all distribution issues are finalized) distributed
to eligible statutory members in the demutualization.

The accompanying unaudited consolidated financial statements of Anthem Inc.
and its subsidiaries (the "Company") have been prepared in accordance with
accounting principles generally accepted in the United States ("GAAP") for
interim financial reporting. Accordingly, they do not include all of the
information and footnotes required by GAAP for complete financial statements.
In the opinion of management, all adjustments, including normal recurring
adjustments, necessary for a fair presentation of the consolidated financial
statements as of and for the three month periods ended March 31, 2002 and 2001
have been recorded. The results of operations for the three month period ended
March 31, 2002 are not necessarily indicative of the results that may be
expected for the full year ending December 31, 2002. These unaudited
consolidated financial statements should be read in conjunction with the
Company's audited consolidated financial statements for the year ended December
31, 2001 included in Anthem's Annual Report on Form 10-K as filed with the
Securities and Exchange Commission.

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

2. Acquisitions

On April 29, 2002, Anthem and Trigon Healthcare, Inc. ("Trigon") announced
that they entered into an agreement and plan of merger pursuant to which Trigon
will become a wholly-owned subsidiary of Anthem. Trigon is Virginia's largest
health care company and is the Blue Cross and Blue Shield licensee in the state
of Virginia. Under the agreement, Trigon's shareholders will receive thirty
dollars in cash and 1.062 shares of Anthem common stock for each Trigon share
outstanding. The value of the transaction is estimated to be approximately $4.0
billion, and is expected to close in three to six months, subject to regulatory
and shareholder approvals.

On February 28, 2002, a subsidiary of Anthem Insurance, Anthem Health Plans
of Maine, Inc. completed its purchase of the remaining 50% ownership interest
in Maine Partners Health Plan, Inc. ("MPHP") in accordance with a stock
purchase agreement dated January 17, 2002. Full ownership of MPHP, an HMO
serving southern Maine, is expected to result in expanded member service
capabilities. The purchase price was $10.6 and resulted in $4.7 of non-tax
deductible goodwill assigned to the East reportable segment. The Company
previously consolidated the financial results of MPHP in its consolidated
financial statements and recorded minority interest for the percentage not
owned. The pro forma effects of the acquisition on results for periods
preceding the purchase date are not material to the Company's consolidated
financial statements.

On May 30, 2001, Anthem Insurance and Blue Cross and Blue Shield of Kansas
("BCBS-KS") signed a definitive agreement pursuant to which BCBS-KS would
become a wholly-owned subsidiary of Anthem Insurance. Under the proposed
transaction, BCBS-KS would demutualize and convert to a stock insurance

company. The agreement calls for Anthem Insurance to pay $190.0 in exchange for
all of the shares of BCBS-KS. On February 11, 2002, the Kansas Insurance
Commissioner disapproved the proposed transaction, which had been previously
approved by the BCBS-KS policyholders in January 2002. On February 19, 2002,
the board of directors of BCBS-KS voted unanimously to appeal the Kansas
Insurance Commissioner's decision and BCBS-KS sought to have the decision
overturned in Shawnee County District Court. The Company joined BCBS-KS in the
appeal, which was filed on March 7, 2002. Hearings are scheduled to begin on
June 7, 2002.

3. Goodwill and Other Intangible Assets

On January 1, 2002, the Company adopted FAS 141, Business Combinations, and
FAS 142, Goodwill and Other Intangible Assets. FAS 141 requires business
combinations completed after June 30, 2001 to be accounted for using the
purchase method of accounting. Under FAS 142, goodwill and other intangible
assets (with indefinite lives) will not be amortized but will be tested for
impairment at least annually. The Company is required to complete its
transitional impairment test of existing goodwill by June 30, 2002. This test
will involve the use of estimates related to the fair value of the business
with which the goodwill is associated. The Company does not expect any material
impairment loss as a result of this test.

Following is a summary of the change in the carrying amount of goodwill by
reportable segment for the period ended March 31, 2002:

Midwest East West Specialty Total
------- ------ ----- --------- ------

Balance as of January 1, 2002 $133.6 $121.5 $74.9 $8.1 $338.1
Goodwill acquired............ -- 4.7 -- -- 4.7
------ ------ ----- ---- ------
Balance as of March 31, 2002. $133.6 $126.2 $74.9 $8.1 $342.8
====== ====== ===== ==== ======

The following table reflects the components of other intangible assets as of
March 31, 2002 and December 31, 2001:

March 31, 2002 December 31, 2001
------------------------------ ------------------------------
Gross Net Gross Net
Carrying Accumulated Carrying Carrying Accumulated Carrying
Amount Amortization Amount Amount Amortization Amount
-------- ------------ -------- -------- ------------ --------

Intangible assets with finite lives:
Subscriber base.................... $ 64.9 $(32.1) $ 32.8 $ 64.7 $(29.7) $ 35.0
Provider and hospital networks..... 24.2 (5.6) 18.6 24.2 (5.0) 19.2
Other.............................. 10.8 (3.5) 7.3 10.8 (3.2) 7.6
------ ------ ------ ------ ------ ------
99.9 (41.2) 58.7 99.7 (37.9) 61.8
Intangible asset with indefinite life:
Blue Cross and Blue Shield
trademarks....................... 67.5 -- 67.5 67.5 -- 67.5
------ ------ ------ ------ ------ ------
$167.4 $(41.2) $126.2 $167.2 $(37.9) $129.3
====== ====== ====== ====== ====== ======

With the adoption of FAS 142 on January 1, 2002, the Company ceased
amortization of goodwill. The intangible asset established for Blue Cross and
Blue Shield trademarks is deemed to have an indefinite life and is

no longer amortized. The following table presents net income and earnings per
share on a comparable basis as if FAS 142 had been adopted January 1, 2001:

Three Months
Ended
March 31
------------
2002 2001
----- -----

Reported net income................................................... $99.8 $70.6
Amortization of goodwill (net of tax)................................. -- 3.5
Amortization of Blue Cross and Blue Shield trademarks (net of tax).... -- 0.5
----- -----
Adjusted net income................................................... $99.8 $74.6
===== =====
Basic earnings per share:
As reported and pro forma.......................................... $0.97 $0.68
Amortization of goodwill (net of tax).............................. -- 0.03
Amortization of Blue Cross and Blue Shield trademarks (net of tax). -- 0.01
----- -----
Adjusted basic earnings per share.................................. $0.97 $0.72
===== =====
Diluted earnings per share:
As reported and pro forma.......................................... $0.95 $0.68
Amortization of goodwill (net of tax).............................. -- 0.03
Amortization of Blue Cross and Blue Shield trademarks (net of tax). -- 0.01
----- -----
Adjusted diluted earnings per share................................ $0.95 $0.72
===== =====

Aggregate amortization expense for the three months ended March 31, 2002 was
$3.3. Estimated amortization expense for each of the five calendar years ending
December 31, is as follows:

2002 $12.8
2003 9.6
2004 8.6
2005 7.2
2006 6.5

4. Earnings Per Share

The following sets forth the denominator for basic and diluted earnings per
share for the three months ended March 31, 2002. Weighted average shares used
for basic earnings per share assumes that the adjustment to common stock issued
in the demutualization occurred on January 1, 2002.

Denominator for basic earnings per share--weighted average shares................. 103,323,299
Effect of dilutive securities--employee stock options............................. 485,314
Effect of dilutive securities--incremental shares from conversion of Unit purchase
contracts....................................................................... 1,011,959
-----------
Denominator for diluted earnings per share........................................ 104,820,572
===========

There were no shares or dilutive securities outstanding prior to the
demutualization and initial public offering. For comparative pro forma earnings
per share presentation, the weighted average shares outstanding and the effect
of dilutive securities for the period from November 2, 2001 to December 31,
2001, as shown below, was used to calculate pro forma earnings per share for
the three months ended March 31, 2001.

Denominator for basic earnings per share--weighted average shares................. 103,295,675
Effect of dilutive securities--employee stock options............................. 313,397
Effect of dilutive securities--incremental shares from conversion of Unit purchase
contracts....................................................................... 212,766
-----------
Denominator for diluted earnings per share........................................ 103,821,838
===========

On May 3, 2002, pursuant to the Company's 2001 Stock Incentive Plan (the
"Stock Plan"), the Company granted 1,549,720 stock options to purchase shares
of the Company's common stock to certain eligible executives, employees and
non-employee directors. The exercise price of these options is $71.86 per
share, the fair value of the stock on the grant date. These options will vest
and expire over terms set by the Compensation Committee of the Board of
Directors.

On May 3, 2002, pursuant to the Stock Plan, the Company granted 93,600
shares of the Company's common stock as restricted stock awards to certain
eligible executives at $71.86 per share, the fair value of the stock on the
grant date. The shares vest on a pro-rata basis over the periods ending
December 31, 2004 and 2005. None of the shares of restricted stock may be
transferred or encumbered, except as provided for in the award agreements,
until the restrictions on such shares lapse or are removed.

The stock options and restricted stock awards will not be considered
outstanding in computing the weighted-average number of shares outstanding for
basic earnings per share, but will be included, from the grant date, in
determining diluted earnings per share using the treasury stock method.

5. Credit Facilities

Anthem has cash requirements of approximately $1.2 billion for the pending
acquisition of Trigon, including both the cash portion of the purchase price
and transaction costs. During April 2002, Anthem obtained a commitment for a
bridge loan of up to $1.2 billion. Anthem plans to issue up to $1.0 billion of
debt securities in a private placement or public offering to provide permanent
financing for the acquisition. The net proceeds from issuance of these debt
securities would reduce the amount of the commitment for the bridge loan and
would be used to repay indebtedness under the bridge loan, to the extent it has
been drawn down. Under the terms of the bridge loan commitment, which is
subject to customary conditions, a required prepayment in an amount equal to
all cash and cash equivalents of Trigon and its unregulated subsidiaries (which
must be not less than $300.0) must be made no later than one month after the
closing of the acquisition. All indebtedness under the bridge loan must be
repaid in full no later than January 28, 2003.

During February 2002, Anthem and Anthem Insurance entered into two new
agreements allowing aggregate indebtedness of $135.0. Anthem will guarantee all
obligations of Anthem Insurance under the facilities. Anthem also will be
permitted to be a borrower under the facilities, if the Indiana Insurance
Commissioner approves Anthem Insurance's guarantee of Anthem's obligations
under the facilities.

6. Stock Repurchase Program

Anthem's Board of Directors approved a common stock repurchase program under
which the Company may purchase up to $400.0 of shares from time to time,
subject to business and market conditions. Shares may be repurchased in the
open market and in negotiated transactions for a period of twelve months
beginning February 6, 2002. No shares were repurchased as of March 31, 2002.
Through May 9, 2002, the Company repurchased 542,500 shares at a cost of $36.5.

7. Segment Information

The following tables show financial data by segment for the three months
ended March 31, 2002 and 2001:

Reportable Segments
------------------------------------------------------
Other and
Midwest East West Specialty Eliminations Total
-------- ------ ------ --------- ------------ --------

Three Months Ended
March 31, 2002
Operating revenue from external customers $1,451.8 $985.3 $221.2 $53.9 $ 36.4 $2,748.6
======== ====== ====== ===== ====== ========
Intersegment revenues.................... $ -- $ -- $ -- $66.2 $(66.2) $ --
======== ====== ====== ===== ====== ========
Operating gain (loss).................... $ 54.1 $ 42.2 $ 7.5 $12.4 $ (9.6) $ 106.6
======== ====== ====== ===== ====== ========

Reportable Segments
------------------------------------------------------
Other and
Midwest East West Specialty Eliminations Total
-------- ------ ------ --------- ------------ --------
Three Months Ended
March 31, 2001
Operating revenue from external customers $1,219.9 $874.9 $176.5 $42.5 $179.6 $2,493.4
======== ====== ====== ===== ====== ========
Intersegment revenues.................... $ -- $ -- $ -- $46.6 $(46.6) $ --
======== ====== ====== ===== ====== ========
Operating gain (loss).................... $ 42.8 $ 22.6 $ 0.2 $ 7.5 $(13.2) $ 59.9
======== ====== ====== ===== ====== ========

A reconciliation of reportable segment operating gain to income before
income taxes and minority interest included in the consolidated statements of
income for the three months ended March 31, 2002 and 2001 is as follows:

Three Months
Ended March 31
--------------
2002 2001
------ ------

Reportable segments operating gain.................. $106.6 $ 59.9
Net investment income............................... 60.5 53.9
Net realized gains on investments................... 3.3 13.2
Interest expense.................................... (17.6) (14.4)
Amortization of goodwill and other intangible assets (3.3) (7.7)
Demutualization expenses............................ -- (0.6)
------ ------
Income before income taxes and minority interest.... $149.5 $104.3
====== ======

8. Contingencies

Litigation:

sought, although the suit does seek injunctive relief from the court to
preclude the Company from allegedly utilizing arbitrary coverage guidelines,
making late payments to providers or members, denying coverage for medically
necessary prescription drugs and misrepresenting or failing to disclose
essential information to enrollees. The complaint contends that these alleged
policies and practices are a violation of ERISA. A second proceeding, brought
on behalf of a purported class of HMO and Point of Service members in
Connecticut and elsewhere, seeks injunctive relief to preclude the Company from
allegedly making coverage decisions relating to medical necessity without
complying with the express terms of the policy documents, and unspecified
monetary damages (both compensatory and punitive).

In addition, the Company's Connecticut subsidiary is a defendant in three
class action lawsuits brought on behalf of professional providers in
Connecticut. The suits allege that the Connecticut subsidiary has breached its
contracts by, among other things, failing to pay for services in accordance
with the terms of the contracts. The suits also allege violations of the
Connecticut Unfair Trade Practices Act, breach of the implied duty of good
faith and fair dealing, negligent misrepresentation and unjust enrichment. Two
of the suits seek injunctive relief and monetary damages (both compensatory and
punitive). The third suit, brought by the Connecticut State Medical Society,
seeks injunctive relief only.

On October 10, 2001, the Connecticut State Dental Association and five
dental providers filed suit against the Company's Connecticut subsidiary. The
suit alleged breach of contract and violation of the Connecticut Unfair Trade
Practices Act. The suit was voluntarily withdrawn on November 9, 2001. The
claims were refiled on April 15, 2002, as two separate suits, one by the
Connecticut State Dental Association, and the second by two dental providers,
purportedly on behalf of a class of dental providers. Both suits seek
injunctive relief, and unspecified monetary damages (both compensatory and
punitive).

The Company intends to vigorously defend these proceedings. All of the
proceedings are in the early stages of litigation, and their ultimate outcomes
cannot presently be determined.

Following the purchase of Blue Cross and Blue Shield of Maine ("BCBS-ME"),
appeals were filed by two parties that intervened in the administrative
proceedings before Maine's Superintendent of Insurance (the "Superintendent"),
challenging the Superintendent's decision approving the conversion of BCBS-ME
to a stock insurer, which was a required step before the acquisition. In one
appeal, Maine's Attorney General requested the Court to modify the
Superintendent's decision, by requiring BCBS-ME to submit an update to the
statutorily mandated appraisal of its fair market value and to deposit into the
charitable foundation the difference between the net proceeds that have been
transferred to the foundation and the final value of BCBS-ME, if greater. In
the other appeal, a consumers' group also challenged that portion of the
Superintendent's decision regarding the value of BCBS-ME. On December 21, 2001,
the Court issued an opinion affirming the decision of the Superintendent of
Insurance approving the conversion of BCBS-ME and the subsequent acquisition by
Anthem Insurance. The Consumers for Affordable Health Care have appealed this
decision to the Maine Supreme Judicial Court. The Attorney General did not
appeal the decision, and the appeals time has passed. The Company does not
believe that the Consumers' appeal will have a material adverse effect on its
consolidated financial position or results of operations.

On March 11, 1998, Anthem Insurance and its Ohio subsidiary, Community
Insurance Company ("CIC") were named as defendants in a lawsuit, Robert Lee
Dardinger, Executor of the Estate of Esther Louise Dardinger v. Anthem Blue
Cross and Blue Shield, et al., filed in the Licking County Court of Common
Pleas in Newark, Ohio. The plaintiff sought compensatory damages and
unspecified punitive damages in connection with claims alleging wrongful death,
bad faith and negligence arising out of the Company's denial of certain claims
for medical treatment for Ms. Dardinger. On September 24, 1999, the jury
returned a verdict for the plaintiff, awarding $1,350 (actual dollars) for
compensatory damages, $2.5 for bad faith in claims handling and appeals
processing, $49.0 for punitive damages and unspecified attorneys' fees in an
amount to be determined by the court. The court later granted attorneys' fees
of $0.8. An appeal of the verdict was filed by the defendants on November 19,
1999. On May 22, 2001, the Ohio Court of Appeals (Fifth District) affirmed the
jury award of

$1,350 (actual dollars) for breach of contract against CIC, affirmed the award
of $2.5 compensatory damages for bad faith in claims handling and appeals
processing against CIC, but dismissed the claims and judgments against Anthem
Insurance. The court also reversed the award of $49.0 in punitive damages
against both Anthem Insurance and CIC, and remanded the question of punitive
damages against CIC to the trial court for a new trial. Anthem Insurance and
CIC, as well as the plaintiff, appealed certain aspects of the decision of the
Ohio Court of Appeals. On October 10, 2001, the Supreme Court of Ohio agreed to
hear the plaintiff's appeal, including the question of punitive damages, and
denied the cross-appeals of Anthem Insurance and CIC. In December 2001, CIC
paid the award of $2.5 compensatory damages for bad faith and $1,350 (actual
dollars) for breach of contract, plus accrued interest. The ultimate outcome of
the matters that are the subject of the pending appeal cannot be determined at
this time.

In addition to the lawsuits described above, the Company is also involved in
other pending and threatened litigation of the character incidental to the
business transacted, arising out of its insurance and investment operations,
and is from time to time involved as a party in various governmental and
administrative proceedings. The Company believes that any liability that may
result from any one of these actions is unlikely to have a material adverse
effect on its consolidated results of operations or financial position.

Other Contingencies:

The Company, like a number of other Blue Cross and Blue Shield companies,
serves as a fiscal intermediary for Medicare Parts A and B. The fiscal
intermediaries for these programs receive reimbursement for certain costs and
expenditures, which is subject to adjustment upon audit by the federal Centers
for Medicare and Medicaid Services, formerly the Health Care Financing
Administration. The laws and regulations governing fiscal intermediaries for
the Medicare program are complex, subject to interpretation and can expose an
intermediary to penalties for non-compliance. Fiscal intermediaries may be
subject to criminal fines, civil penalties or other sanctions as a result of
such audits or reviews. In the last five years, at least eight Medicare fiscal
intermediaries have made payments to settle issues raised by such audits and
reviews. These payments have ranged from $0.7 to $51.6, plus a payment by one
company of $144.0. While the Company believes it is currently in compliance in
all material respects with the regulations governing fiscal intermediaries,
there are ongoing reviews by the federal government of the Company's activities
under certain of its Medicare fiscal intermediary contracts.

On December 8, 1999, Anthem Health Plans, Inc. ("AHP"), a subsidiary of
Anthem Insurance, reached a settlement agreement with the Office of Inspector
General ("OIG"), Department of Health and Human Services, in the amount of
$41.9, to resolve an investigation into misconduct in the Medicare fiscal
intermediary operations of Blue Cross & Blue Shield of Connecticut ("BCBS-CT"),
AHP's predecessor. The period investigated was before Anthem Insurance merged
with BCBS-CT. The resolution of this case involved no criminal penalties
against the Company nor any suspension or exclusion from federal programs. This
expense was included in administrative expense in the statement of consolidated
income for the year ended December 31, 1999.

AdminaStar Federal, Inc. ("AdminaStar"), a subsidiary of Anthem Insurance,
has received several subpoenas prior to May 2000 from the OIG and the U.S.
Department of Justice, one seeking documents and information concerning its
responsibilities as a Medicare Part B contractor in its Kentucky office, and
the others requesting certain financial records and information of AdminaStar
and Anthem Insurance related to the Company's Medicare fiscal intermediary
(Part A) and carrier (Part B) operations. The Company has made certain
disclosures to the government relating to its Medicare Part B operations in
Kentucky. The Company was advised by the government that, in conjunction with
its ongoing review of these matters, the government has also been reviewing
separate allegations made by individuals against AdminaStar, which are included
within the same timeframe and involve issues arising from the same nucleus of
operative facts as the government's ongoing review. The Company is not in a
position to predict either the ultimate outcome of these reviews or the extent
of any potential exposure should claims be made against the Company. However,
the Company believes any fines or penalties that may arise from these reviews
would not have a material adverse effect on the consolidated financial position
or results of operations.

As a Blue Cross Blue Shield Association licensee, the Company participates
in the Federal Employee Program ("FEP"), a nationwide contract with the Federal
Office of Personnel Management to provide coverage to federal employees and
their dependents. On July 11, 2001, the Company received a subpoena from the
OIG, Office of Personnel Management, seeking certain financial documents and
information, including information concerning intercompany transactions,
related to operations in Ohio, Indiana and Kentucky under the FEP contract. The
government has advised the Company that, in conjunction with its ongoing
review, the government is also reviewing a separate allegation made by an
individual against the Company's FEP operations, which is included within the
same timeframe and involves issues arising from the same nucleus of operative
facts as the government's ongoing review. The Company is currently cooperating
with the OIG and the U.S. Department of Justice on these matters. The ultimate
outcome of these reviews cannot be determined at this time.

Anthem Insurance guaranteed certain financial contingencies of its
subsidiary, Anthem Alliance Health Insurance Company ("Alliance"), under a
contract between Alliance and the United States Department of Defense. Under
that contract, Alliance managed and administered the TRICARE Managed Care
Support Program for military families from May 1, 1998 through May 31, 2001.
There was no call on the guarantee for the period from May 1, 1998 to April 30,
1999 (which period is now "closed"), and the Company does not anticipate a call
on the guarantee for the periods beginning May 1, 1999 through May 31, 2001
(which periods remain "open" for possible review by the Department of Defense).

ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations

INTRODUCTION

We are one of the nation's largest health benefits companies and an
independent licensee of the Blue Cross Blue Shield Association, or BCBSA. We
offer Blue Cross Blue Shield branded products to over eight million members
throughout Indiana, Kentucky, Ohio, Connecticut, New Hampshire, Maine, Colorado
and Nevada.

Our health business segments are strategic business units delineated by
geographic areas within which we offer similar products and services. We manage
our business units with a local focus to address each geographic region's
unique market, regulatory and healthcare delivery characteristics. Our
geographic health segments are: Midwest, which includes Indiana, Kentucky and
Ohio; East, which includes Connecticut, New Hampshire and Maine; and West,
which includes Colorado and Nevada.

In addition to our three geographic health segments, our reportable segments
include a Specialty segment that contains business units providing group life
and disability insurance benefits, pharmacy benefit management, dental and
vision administration services and third party occupational health services.
Our Other segment is comprised of AdminaStar Federal, intersegment revenue and
expense eliminations and corporate expenses not allocated to reportable
segments. AdminaStar Federal is a subsidiary that administers Medicare programs
in Indiana, Illinois, Kentucky and Ohio. In 2001, our Other segment also
contained Anthem Alliance Health Insurance Company, or Anthem Alliance. Anthem
Alliance was a subsidiary that primarily provided health care benefits and
administration in nine states for the Department of Defense's TRICARE Program
for military families. We sold our TRICARE operations on May 31, 2001.

We offer our health benefits customers traditional indemnity products and a
diversified mix of managed care products, including health maintenance
organizations or HMOs, preferred provider organizations or PPOs, and point of
service or POS plans. We also provide a broad array of managed care services
and partially insured products to self-funded employers, including
underwriting, stop loss insurance, actuarial services, provider network access,
medical cost management, claims processing and other administrative services.
Our operating revenue consists of premiums, administrative service fees and
other revenue. The premiums come from fully or partially insured contracts
where we indemnify our policyholders against loss. The administrative fees come
from self-funded contracts where our contract holders are wholly or partially
self-insured and from the administration of Medicare programs. Other revenue is
principally generated by our pharmacy benefit management company in the form of
co-pays and deductibles paid by the member associated with the sale of mail
order drugs.

Our benefit expense consists mostly of four cost of care components:
outpatient and inpatient care costs, physician costs and pharmacy benefit
costs. All four components are affected both by unit costs and utilization
rates. Unit costs, for example, are the cost of outpatient medical procedures,
inpatient hospital stays, physician fees for office visits and prescription
drug prices. Utilization rates represent the volume of consumption of health
services and vary with the age and health of our members and broader social and
lifestyle factors in the population as a whole.

On April 29, 2002, Anthem and Trigon Healthcare, Inc. ("Trigon") announced
that they entered into an agreement and plan of merger pursuant to which Trigon
will become a wholly-owned subsidiary of Anthem. Trigon is Virginia's largest
health care company and is the Blue Cross and Blue Shield licensee in the State
of Virginia. Under the agreement, Trigon's shareholders will receive thirty
dollars in cash and 1.062 shares of Anthem common stock for each Trigon share
outstanding. The value of the transaction is estimated to be approximately $4.0
billion, and is expected to close in three to six months, subject to regulatory
and shareholder approvals. Trigon reported the following unaudited financial
results for the periods ended March 31, 2002 and 2001:

2002 2001
------ ------
($ in Millions)

Total revenues $825.7 $728.2
Net income.... 35.2 32.4

As of March 31, 2002, Trigon reported total assets of $2.7 billion, total
liabilities of $1.7 billion and total shareholders' equity of $1.0 billion.

We sold our TRICARE operations on May 31, 2001. The results of our TRICARE
operations during 2001 are reported in our Other segment and for the three
months ended March 31, 2001 were $146.9 million in operating revenue and $1.1
million in operating gain.

On May 30, 2001, we signed a definitive agreement with Blue Cross and Blue
Shield of Kansas, or BCBS-KS, pursuant to which BCBS-KS would become a wholly
owned subsidiary. Under the proposed transaction, BCBS-KS would demutualize and
convert to a stock insurance company. The agreement calls for us to pay $190.0
million in exchange for all of the shares of BCBS-KS. On February 11, 2002, the
Kansas Insurance Commissioner disapproved the proposed transaction, which had
been previously approved by the BCBS-KS policyholders in January 2002. On March
7, 2002, BCBS-KS appealed the Kansas Insurance Commissioner's decision and
sought to have the decision overturned in Shawnee County District Court. We
joined BCBS-KS in the appeal, which is now scheduled for hearings to begin on
June 7, 2002.

This management's discussion and analysis should be read in conjunction with
our audited consolidated financial statements and accompanying notes for the
year ended December 31, 2001 and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included in our Annual Report on
Form 10-K as filed with the Securities and Exchange Commission, and in
conjunction with our unaudited consolidated financial statements and
accompanying notes for the three months ended March 31, 2002 and 2001 included
in this Form 10-Q.

MEMBERSHIP--THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THREE MONTHS ENDED
MARCH 31, 2001

We categorize our membership into seven different customer types: Local
Large Group, Small Group, Individual, National, Medicare + Choice, Federal
Employee Program and Medicaid.

. Local Large Group consists of those customers with 51 or more eligible
employees, which are not considered National accounts.

. Small Group consists of those customers with one to 50 employees.

. Individual members include those in our under age 65 business and our
Medicare Supplement (age 65 and over) business.

. Our National accounts customers are employer groups, which have
multi-state locations and require partnering with other Blue Cross and
Blue Shield plans for administration and/or access to non-Anthem
provider networks. Included within the National business are our
BlueCard customers who represent enrollees of health plans marketed by
other Blue Cross and Blue Shield Plans, or the home plans, who receive
health care services in our Blue Cross and Blue Shield licensed markets.

. Medicare + Choice members have enrolled in coverages that are managed
care alternatives for the Medicare program.

. The Federal Employee Program, or FEP, provides health insurance coverage
to United States government employees and their dependents. Our FEP
members work in Anthem markets and are covered by this program.

. Medicaid membership represents eligible members with state sponsored
managed care alternatives in the Medicaid programs which we manage for
the states of Connecticut and New Hampshire.

Our BlueCard membership is calculated based on the amount of BlueCard
administrative fees we receive from the BlueCard members' home plans.
Generally, the administrative fees we receive are based on the number

and type of claims processed and a portion of the network discount on those
claims. The administrative fees are then divided by an assumed per member per
month, or PMPM, factor to calculate the number of members. The assumed PMPM
factor is based on an estimate of our experience and BCBSA guidelines.

In addition to categorizing our membership by customer type, we categorize
membership by funding arrangement according to the level of risk we assume in
the product contract. Our two funding arrangement categories are fully insured
and self-funded. Self-funded products are offered to customers, generally
larger employers, with the ability and desire to retain some or all of the risk
associated with their employees' health care costs.

The following table presents our membership count by segment, customer type
and funding arrangement as of March 31, 2002 and 2001. The membership data
presented are unaudited and in certain instances include our estimates of the
number of members represented by each contract at the end of the period,
rounded to the nearest thousand.

March 31
-----------
2002 2001 Change % Change
----- ----- ------ --------
(In Thousands)

Segment
Midwest................. 5,070 4,760 310 7%
East.................... 2,292 2,186 106 5
West.................... 809 662 147 22
----- ----- ---- ----
Total without TRICARE... 8,171 7,608 563 7
TRICARE................. -- 419 (419) (100)
----- ----- ---- ----
Total................ 8,171 8,027 144 2%
===== ===== ==== ====
Customer Type
Local Large Group....... 2,792 2,750 42 2%
Small Group............. 811 790 21 3
Individual.............. 730 663 67 10
National accounts (1)... 3,163 2,774 389 14
Medicare + Choice....... 101 100 1 1
Federal Employee Program 449 426 23 5
Medicaid................ 125 105 20 19
----- ----- ---- ----
Total without TRICARE... 8,171 7,608 563 7
TRICARE................. -- 419 (419) (100)
----- ----- ---- ----
Total................ 8,171 8,027 144 2%
===== ===== ==== ====
Funding Arrangement
Self-funded............. 4,294 3,914 380 10%
Fully insured........... 3,877 3,694 183 5
----- ----- ---- ----
Total without TRICARE... 8,171 7,608 563 7
TRICARE................. -- 419 (419) (100)
----- ----- ---- ----
Total................ 8,171 8,027 144 2%
===== ===== ==== ====

- --------
(1) Includes BlueCard members of 1,933 as of March 31, 2002, and 1,508 as of
March 31, 2001.

Our TRICARE program provided managed care services to active and retired
military personnel and their dependents. We sold our TRICARE business on May
31, 2001, and thus we had no TRICARE members as of March 31, 2002. At March 31,
2001, our TRICARE membership totaled 419,000 and was fully insured.

During the twelve months ended March 31, 2002, total membership increased
144,000, or 2%. Excluding our TRICARE business from 2001, membership increased
563,000, or 7%, primarily due to National, Individual and Local Large Group
businesses. National membership increased 389,000, or 14%, primarily due to a
significant increase in BlueCard activity and sales in our National accounts
business. Individual membership increased 67,000, or 10%, with the majority of
this growth resulting from higher sales in our under 65 business in all
segments. Local Large Group membership, which includes both fully insured and
self-funded business, increased 42,000, or 2%, primarily due to sales of new
accounts and retention of insured business which more than offset a decrease in
self-funded business. Local Large Group self-funded membership decreased
slightly, particularly in the Midwest.

Medicare + Choice membership increased 1,000, or 1%. Excluding our
withdrawal from the Medicare + Choice market in Colorado as of January 1, 2002,
Medicare + Choice membership increased 11,000, or 12%. This increase was
primarily due to new business in certain counties in Ohio, where many
competitors have left the market, leaving us as one of the few remaining
companies offering this product. Our Medicare + Choice membership in Colorado
was 10,000 at March 31, 2001.

Self-funded membership increased 380,000, or 10%, primarily due to an
increase in BlueCard membership. Fully insured membership, excluding our
TRICARE business from 2001, grew by 183,000 members, or 5%, from March 31,
2001, primarily in Individual, Local Large Group and Small Group businesses.

RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 COMPARED TO THE
THREE MONTHS ENDED MARCH 31, 2001

The following table presents our consolidated results of operations for the
three months ended March 31, 2002 and 2001:

Three Months Ended
March 31 Change
------------------------ ----------------
2002 2001 $ %
-------- --------------- ------ --------
($ in Millions)

Operating revenue and premium equivalents (1)..................... $3,793.2 $3,390.1 $403.1 12%
======== ======== ====== ========
Premiums.......................................................... $2,529.5 $2,268.9 $260.6 11%
Administrative fees............................................... 201.0 213.0 (12.0) (6)
Other revenue..................................................... 18.1 11.5 6.6 57
-------- -------- ------ --------
Total operating revenue........................................ 2,748.6 2,493.4 255.2 10

Benefit expense................................................... 2,136.4 1,934.1 202.3 10
Administrative expense............................................ 505.6 499.4 6.2 1
-------- -------- ------ --------
Total operating expense........................................ 2,642.0 2,433.5 208.5 9
-------- -------- ------ --------

Operating gain.................................................... 106.6 59.9 46.7 78

Net investment income............................................. 60.5 53.9 6.6 12
Net realized gains on investments................................. 3.3 13.2 (9.9) (75)
Interest expense.................................................. 17.6 14.4 3.2 22
Amortization of goodwill and other intangible assets.............. 3.3 7.7 (4.4) (57)
Demutualization expenses.......................................... -- 0.6 (0.6) (100)
-------- -------- ------ --------
Income before taxes and minority interest......................... 149.5 104.3 45.2 43

Income taxes...................................................... 49.2 34.4 14.8 43
Minority interest (credit)........................................ 0.5 (0.7) 1.2 NM (2)
-------- -------- ------ --------
Net income........................................................ $ 99.8 $ 70.6 $ 29.2 41%
======== ======== ====== ========
Benefit expense ratio (3)......................................... 84.5% 85.2% (70) bp (4)
Administrative expense ratio: (5).................................
Calculated using operating revenue (6)........................ 18.4% 20.0% (160) bp (4)
Calculated using operating revenue and premium equivalents (7) 13.3% 14.7% (140) bp (4)
Operating margin (8).............................................. 3.9% 2.4% 150 bp (4)

The following definitions are also applicable to all other tables and
schedules in this discussion:

(1) Operating revenue and premium equivalents is a measure of the volume of
business commonly used in the health insurance industry to allow for a
comparison of operating efficiency among companies. It is obtained by
adding to premiums, administrative fees and other revenue the amount of
claims attributable to non-Medicare, self-funded health business where
we provide a complete array of customer service, claims administration
and billing and enrollment services. The self-funded claims included for
the three months ended March 31, 2002 were $1,044.6 million and for the
three months ended March 31, 2001 were $896.7 million.

(2) NM = Not meaningful.

(3) Benefit expense ratio = Benefit expense / Premiums.

(4) bp = basis point; one hundred basis points = 1%.

(5) While we include two calculations of administrative expense ratio, we
believe that administrative expense ratio including premium equivalents
is a better measure of efficiency as it eliminates changes in the ratio
caused by changes in our mix of insured and self-funded business. All
discussions and explanations related to administrative expense ratio
will be related to administrative expense ratio including premium
equivalents.

(6) Administrative expense / Operating revenue.

(7) Administrative expense / Operating revenue and premium equivalents.

(8) Operating margin = Operating gain / Total operating revenue.

Premiums increased $260.6 million, or 11%, to $2,529.5 million in 2002.
Excluding our TRICARE business from 2001, premiums increased $369.8 million, or
17%, primarily due to premium rate increases, particularly in our Local Large
Group and Small Group businesses, and higher membership in all of our business
segments. Our Midwest premiums increased due to higher membership and premium
rate increases in our group accounts (both Local Large Group and Small Group).
Our East and West premiums increased primarily due to premium rate increases
and higher membership in both our Local Large Group and Small Group businesses.

Administrative fees decreased $12.0 million, or 6%, from $213.0 million in
2001 to $201.0 million in 2002 primarily due to the sale of our TRICARE
business. Excluding our TRICARE business from 2001, administrative fees
increased $25.7 million, or 15%, primarily from membership growth in National
account self-funded business. Excluding our TRICARE business from 2001, other
revenue, which is comprised principally of co-pays and deductibles paid by the
member associated with Anthem Prescription Management's, or APM's, sale of mail
order drugs, increased $6.6 million, or 57%. APM is our pharmacy benefit
manager and provides its services principally to other Anthem affiliates. Mail
order revenues increased primarily due to additional volume resulting from the
introduction of APM as the pharmacy benefit manager at Blue Cross and Blue
Shield of Colorado and Nevada, or BCBS-CO/NV and Blue Cross and Blue Shield of
Maine, or BCBS-ME, in the second quarter of 2001.

Benefit expense increased $202.3 million, or 10%, in 2002. Excluding our
TRICARE business from 2001, benefit expense increased $311.3 million, or 17%,
due to higher average membership and increasing cost of care. Cost of care
trends were driven primarily by higher utilization of outpatient services and
higher prescription drug costs. Our benefit expense ratio decreased 70 basis
points from 85.2% in 2001 to 84.5% in 2002 primarily due to the sale of our
TRICARE business. Excluding our TRICARE business from 2001, our benefit expense
ratio remained flat at 84.5%.

Overall, our cost of care trends have been approximately 13%, using a
rolling 12-month calculation through March 2002. Outpatient and professional
services cost increases for the quarter have varied among regions and products.
For the rolling 12-month period ended March 31, 2002 compared to the rolling
12-month period ended

March 31, 2001, outpatient cost increases were approximately 13% while
professional services cost increases were approximately 11%. These increases
resulted from both increased utilization and higher unit costs. Increased
outpatient utilization reflects an industry-wide trend toward a broader range
of medical procedures being performed without overnight hospital stays, as well
as an increasing customer awareness of and demand for diagnostic procedures
such as magnetic resonance imagings, or MRIs. In addition, improved medical
technology has allowed more complicated medical procedures to be performed on
an outpatient basis rather than on an inpatient (hospitalized) basis,
increasing both outpatient utilization rates and unit costs.

Prescription drug cost increases for the 12-month period ended March 31,
2002 compared to the 12-month period ended March 31, 2001 varied among regions
and by product, but were approximately 18%. These cost increases resulted from
the introduction of new, higher cost drugs and higher overall utilization. In
response to increasing prescription drug costs, we continue to implement
three-tiered drug programs for our members. Three-tiered drug programs reflect
benefit designs that have three co-payment levels which depend on the drug
selected. Generic drugs have the lowest co-payment, brand name drugs included
in the drug formulary have a higher co-payment and brand name drugs omitted
from the drug formulary have the highest co-payment. Drug formularies are a
list of prescription drugs that have been reviewed and selected for their
quality and efficacy by a committee of practicing physicians and clinical
pharmacists. Through our pharmacy benefit design, we encourage use of these
listed brand name and generic drugs to ensure members receive quality and
cost-effective medication.

Growth in inpatient costs was approximately 11% for the 12-month period
ended March 31, 2002 compared to the 12-month period ended March 31, 2001. This
increase was due to re-negotiation of provider contracts and higher overall
utilization. Hospitals have taken a more aggressive stance in their contracting
with health insurance companies as a result of reduced hospital reimbursements
from Medicare and pressure to recover the costs of additional investments in
new medical technology and facilities.

Administrative expense increased $6.2 million, or 1%, for the three months
ended March 31, 2002. Excluding our TRICARE business from 2001, administrative
expense increased $43.0 million, or 9%, primarily due to commissions and
premium taxes, which vary with premium, higher employment costs and other
additional costs associated with higher membership and investments in
technology. Excluding our TRICARE business from 2001, our administrative
expense ratio, calculated using operating revenue and premium equivalents,
decreased 100 basis points to 13.3% primarily due to operating revenue growth
and continued focus on cost containment efforts.

Net investment income increased $6.6 million, or 12%, primarily due to our
higher average investment portfolio balances for the first three months of
2002, as compared to the average for the first three months of 2001. The higher
portfolio balances included net cash generated from operations, as well as cash
generated from improved balance sheet management, such as quicker collection of
receivables. As returns on fixed maturity portfolios are dependent on market
interest rates and changes in interest rates are unpredictable, there is no
certainty that past investment performance will be repeated in the future.

Net realized gains on investments decreased from $13.2 million for the three
months ended March 31, 2001 to $3.3 million for the three months ended March
31, 2002. Net realized capital gains from sale of equities decreased $2.6
million, or 90%, to $0.3 million in 2002 from $2.9 million in 2001. Net
realized capital gains from sale of fixed income securities decreased $7.3
million, or 71%, to $3.0 million in 2002 from $10.3 million in 2001. Net gains
or losses on investments are influenced by market conditions when or if an
investment is sold, and will vary from period to period.

Interest expense increased $3.2 million, or 22%, primarily reflecting the
issuance of our 6.00% Equity Security Units, or Units, on November 2, 2001.

Amortization of goodwill and other intangible assets decreased $4.4 million,
or 57%, from the three months ended March 31, 2001 to the three months ended
March 31, 2002, primarily due to adoption of Statement of Financial Accounting
Standards No. 142, "Goodwill and Other Intangible Assets", on January 1, 2002.
See Note 3 to our March 31, 2002 unaudited consolidated financial statements
for additional information.

Income tax expense increased $14.8 million, or 43%, primarily due to higher
income before taxes. Our effective income tax rate was 32.9% in the first
quarter of 2002 and 33.0% in the first quarter of 2001.

Net income increased $29.2 million, or 41%, primarily due to the improvement
in our operating results, higher net investment income and lower amortization
of goodwill and other intangible assets resulting from the adoption of FAS No.
142 on January 1, 2002. Assuming FAS 142 had been in effect for the quarter
ended March 31, 2001, our net income would have increased $25.2 million, or 34%.

Midwest

Our Midwest segment is comprised of health benefit and related business for
members in Indiana, Kentucky and Ohio. The following table presents our Midwest
segment's summarized results of operations for the three months ended March 31,
2002 and 2001:

Three Months
Ended March 31
------------------
2002 2001 % Change
-------- -------- --------
($ in Millions)

Operating Revenue... $1,451.8 $1,219.9 19%
Operating Gain...... $ 54.1 $ 42.8 26%
Operating Margin.... 3.7% 3.5% 20 bp
Membership (in 000s) 5,070 4,760 7%

Operating revenue increased $231.9 million, or 19%, in 2002 primarily due to
premium rate increases, membership gains, particularly in Local Large Group
fully insured business, Small Group and Medicare + Choice, and overall good
service that resulted in increased retention.

Operating gain increased $11.3 million, or 26%, resulting in an operating
margin of 3.7% at March 31, 2002, a 20 basis point improvement from the three
months ended March 31, 2001. This improvement was primarily due to revenue
growth and effective expense control. Administrative expense increased at a
slower rate than premiums as we gained operating efficiencies and leveraged our
fixed costs over higher membership.

Membership increased 310,000, or 7%, to 5.1 million members, primarily due
to growth in National business and additional sales in Individual business.
Retention of members was favorable in all lines of business.

East

Our East segment is comprised of health benefit and related business for
members in Connecticut, New Hampshire and Maine. The following table presents
our East segment's summarized results of operations for the three months ended
March 31, 2002 and 2001.

Three Months
Ended March 31
-------------- %
2002 2001 Change
------ ------ ------
($ in Millions)

Operating Revenue... $985.3 $874.9 13%
Operating Gain...... $ 42.2 $ 22.6 87%
Operating Margin.... 4.3% 2.6% 170 bp
Membership (in 000s) 2,292 2,186 5%

Operating revenue increased $110.4 million, or 13%, in 2002 due to premium
rate increases and higher Small Group membership.

Operating gain increased $19.6 million, or 87%, primarily due to improved
underwriting results, primarily in New Hampshire and Maine group business.
Operating margin increased 170 basis points to 4.3% for the three months ended
March 31, 2002.

Membership increased 106,000, or 5%, primarily in National accounts business.

On February 28, 2002, a subsidiary of Anthem Insurance, Anthem Health Plans
of Maine, Inc., completed its purchase of the remaining 50% ownership interest
in Maine Partners Health Plan, Inc. for an aggregate purchase price of $10.6
million. We had previously consolidated the financial results of this entity in
our consolidated financial statements and recorded minority interest for the
percentage we did not own.

West

Our West segment is comprised of health benefit and related business for
members in Colorado and Nevada. The following table presents our West segment's
summarized results of operations for the three months ended March 31, 2002 and
2001:

Three Months Ended
March 31
-----------------
2002 2001 % Change
------ ------ --------
($ in Millions)

Operating Revenue... $221.2 $176.5 25%
Operating Gain...... $ 7.5 $ 0.2 NM
Operating Margin.... 3.4% 0.1% 330 bp
Membership (in 000s) 809 662 22%

Operating revenue increased $44.7 million, or 25%, primarily due to higher
premium rates designed to bring our pricing in line with claim trends, and
higher membership in Local Large Group, Small Group and Individual businesses.

Operating gain increased $7.3 million to $7.5 million in 2002, primarily due
to improved underwriting performance and higher average membership,
particularly in our Local Large Group, Small Group and Individual businesses.
In addition, we were able to leverage our fixed costs over a significantly
increased membership base. These improvements in our operating gain resulted in
a 330 basis point increase in operating margin to 3.4% in 2002.

Membership increased 147,000, or 22%, to 809,000, due to higher sales in
Local Large Group, Small Group and Individual businesses and increased National
Accounts business, primarily BlueCard activity. We exited the Medicare + Choice
market in Colorado effective January 1, 2002. At March 31, 2001, our Medicare +
Choice membership in Colorado was approximately 10,000. We expect no material
effect on operating results from exiting this market.

Specialty

Our Specialty segment includes our group life and disability, pharmacy
benefit management, dental and vision administration services and third party
occupational health services. The following table presents our Specialty
segment's summarized results of operations for the three months ended March 31,
2002 and 2001:

Three Months
Ended March 31
- --------------
2002 2001 % Change
------ ----- --------
($ in Millions)

Operating Revenue $120.1 $89.1 35%
Operating Gain... $ 12.4 $ 7.5 65%
Operating Margin. 10.3% 8.4% 190 bp

Operating revenue increased $31.0 million, or 35%, primarily due to higher
revenue at Anthem Prescription Management, or APM, and increased life and
disability premiums. APM's operating revenue grew primarily due to increased
mail order prescription volume and the implementation of APM's pharmacy benefit
programs in the second quarter of 2001 by BCBS-CO/NV and BCBS-ME. Excluding our
TRICARE business from 2001, mail service membership increased 20%, while retail
service membership increased 20%. Excluding our TRICARE business from 2001,
mail service prescription volume increased 31% and retail prescription volume
increased 22%. Life and disability premiums increased primarily due to higher
premium rates and higher membership.

Operating gain increased $4.9 million, or 65%, primarily due to increased
mail order prescription volume at APM and the leveraging of our fixed costs
over increased membership. Improved APM results and the leveraging of fixed
costs resulted in a 190 basis point increase in our operating margin to 10.3%.

Other

Our Other segment includes AdminaStar Federal, a subsidiary that administers
Medicare Parts A and B programs in Indiana, Illinois, Kentucky and Ohio,
intersegment revenue and expense eliminations and corporate expenses not
allocated to operating segments. In 2001, our Other segment also contained
Anthem Alliance, a subsidiary that provided the health care benefits and
administration in nine states for active and retired military employees and
their dependents under the Department of Defense's TRICARE program for military
families. Our TRICARE business was sold on May 31, 2001. The following table
presents the summarized results of operations for our Other segment, including
elimination of intersegment revenue, for the three months ended March 31, 2002
and 2001:

Three Months Ended
March 31
-----------------
2002 2001 % Change
------ ------ --------
($ in Millions)

Operating Revenue $(29.8) $133.0 NM
Operating Loss... $ (9.6) $(13.2) 27%

Operating revenue decreased $162.8 million to $(29.8) million in 2002.
Excluding intersegment operating revenue eliminations of $66.2 million in 2002
and $46.6 million in 2001, operating revenue decreased $143.2 million, or 80%,
primarily due to the sale of our TRICARE operations. Excluding our TRICARE
business from 2001 and intersegment operating revenue eliminations, operating
revenue increased $3.7 million, or 11%, primarily due to additional revenues at
AdminaStar Federal.

Certain corporate expenses are not allocated to our business segments. These
unallocated expenses accounted for $19.1 million for the three months ended
March 31, 2002 and $16.7 million for the three months ended March 31, 2001, and
primarily included such items as incentive compensation, certain technology
related expenses and certain costs associated with becoming an investor-owned
company.

CRITICAL ACCOUNTING POLICIES

Anthem considers some of its most important accounting policies to be those
policies with respect to liabilities for unpaid life, accident and health
claims, income taxes, goodwill and other intangible assets and our investment
portfolio. Application of these and other accounting policies requires
management to make estimates and assumptions that affect the amounts reported
in the consolidated financial statements and accompanying notes. For more
detailed discussion of these accounting policies, see Note 1 of our audited
consolidated financial statements for the year ended December 31, 2001 and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our 2001 Annual Report on Form 10-K as filed with the
Securities and Exchange Commission. Our accounting policy for goodwill and
other intangible assets is discussed below as we adopted FAS 141 and FAS 142 on
January 1, 2002.

Goodwill and Other Intangible Assets--FAS 141 and FAS 142

On January 1, 2002, we adopted Statement of Financial Accounting Standards
No. 141, "Business Combinations," and Statement of Accounting Standards No.
142, "Goodwill and Other Intangible Assets." FAS 141 requires business
combinations completed after June 30, 2001 to be accounted for using the
purchase method of accounting. It also specifies the types of acquired
intangible assets that are required to be recognized and reported separately
from goodwill. Under FAS 142, goodwill and other intangible assets (with
indefinite lives) will not be amortized but will be tested for impairment at
least annually. We are required to complete our transitional impairment test of
existing goodwill by June 30, 2002. This test will involve the use of estimates
related to the fair value of the business with which the goodwill is
associated. We do not expect any material impairment loss as a result of this
test. See Note 3 to our March 31, 2002 unaudited consolidated financial
statements for additional information.

LIQUIDITY AND CAPITAL RESOURCES

Our cash receipts consist primarily of premiums and administrative fees,
investment income and proceeds from the sale or maturity of our investment
securities. Cash disbursements result mainly from policyholder benefit
payments, administrative expenses and taxes. We also use cash for purchases of
investment securities, capital expenditures and acquisitions. Cash outflows can
fluctuate because of uncertainties regarding the amount and timing of
settlement of our liabilities for benefit claims and the timing of payments of
operating expenses. Our investment strategy is to make prudent investments,
consistent with insurance statutes and other regulatory requirements, with the
principle of preserving our asset base. Cash inflows could be adversely
impacted by general business conditions including health care costs increasing
more than premium rates, our ability to maintain favorable provider agreements,
reduction in enrollment, changes in federal and state regulation, litigation
risks and competition. We believe that cash flow from operations, together with
the investment portfolio, will continue to provide sufficient liquidity to meet
general operations needs, special needs arising from changes in financial
position and changes in financial markets. We also have lines of credit
totaling $935.0 million and a $300.0 million commercial paper program to
provide additional liquidity. We have made no borrowings under these
facilities. Total borrowings under these facilities cannot exceed $935.0
million because borrowing under either facility reduces availability under the
other facility.

Cash Flow for the Three Months Ended March 31, 2002 Compared to Three Months
Ended March 31, 2001

Net cash flow provided by operating activities was $183.3 million for the
quarter ended March 31, 2002, and $178.5 million for the quarter ended March
31, 2001, an increase of $4.8 million, or 3%. In 2002, there was an increase in
net income of $34.0 million, a $70.1 million increase in policy liabilities due
to growth in membership and a $46.2 million reduction of restricted cash due to
the sale of the TRICARE operations in May 2001. Offsetting these positives was
an increase in receivables of $112.1 million generally attributable to premium
increases and a reduction of unearned income caused by an acceleration of cash
collection in the first quarter 2001 that now is part of our normal course of
business.

Net cash used in investing activities was $133.5 million for the quarter
ended March 31, 2002, and $99.2 million for the quarter ended March 31, 2001,
an increase of $34.3 million, or 35%. This increase was due primarily to a
reduction of cash balances held by our investment managers, an increase in
capital expenditures and our purchase of the remaining 50% interest of Maine
Partners Health Plan.

There was no material financing activity during the first quarter of 2002.

Future Liquidity

We have cash requirements of approximately $1.2 billion for the pending
acquisition of Trigon, including both the cash portion of the purchase price
and transaction costs. A commitment for a bridge loan of up to

$1.2 billion has been obtained. We plan to issue up to $1.0 billion of debt
securities in a private placement or public offering to provide permanent
financing for the acquisition. The net proceeds from issuance of these debt
securities would reduce the amount of the commitment for the bridge loan and
would be used to repay indebtedness under the bridge loan to the extent that it
has been drawn down. Under the terms of the bridge loan commitment, which is
subject to customary conditions, a required prepayment in an amount equal to
all cash and cash equivalents of Trigon and its unregulated subsidiaries (which
must be not less than $300 million) must be made no later than one month after
the closing of the acquisition. All indebtedness under the bridge loan must be
repaid in full no later than January 28, 2003. We plan to use the permanent
financing and other sources of cash, including cash on hand, to fund the
remaining purchase price or to repay any remaining indebtedness under the
bridge loan promptly after completing the acquisition.

Additional future liquidity needs may include acquisitions, operating
expenses, common stock repurchases and capital contributions to our
subsidiaries and will include interest and contract fee payments on our Units.
We anticipate that we will purchase BCBS-KS with cash from current operations,
pending the outcome of the appeal of the Kansas Insurance Commissioner's
decision (see Note 2 to our March 31, 2002 unaudited consolidated financial
statements). We plan to use all or any combination of the following to fund our
liquidity needs: cash from operations, our investment portfolio, new borrowings
under our credit facilities, and future equity and debt offerings. Our source
of liquidity would be determined at the time of need, based on market
conditions at that time.

Dividends from Subsidiaries

The ability of our licensed insurance company subsidiaries to pay dividends
to their parent companies is limited by regulations in their respective states
of domicile. Generally, dividends in any 12-month period are limited to the
greater or lesser (depending on state statute) of the prior year's statutory
net income or 10% of statutory surplus. Dividends in excess of this amount are
classified as extraordinary and require prior approval of the respective
departments of insurance. Further, an insurance company may not pay a dividend
unless, after such payment, its surplus is reasonable in relation to its
outstanding liabilities and adequate to meet its financial needs, as determined
by the department of insurance. In connection with our acquisition of BCBS-ME
further limitations were imposed on its ability to pay dividends. Until June
2005, BCBS-ME may not declare any dividend without the prior approval of the
Department of Insurance of Maine.

The dividends paid by regulated subsidiaries to Anthem Insurance were $368.1
million in 2001 and are expected to be approximately $300.0 million in 2002. In
April 2002, Anthem Insurance paid $400.0 million to Anthem.

Credit Facilities and Commercial Paper

On November 5, 2001, Anthem and Anthem Insurance entered into two new
unsecured revolving credit facilities totaling $800.0 million. Anthem is
jointly and severally liable for all borrowings under the facilities. Anthem
also will be permitted to be a borrower under the facilities, if the Indiana
Insurance Commissioner approves Anthem Insurance's joint liability for Anthem's
obligations under the facilities. Borrowings under these facilities bear
interest at rates, as defined in the agreements, which generally provide for
three different interest rate alternatives. One facility, which provides for
borrowings of up to $400.0 million, expires as of November 5, 2006. The other
facility, which provides for borrowings of up to $400.0 million, expires as of
November 4, 2002. Any amount outstanding under this facility as of November 4,
2002 (other than amounts which bear interest rates determined by a competitive
bid process) may be converted into a one-year term loan at the option of Anthem
and Anthem Insurance. Each credit agreement requires Anthem to maintain certain
financial ratios and contains minimal restrictive covenants. Availability under
these facilities is reduced by the amount of any commercial paper outstanding.
Upon execution of these facilities, Anthem Insurance terminated its prior
$300.0 million unsecured revolving facility. No amounts were outstanding under
the current or prior facilities as of March 31, 2002 or December 31, 2001 or
during the periods then ended. During February 2002, Anthem and Anthem
Insurance entered into two new agreements allowing aggregate additional
borrowings of $135.0 million.

In addition to the revolving credit facilities described above, Anthem
Insurance currently has a $300.0 million commercial paper program available for
general corporate purposes. Commercial paper notes are short-term senior
unsecured notes, with a maturity not to exceed 270 days from date of issuance.
When issued, the notes bear interest at current market rates. Availability
under the commercial paper program is reduced by the amount of any borrowings
outstanding under our revolving credit agreements. There were no commercial
paper notes outstanding at March 31, 2002 or December 31, 2001.

Stock Repurchase Program

Our Board of Directors approved a common stock repurchase program under
which we may purchase up to $400.0 million of shares from time to time, subject
to business and market conditions. Shares may be repurchased in the open market
and in negotiated transactions for a period of twelve months beginning
February 6, 2002. During 2002, shares outstanding may be affected by share
repurchases. No shares were repurchased as of March 31, 2002. Through May 9,
2002, we repurchased 542,500 shares at a cost of $36.5 million.

Risk-Based Capital

Our subsidiaries' states of domicile have statutory risk-based capital, or
RBC, requirements for health and other insurance companies based on the RBC
Model Act. These RBC requirements are intended to assess the capital adequacy
of life and health insurers, taking into account the risk characteristics of an
insurer's investments and products. The RBC Model Act sets forth the formula
for calculating the RBC requirements which are designed to take into account
asset risks, insurance risks, interest rate risks and other relevant risks with
respect to an individual insurance company's business. In general, under these
laws, an insurance company must submit a report of its RBC level to the state
insurance department or insurance commissioner, as appropriate, as of the end
of the previous calendar year.

Risk-based capital standards will be used by regulators to set in motion
appropriate regulatory actions relating to insurers that show indications of
weak or deteriorating conditions. It also provides an additional standard for
minimum capital requirements that companies should meet to avoid being placed
in rehabilitation or liquidation.

Anthem's risk based capital as of December 31, 2001 continues to be
substantially in excess of all mandatory RBC thresholds.

This management's discussion and analysis contains certain forward-looking
information. Words such as "expect(s)", "feel(s)", "believe(s)", "will", "may",
"anticipate(s)", "estimate(s)", "should", "intend(s)" and similar expressions
are intended to identify forward-looking statements. Such statements are
subject to known and unknown risks and uncertainties that could cause actual
results to differ materially from those projected. These risks and
uncertainties may include: trends in healthcare costs and utilization rates;
our ability to secure sufficient premium rate increases; competitor pricing
below market trends of increasing costs; increased government regulation of
health benefits and managed care; significant acquisitions or divestitures by
major competitors; introduction and utilization of new prescription drugs and
technology; a downgrade in our financial strength ratings; litigation targeted
at health benefits companies; our ability to contract with providers consistent
with past practice; our ability to consummate our acquisition of Trigon, to
achieve expected synergies and operating efficiencies in the Trigon acquisition
and to successfully integrate our operations; our expectations regarding the
timing, completion and accounting and tax treatments of the transaction and the
value of the transaction consideration; and general economic downturns. Readers
are cautioned not to place undue reliance on these forward-looking statements
that speak only as of the date hereof. We undertake no obligation to republish
revised forward-looking statements to reflect events or circumstances after the
date hereof or to reflect the occurrence of unanticipated events.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

The primary objective of our investment strategy is the preservation of our
asset base and the maximization of portfolio income given an acceptable level
of risk. Our portfolio is exposed to three primary sources of market risk:
interest rate risk, credit risk and market valuation risk for equity holdings.
No material changes to any of these risks have occurred since December 31,
2001. For a more detailed discussion of market risk, refer to Part II, Item 7A
of our Annual Report on Form 10-K for the year ended December 31, 2001.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

Litigation

A number of managed care organizations have been sued in class action
lawsuits asserting various causes of action under federal and state law. These
lawsuits typically allege that the defendant managed care organizations employ
policies and procedures for providing health care benefits that are
inconsistent with the terms of the coverage documents and other information
provided to their members, and because of these misrepresentations and
practices, a class of members has been injured in that they received benefits
of lesser value than the benefits represented to and paid for by such members.
Two such proceedings which allege various violations of the Employee Retirement
Income Security Act of 1974 ("ERISA") have been filed in Connecticut against
Anthem and/or our Connecticut subsidiary. One proceeding, The State of
Connecticut v. Anthem Blue Cross and Blue Shield of Connecticut, Anthem Health
Plans, Inc., et al., No. 3:00 CV 1716 (AWT), filed on September 7, 2000 in the
United States District Court, District of Connecticut, was brought by the
Connecticut Attorney General on behalf of a purported class of HMO and Point of
Service members in Connecticut. No monetary damages are sought, although the
suit does seek injunctive relief from the court to preclude us from allegedly
utilizing arbitrary coverage guidelines, making late payments to providers or
members, denying coverage for medically necessary prescription drugs and
misrepresenting or failing to disclose essential information to enrollees. The
complaint contends that these alleged policies and practices are a violation of
ERISA. A second proceeding, William Strand v. Anthem Blue Cross and Blue Shield
of Connecticut, Anthem Health Plans, Inc., et al., No. 3:00 CV 2037 (SRU),
filed on October 20, 2000 in the United States District Court, District of
Connecticut, was brought on behalf of a purported class of HMO and Point of
Service members in Connecticut and elsewhere, and seeks injunctive relief to
preclude us from allegedly making coverage decisions relating to medical
necessity without complying with the express terms of the policy documents, and
unspecified monetary damages (both compensatory and punitive).

In addition, our Connecticut subsidiary is a defendant in three class action
lawsuits brought on behalf of professional providers in Connecticut. Edward
Collins, M.D., et al. v. Anthem Health Plans, Inc., No. CV-99 0156198 S, was
filed on December 14, 1999, in the Superior Court Judicial District of
Waterbury, Connecticut. Stephen R. Levinson, M.D., Karen Laugel, M.D. and J.
Kevin Lynch, M.D. v. Anthem Health Plans, Inc. d/b/a Anthem Blue Cross and Blue
Shield of Connecticut, No. 3:01 CV 426 (JBA), was filed on February 14, 2001 in
the Superior Court Judicial District of New Haven, Connecticut. Connecticut
State Medical Society v. Anthem Health Plans, Inc., No. 3:01 CV 428 (JBA) was
filed on February 14, 2001 in the Superior Court Judicial District of New
Haven, Connecticut. The suits allege that the Connecticut subsidiary has
breached its contracts by, among other things, allegedly failing to pay for
services in accordance with the terms of the contracts. The suits also allege
violations of the Connecticut Unfair Trade Practices Act, breach of the implied
duty of good faith and fair dealing, negligent misrepresentation and unjust
enrichment. The Collins and Levinson suits seek injunctive relief. Collins
seeks an accounting under the terms of the provider agreements and injunctive
relief prohibiting us from continuing the unfair actions alleged in the
complaint and violating its agreements. Levinson seeks permanent injunctive
relief prohibiting us from, among other things, utilizing methods to reduce
reimbursement of claims, paying claims in an untimely fashion and providing
inadequate communication with regards to denials and appeals. Both of the suits
seek unspecified monetary damages (both compensatory and punitive). The third
suit, brought by the Connecticut State Medical Society, seeks the same
injunctive relief as the Levinson case, but no monetary damages.

On July 19, 2001, the court in the Collins suit certified a class as to
three of the plaintiff's fifteen allegations. The class is defined as those
physicians who practice in Connecticut or group practices which are located in
Connecticut that were parties to either a Participating Physician Agreement or
a Participating Physicians Group Agreement with Anthem and/or its Connecticut
subsidiary during the period from 1993 to the present, excluding risk-sharing
arrangements and certain other contracts. The claims which were certified as
class claims are: Anthem's alleged failure to provide plaintiffs and other
similarly situated physicians with consistent medical utilization/quality
management and administration of covered services by paying financial incentive
and performance bonuses to providers and Anthem staff members involved in
making utilization management decisions; an alleged failure to maintain
accurate books and records whereby improper payments to the plaintiffs were
made based on claim codes submitted; and an alleged failure to provide senior
personnel to work with plaintiffs and other similarly situated physicians. We
have appealed the class certification decision.

We intend to vigorously defend these proceedings. Anthem denies all the
allegations set forth in the complaints and has asserted defenses, including
improper standing to sue, failure to state a claim and failure to exhaust
administrative remedies. All of the proceedings are in the early stages of
litigation, and their ultimate outcomes cannot presently be determined.

On October 10, 2001, the Connecticut State Dental Association along with
five dental providers filed suit against our Connecticut subsidiary.
Connecticut State Dental Association, Dr. Martin Rutt, Dr. Michael Egan, Dr.
Sheldon Natkin, Dr. Suzanna Nemeth, and Dr. Bruce Tandy v. Anthem Health Plans,
Inc. d/b/a Anthem Blue Cross and Blue Shield of Connecticut was filed in the
Superior Court Judicial District of Hartford, Connecticut. On November 9, 2001,
this suit was, with the consent of the parties, voluntarily withdrawn without
prejudice. The suit alleged that our Connecticut subsidiary violated the
Connecticut Unfair Trade Practices Act by allegedly unilaterally altering fee
schedules without notice or a basis to do so, instituting unfair and deceptive
cost containment measures and refusing to enroll new providers unless they
agreed to participate in all available networks. The plaintiffs sought
declaratory relief that the practices alleged in the complaint constituted
deceptive and unfair trade practices. A permanent injunction was also sought
prohibiting us from, among other things, failing and refusing to inform network
providers of the methodology supporting our fee schedules and substituting our
medical judgment for that of dental providers. The suit requested costs and
attorney fees, but no other specified monetary damages. Anthem denied the
allegations set forth in this complaint and vigorously defended this suit.

On April 15, 2002, the Connecticut State Dental Association and two dental
providers re-filed the claims as two separate suits. Connecticut State Dental
Association v. Anthem Health Plans, Inc. d/b/a Anthem Blue Cross Blue Shield of
Connecticut was filed in the Superior Court Judicial District of New Haven,
Connecticut. Martin Rutt, D.D.S and Michael Egan, D.D.S, et al., v. Anthem
Health Plans, Inc. d/b/a Anthem Blue Cross Blue Shield of Connecticut was also
filed in the Superior Court Judicial District of New Haven, Connecticut. The
suits make many of the same allegations as the prior withdrawn suit. The Rutt
suit is filed as a purported class action. Both suits seek injunctive relief,
as well as unspecified monetary damages (both compensatory and punitive), along
with costs and attorneys' fees. Anthem denies the allegations set forth in
these complaints and intends to vigorously defend these suits.

Following our purchase of BCBS-ME, the Attorney General of Maine and
Consumers for Affordable Health Care filed administrative appeals challenging
the Superintendent of Insurance's (the "Superintendent") decision approving the
conversion of BCBS-ME to a stock insurer, which was a required step before the
acquisition. Both the Attorney General and the consumers group filed a petition
for administrative review seeking, among other things, a determination that the
decision of the Superintendent in regard to the application of BCBS-ME to
convert to a stock insurer was in violation of statute or unsupported by
substantial evidence on the record. Consumers for Affordable Health Care, et
al. v. Superintendent of Insurance, et al., Nos. AP-00-37, AP-00-42
(Consolidated). On December 21, 2001, the court issued an opinion affirming the
decision of the Superintendent approving the conversion of BCBS-ME and the
subsequent acquisition by Anthem. The Consumers for Affordable Health Care have
appealed this decision to the Maine Supreme Judicial Court. The Attorney General

did not appeal the decision, and the appeals time has passed. We do not believe
that the Consumers' appeal will have a material adverse effect on our
consolidated financial position or results of operations.

On March 11, 1998, Anthem and its Ohio subsidiary, Community Insurance
Company ("CIC") were named as defendants in a lawsuit, Robert Lee Dardinger,
Executor of the Estate of Esther Louise Dardinger v. Anthem Blue Cross and Blue
Shield, et al., filed in the Licking County Court of Common Pleas in Newark,
Ohio. The plaintiff sought compensatory damages and unspecified punitive
damages in connection with claims alleging wrongful death, bad faith and
negligence arising out of our denial of certain claims for medical treatment
for Ms. Dardinger. On September 24, 1999, the jury returned a verdict for the
plaintiff, awarding $1,350 (actual dollars) for compensatory damages, $2.5
million for bad faith in claims handling and appeals processing, $49.0 million
for punitive damages and unspecified attorneys' fees in an amount to be
determined by the court. The court later granted attorneys' fees of $0.8
million. Both companies filed an appeal of the verdict on November 19, 1999. On
May 22, 2001, the Ohio Court of Appeals (Fifth District) affirmed the jury
award of $1,350 for breach of contract against CIC, affirmed the award of $2.5
million compensatory damages for bad faith in claims handling and appeals
processing against CIC, but dismissed the claims and judgments against Anthem.
The court also reversed the award of $49.0 million in punitive damages against
both Anthem and CIC, and remanded the question of punitive damages against CIC
to the trial court for a new trial. Anthem and CIC, as well as the plaintiff,
appealed certain aspects of the decision of the Ohio Court of Appeals. On
October 10, 2001, the Supreme Court of Ohio agreed to hear the plaintiff's
appeal, including the question of punitive damages, and denied the
cross-appeals of Anthem and CIC. In December 2001, CIC paid the award of $2.5
million compensatory damages for bad faith and the award of $1,350 for breach
of contract, plus accrued interest. The ultimate outcome of the matters that
are the subject of the pending appeal cannot be determined at this time.

On October 25, 1995, Anthem Insurance and two Indiana affiliates were named
as defendants in a lawsuit titled Dr. William Lewis, et al. v. Associated
Medical Networks, Ltd., et al., that was filed in the Superior Court of Lake
County, Indiana. The plaintiffs are three related health care providers. The
health care providers assert that we failed to honor contractual assignments of
health insurance benefits and violated equitable liens held by the health care
providers by not paying directly to them the health insurance benefits for
medical treatment rendered to patients who had insurance with us. We paid our
customers' claims for the health care providers' services by sending payments
to our customers as called for by their insurance policies, and the health care
providers assert that the patients failed to use the insurance benefits to pay
for the health care providers' services. The plaintiffs filed the case as a
class action on behalf of similarly situated health care providers and seek
compensatory damages in unspecified amounts for the insurance benefits not paid
to the class members, plus prejudgment interest. The case was transferred to
the Superior Court of Marion County, Indiana, where it is now pending. On
December 3, 2001, the Court entered summary judgment for us on the health care
providers' equitable lien claims. The Court also entered summary judgment for
us on the health care providers' contractual assignments claims to the extent
that the health care providers do not hold effective assignments of insurance
benefits from patients. On the same date, the Court certified the case as a
class action. As limited by the summary judgment order, the class consists of
health care providers in Indiana who (1) were not in one of our networks, (2)
did not receive direct payment from us for services rendered to a patient
covered by one of our insurance policies that is not subject to ERISA, (3) were
not paid by the patient (or were otherwise damaged by our payment to our
customer instead of to the health care provider), and (4) had an effective
assignment of insurance benefits from the patient. We have filed a motion
seeking an interlocutory appeal of the class certification order in the Indiana
Court of Appeals. In any event, we intend to continue to vigorously defend the
case and believe that any liability that may result from the case will not have
a material adverse effect on our consolidated financial position or results of
operations.

In addition to the lawsuits described above, we are involved in other
pending and threatened litigation of the character incidental to our business
or arising out of our insurance and investment operations, and are from time to
time involved as a party in various governmental and administrative
proceedings. We believe that any liability that may result from any one of
these actions is unlikely to have a material adverse effect on our financial
position or results of operations.

Other Contingencies

Anthem, like a number of other Blue Cross and Blue Shield companies, serves
as a fiscal intermediary providing administrative services for Medicare Parts A
and B. The fiscal intermediaries for these programs receive reimbursement for
certain costs and expenditures, which are subject to adjustment upon audit by
the federal Centers for Medicare and Medicaid Services. The laws and
regulations governing fiscal intermediaries for the Medicare program are
complex, subject to interpretation and can expose an intermediary to penalties
for non-compliance. Fiscal intermediaries may be subject to criminal fines,
civil penalties or other sanctions as a result of such audits or reviews. In
the last five years, at least eight Medicare fiscal intermediaries have made
payments to settle issues raised by such audits and reviews. These payments
have ranged from $0.7 million to $51.6 million, plus a payment by one company
of $144.0 million. While we believe we are currently in compliance in all
material respects with the regulations governing fiscal intermediaries, there
are ongoing reviews by the federal government of Anthem's activities under
certain of its Medicare fiscal intermediary contracts.

On December 8, 1999, Anthem Health Plans, Inc., or AHP, one of our
subsidiaries, reached a settlement agreement with the Office of Inspector
General, or OIG, Health and Human Services, in the amount of $41.9 million, to
resolve an investigation into misconduct in the Medicare fiscal intermediary
operations of BCBS-CT, AHP's predecessor. The period investigated was before
Anthem's merger with BCBS-CT. The resolution of this case involved no criminal
penalties against Anthem as successor-in-interest nor any suspension or
exclusion from federal programs. This expense was included in administrative
expense in our statement of consolidated income for the year ended December 31,
1999.

AdminaStar Federal, Inc., one of our subsidiaries, has received several
subpoenas prior to May 2000 from the OIG and the U.S. Department of Justice,
seeking documents and information concerning its responsibilities as a Medicare
Part B contractor in its Kentucky office, and requesting certain financial
records from AdminaStar Federal, Inc. and from us related to our Medicare
fiscal intermediary Part A and Part B operations. We have made certain
disclosures to the government relating to our Medicare Part B operations in
Kentucky. We were advised by the government that, in conjunction with its
ongoing review of these matters, the government has also been reviewing
separate allegations made by individuals against AdminaStar, which are included
within the same timeframe and involve issues arising from the same nucleus of
operative facts as the government's ongoing review. We are not in a position to
predict either the ultimate outcome of these reviews or the extent of any
potential exposure should claims be made against us. However, we believe any
fines or penalties that may arise from these reviews would not have a material
adverse effect on our consolidated financial position or results of operations.

As a BCBSA licensee, we participate in a nationwide contract with the
federal Office of Personnel Management to provide coverage to federal employees
and their dependents in our core eight-state area. The program is called the
Federal Employee Program, or FEP. On July 11, 2001, we received a subpoena from
the OIG, Office of Personnel Management, seeking certain financial documents
and information, including information concerning intercompany transactions,
related to our operations in Ohio, Indiana and Kentucky under the FEP contract.
The government has advised us that, in conjunction with its ongoing review, the
government is also reviewing a separate allegation made by an individual
against our FEP operations, which is included within the same timeframe and
involves issues arising from the same nucleus of operative facts as the
government's ongoing review. We are currently cooperating with the OIG and the
U.S. Department of Justice on these matters. The ultimate outcome of these
reviews can not be determined at this time.

We guaranteed certain financial contingencies of our subsidiary, Anthem
Alliance Health Insurance Company ("Anthem Alliance"), under a contract between
Anthem Alliance and the United States Department of Defense. Under that
contract, Anthem Alliance managed and administered the TRICARE Managed Care
Support

Program for military families from May 1, 1998 through May 31, 2001. The
contract required Anthem Alliance, as the prime contractor, to assume certain
risks in the event, and to the extent, the actual cost of delivering health
care services exceeded the health care cost proposal submitted by Anthem
Alliance (the "Health Care Risk"). The contract has a five-year term, but was
transferred to a third party, effective May 31, 2001. We guaranteed Anthem
Alliance's assumption of the Health Care Risk, which is capped by the contract
at $20.0 million annually and $75.0 million cumulatively over the contract
period. Through December 31, 2000, Anthem Alliance had subcontracts with two
other BCBS companies not affiliated with us by which the subcontractors agreed
to provide certain services under the contract and to assume approximately 50%
of the Health Care Risk. Effective January 1, 2001, one of those subcontracts
terminated by mutual agreement of the parties, which increased Anthem
Alliance's portion of the Health Care Risk to 90%. Effective May 1, 2001, the
other subcontract was amended to eliminate the Health Care Risk sharing
provision, which resulted in Anthem Alliance assuming 100% of the Health Care
Risk for the period from May 1, 2001 to May 31, 2001. There was no call on the
guarantee for the period from May 1, 1998 to April 30, 1999 (which period is
now "closed"), and we do not anticipate a call on the guarantee for the periods
beginning May 1, 1999 through May 31, 2001 (which periods remain "open" for
possible review by the Department of Defense).

ITEM 2. Changes in Securities and Use of Proceeds

Sales of Unregistered Securities

Effective November 2, 2001, the Company issued to certain eligible statutory
members of Anthem Insurance, in exchange for their membership interests in
Anthem Insurance, 48,095,675 shares of the Company's Common Stock in connection
with the demutualization of Anthem Insurance. The number of shares issued will
ultimately vary slightly as all distribution matters are finalized. This
transaction was exempt from the registration requirements of the Securities Act
of 1933, as amended, pursuant to Section 3(a)(10) thereof based on the Indiana
Insurance Commissioner's approval of the plan of conversion.

Use of Proceeds

On October 29, 2001, the Securities and Exchange Commission declared
effective (i) the Registration Statement on Form S-1 (Registration No.
333-67714) of the Company with respect to the Company's Common Stock; and (ii)
the Registration Statement on Form S-1 (Registration No. 333-70566) of the
Company with respect to the Company's 6.00% Equity Security Units (the
"Units"). In addition, on October 29, 2001, the Company filed a Registration
Statement on Form S-1 pursuant to Rule 462(b) of the Securities Act of 1933
(Registration No. 333-72438) to increase the amount of the Common Stock
offering, which was effective upon filing.

The offering of the Common Stock closed on November 2, 2001 and resulted in
gross proceeds of $1,987.2 million (including $259.2 million of gross proceeds
attributable to the shares of Common Stock sold pursuant to exercise of the
underwriters' over-allotment option), of which $91.4 million was applied to the
underwriting discount. The proceeds to the Company equaled $1,895.8 million. Of
such amount, $28.9 million was contributed to Anthem Insurance and $5.4 million
has been used to pay additional expenses of the Common Stock offering and the
demutualization. Of the resulting net proceeds to the Company from the Common
Stock offering, $1,843.8 million has been used to fund payments to eligible
statutory members of Anthem Insurance who received cash instead of shares of
Common Stock in the demutualization of Anthem Insurance (including payments to
eligible statutory members pursuant to the "top up provision" of the plan of
conversion), and the remaining net proceeds of $17.7 million retained by the
Company will be available for general corporate purposes. In February 2002,
$3.9 million of the $17.7 million remaining net proceeds was used for interest
payments on the Units.

The offering of the Units closed on November 2, 2001 and resulted in gross
proceeds of $230.0 million (including $30.0 million of gross proceeds
attributable to the Units sold pursuant to exercise of the underwriters'
over-allotment option), $8.6 million of which was applied to the underwriting
discount and $1.6 million for other expenses related to the Units offering. The
net proceeds to the Company equaled $219.8 million which was used

to fund payments to eligible statutory members of Anthem Insurance who received
cash instead of shares of Common Stock in the demutualization of Anthem
Insurance.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Submission of Matters to a Vote of Security Holders

None.

ITEM 5. Other Information

None.

ITEM 6. Exhibits and Reports on Form 8-K

a) The following exhibits are submitted herewith:

4.2 Upon the request of the Securities and Exchange Commission, the
Registrant will furnish copies of all instruments defining the
rights of holders of long-term debt of the Registrant not
previously filed

b) Current Reports on Form 8-K filed during the quarter covered by this
Form 10-Q are as follows:

1. Form 8-K furnished, not filed, on January 7, 2002 reporting
meetings at which it was expected that the Company's ability to
meet earnings expectations previously reported would be confirmed.

2. Form 8-K furnished, not filed, on January 14, 2002 reporting
meetings at which it was expected that the Company's ability to
meet earnings expectations previously reported would be confirmed.

3. Form 8-K filed on February 6, 2002 attaching a press release
reporting financial results for the fourth quarter and full year
2001.

4. Form 8-K filed on February 12, 2002 attaching a press release
reporting that the Kansas Insurance Commissioner has disapproved
the Company's agreement to acquire Blue Cross and Blue Shield of
Kansas.

5. Form 8-K filed on February 20, 2002 attaching a press release
reporting that the Company was joining Blue Cross and Blue Shield
of Kansas in its appeal of the Kansas Insurance Commissioner's
decision to deny Blue Cross and Blue Shield of Kansas' affiliation
with the Company.

6. Form 8-K, furnished, not filed on March 4, 2002 reporting meetings
at which it was expected that the Company's ability to meet the
earnings expectations previously reported would be confirmed.

7. Form 8-K, furnished, not filed, on March 11, 2002 reporting
meetings at which it was expected that the Company's ability to
meet the earnings expectations previously reported would be
confirmed.

8. Form 8-K, furnished, not filed, on March 25, 2002 reporting
meetings at which it was expected that the Company's ability to
meet the earnings expectations previously reported would be
confirmed.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

ANTHEM, INC.
Registrant

Date: May 10, 2002 By: /S/ MICHAEL L. SMITH
--------------------------------------
Michael L. Smith
Executive Vice President and
Chief Financial and Accounting Officer
(Principal Financial Officer, Chief Accounting
Officer and Duly Authorized Officer)

INDEX TO EXHIBITS

Exhibit
Number Document
------ --------
4.2 Upon the request of the Securities and Exchange Commission, the
Registrant will furnish copies of all instruments defining the
rights of holders of long-term debt of the Registrant not
previously filed