Daniel J. Hilferty, president and CEO (left) and M. Walter D'Alessio, chairman of the board.

Dear customers, colleagues, and community members:

We are a company on the move, and in 2011 we made great strides toward our mission of enhancing the health of the people and communities we serve. As the theme of this year's annual report makes clear, we truly "walked the talk," creating products and programs that imaginatively responded to our changing health care environment; successfully meeting the diverse needs of our customers and members; partnering collaboratively with physicians, hospitals, and brokers; and boldly leading our community and our industry toward a healthier future.

Though confronted with a weakened economy, the continually rising cost of medical care, and an evolving federal health care reform program that still holds many unknowns, we successfully navigated 2011 and continued to move forward. Driven by an exuberant spirit of innovation, our steadfast commitment to our members, customers, and community has never been stronger.

Working closely with some of our largest hospital systems, including Abington Health and Crozer-Keystone Health System, we successfully negotiated new contracts that focus on hospital and physician performance and support the highest quality of care for our members. In addition, in our effort to provide access to comprehensive, accountable care, we continue to lead our industry in the establishment and growth of groundbreaking patient centered medical homes — primary care practices that work closely with specialists and hospitals to provide more personal, better-coordinated care, particularly for our chronically ill members.

In a still-challenging economic environment, we showed growth. In 2011, with total revenues of $9.2 billion, we saw a modest net income margin of 3.4 percent. This positive performance will allow our company to remain financially stable, invest in better serving our customers, and prepare for changes that federal health care reform brings.

Our continued growth relies on our ability to serve more people in more places. In 2011, we partnered with Blue Cross Blue Shield of Michigan and purchased one of the country's largest Medicaid companies — AmeriHealth Mercy Family of Companies, a top-tier Medicaid managed care organization in Philadelphia — which will now offer Medicaid coverage to other insurers, including Blue Cross and Blue Shield companies, in many states.

Just as our relationship with AmeriHealth Mercy allows us to collaborate with other Blues nationwide, our vendor agreements to utilize Highmark Inc.'s state-of-the-art operating platform benefit our customers and members. Our Highmark vendor agreements also give us access to Highmark's national account capabilities, which will enable us to expand our own national accounts and give us the opportunity to strengthen ancillary services, including vision and dental plans and stop-loss reinsurance, while keeping your costs down.

Even as we expand to other areas of the nation through our subsidiaries, the well-being of our hometown will always be our highest priority. We are continually seeking opportunities to enhance the health of the people in our region, and that will never change.

That's why we launched our new $42 million Independence Blue Cross Foundation in 2011. The IBC Foundation is committed to transforming health care through innovation in the Philadelphia region, and targets four areas: caring for our community's most vulnerable, leading innovative approaches to health care, developing the health care workforce of the future, and building healthy communities.

The many accomplishments of 2011 would not have occurred without the tireless efforts of our talented associates. It is fitting that this year we completed our new state-of-the-art Joseph A. Frick Conference and Learning Center, which will directly benefit our associates as they pursue their educational dreams. Named in honor of our former CEO for his years of dedication to our associates, the center will help employees gain knowledge and valuable skills, enabling them to better serve our customers.

Throughout our nearly 75 years as a major employer and most preferred health insurer in our region, we have continually sought new ways to exceed customer and member expectations while nurturing the health of our community. Yet, as we strive to meet the challenges of today, we never lose sight of tomorrow. Our mission requires unwavering commitment, progressive thinking, and the ability to bring ideas to life through bold action. As we plan to serve the next generations of your family and ours, we will continue to "walk the talk" in everything we do.

Daniel J. Hilferty
President and Chief Executive Officer

M. Walter D'Alessio
Chairman