To Our Stakeholders

By all measures, 2006 was a year of strong performance
We ended the year with a consolidated margin of 9.2 percent or $238 million — the best in our history. We also improved our overall performance rating for quality of care, earning gains in two key areas: patient communication with doctors and staying healthy/preventive care. In addition, we improved our standing among members and Group Health staff. When asked if they would recommend Group Health for health care, both groups responded affirmatively at a greater percentage rate than in the prior year. These results are important confirmation to us that our hard work is visible and valued by the people we serve. We've stepped up our role as a national model and advocate for providing smart solutions to many of the problems causing our country's health care crisis. As Group Health celebrates its 60th year, we have much to be proud of, and much work to do, in service to our founding mission: to transform health care.

Serving our members through fiscal strength
In 2006, favorable market dynamics and our own lower-than-anticipated medical expenses created a higher margin than we had projected. This helped us balance out the many recent years when our margins were flat or negative. It helps us with necessary strategic capital investments. As a consumer-governed, nonprofit health care system, Group Health reinvests net earnings in our staff, systems, and facilities to serve our members, while honoring our mission to expand access to care.

Leveraging wise investments and innovations
In 2006, we initiated a number of major projects in our largest-ever capital investment — $310 million worth of planned investments over the next three years. We moved ahead with plans to build updated medical centers in Redmond and Spokane. We also broke ground on a new multi-specialty center in Bellevue and our new headquarters in Seattle. And we are upgrading facilities and medical equipment at many of our 25 medical centers across the state.

We also continued to build on technology and service innovations to improve the quality and convenience of member care. For example, we built on our early use of electronic medical records by linking a member's digital radiology images and their personal Health Profile to their electronic medical record. Without our steady, strategic investments in information technology over the last several years, such industry-leading innovations would not be possible.

Addressing the ups and downs of enrollment
Even as members report increased satisfaction with our performance, enrollment declined by just over 27,000 members in 2006. The reasons are many, including stiff market competition and fewer people across the state enrolling in health plans because of costs. In the current volatile environment, we expect enrollment to bounce up and down more than usual. To be more competitive, we reduced our rate increases for 2007 and are working more closely than ever with purchasers to develop new benefit plans that address unmet market needs. As a result of the quick and decisive steps we've taken so far, enrollment rose by 7,000 new members in January 2007 alone.

Working in close partnership with purchasers
In 2006, we put ourselves in our purchasers' shoes and created practical solutions to the challenges they face. As a regional plan, we have the advantage of close connections to the communities and companies we serve. By working in partnership with our purchasers, we're more able to understand their needs — and to meet them with a better mix of products.

For instance, in 2006 we began selling a PPO plan in the Spokane market that combines flexible new benefit structures with access to our care system. We worked closely with the state to make dramatic revisions in the plans we offer state employees. Our new Value Plan is a high deductible, lower-premium offering that makes us the lowest-cost option for this large group. Since the Value Plan was first available in January 2007, more than 26,000 people have joined it, either by switching from their existing plans or as new members. We also increased the availability of self-insured plans in response to demands of purchasers.

We have begun to apply the same type of online innovations that our members enjoy to our purchasers and brokers, who can now interact with us online to get information customized to their needs, including benefit plan options and quotes within minutes.

Channeling deep passion into high performance
Group Health has always had the benefit of highly skilled health care professionals who believe in our mission and are devoted to our members. In 2006, we channeled this passion into building higher performance in everything we do by taking increased individual responsibility. Each of us is called to be more understanding of our members' experience, and more focused on our individual responsibility to meet, even exceed, their expectations. We also continued to apply the principles of Lean process improvement across Group Health — from reducing the time and cost of refilling prescriptions to providing more efficient lab services without adding new resources.

Promoting reform of our nation's health care system
Over the past year, Group Health leaders have become familiar faces in Olympia and Washington, D.C. Citizens, businesses, and policymakers are looking for solutions to our nation's health care crisis. Because Group Health is regarded as an innovative model of health coverage and care that works, people want to know what we think.

We believe change must happen on three levels: First, on a public policy level, through legislation. Second, on the health care system level, where providers can leverage the types of innovations in information technology and evidence-based medicine already in practice at Group Health. Finally, change needs to happen on an individual level, because the majority of health problems are linked to lifestyle choices.

On a policy level, we are working with the Washington State Blue Ribbon Commission on Health Care Costs and Access to find ways to provide accessible, affordable, quality health care for all Washingtonians. We are a leading voice for universal health care as endorsed by our members, and are working for reforms that will move our state and our nation in this direction. In 2006, as part of our community benefit, Group Health announced it will contribute $2 million to give more low-income children access to health insurance across Washington state. On a system level, we bring together care and coverage in a consumer-driven model that is uniquely able to deliver high quality and affordability. Finally, we are offering tools that promote preventive care and inspire people to live healthier lives.

Sixty years young — and still evolving
We don't have to tell you how much the world has changed since Group Health opened in 1947. Yet the words that our founders used then to describe their collective purpose and passion are almost identical to the words we use at Group Health today. They still ring true — inspiring us to act, innovate, and serve our members as a model of what's possible when coverage, care, and citizens are all on the same side.

Along the way, we've never stopped asking the tough questions. And we'll never stop answering them in ways that make real sense, and a real difference, to the people who entrust us with their health care.

Ruth Ballweg
Chair of the Cooperative, 2006

Scott Armstrong
President & CEO

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