Purpose.

The arrival of 2018 marks the mid-way point in our transformation strategy, and 2017 brought significant strategic and cultural change throughout the enterprise, including breaking down barriers, seizing new opportunities, and overcoming challenges. The bold decisions behind these changes were driven by our steadfast belief in our common purpose and shared vision to get health care right.

We continued to be laser focused on achieving our goal of a growing and thriving Highmark Health enterprise, driving strong financial results, as well as managed membership growth. Along with these key financial metrics, we have also worked to integrate our team geographically — fortifying our operational footprint in Pittsburgh and streamlining operations in central and northeastern Pennsylvania — as well as culturally by driving our Core Behaviors. The success of these efforts in 2017 reflects the commitment of our 40,000 employees to our mission, and their ability to adapt to change, and has set the stage for our continued market expansion.

Progress.

2017 will be commemorated in the organization's history by two key milestones that strengthened our competitive position and put the enterprise in the strongest possible position to sustain managed growth and accelerate our transformation strategy. In July, the Pennsylvania Insurance Department approved our request for modifications to certain conditions in its 2013 Approving Determination and Order, easing restrictions on Highmark's ability to fund important Allegheny Health Network (AHN) capital investments and other strategic initiatives, and thus putting us on a more level playing field with our competitors. The modifications to the conditions set the stage for the timelier implementation of critical components of our strategy.

Highmark Health also divested a portion of our vision business, which we believe is a win-win, as the vision companies will benefit from new investors looking to invest in their growth and prosperity, while our customers will benefit from enhanced scale and a seamless transition. Meantime, as an enterprise, we gained significant capital to invest in our core businesses and accelerate our transformational strategy. We were purposeful in choosing this course of action. While our strategy was never dependent on this deal, the additional capital allowed us to further strengthen our balance sheet and let us accelerate our strategic initiatives. Expanding AHN's capabilities into our communities, establishing partnerships with leading health care providers across our footprint, and developing innovative products for customers, are just a few of the efforts that are benefiting from this transaction.

Proof.

In 2017, we announced more than $1 billion in community investments over the next 4-5 years, bringing our total western Pennsylvania community investment to nearly $2.5 billion by 2022. Our expansion plans reflect a patient-centric strategy that is focused on adding the right kind of facilities in the right places to assure patients have affordable access to in-network care regardless of where they live or work, and regardless of the insurance card they carry. It is imperative that we take every step necessary to meet the needs of our customers, members and patients, now and into the future.

In northwest Pennsylvania — a region that includes Erie, Warren, and Crawford counties — we are focused on adding value to our Health Plan membership, improving AHN's financial performance, footprint and scale, and promoting the transition to value-based care. We are committed to reshaping the region's competitive dynamics by transitioning to a clinician-led, value-based system in partnership with like-minded regional partners.

Establishing partnerships with those who share our values is a key component of our strategy. We are not empire-builders; we are solution seekers who believe that the future of health care will be driven by creating enhanced access to clinical experts who will deliver value-based care to our patients and members. In 2017, we launched collaborations with two health care industry leaders who will enable us to deliver on our strategy.

We enhanced our partnership with Johns Hopkins Medicine, which will offer AHN cancer patients and members increased access to Hopkins expertise and new therapies through a robust, clinical trials research program. A cornerstone of this initiative will be the new AHN Cancer Institute Academic Center at Allegheny General Hospital and new community-based cancer treatment centers in western Pennsylvania.

Through our partnership with Penn State Health, we will export our model and value-based care to that market, reinventing health care in central Pennsylvania. The partnership will help Highmark Health to advance its goal of providing value-based care to the community. There are also opportunities for AHN and Penn State Health to collaborate on areas of research, and other clinical opportunities may evolve over time.

Finally, it is worth noting that AHN's 2017 financial performance for the year was far and away its best since being formed in 2013, with operating and net income that exceeded both projections and previous year results by a considerable margin. AHN's equally strong financial performance in the fourth quarter also represents the fifth consecutive reporting period in which it has beaten prior year results and projections.

In 2017, patient volumes at AHN facilities were relatively consistent with projections, and the network continues to experience growth in key metrics, including inpatient admissions, ambulatory surgery center volume, physician office visits and births. We are pleased with this steady growth and are taking every step necessary to accommodate the even greater numbers of patients who will choose our services in the coming months and years as we further expand and enhance our patient-centered model.

As the second half of our transformation journey gets underway in 2018, we understand that there will be both challenges and opportunities ahead. While we are pleased with our recent strategic progress and strong financial performance, a lot of hard work remains for us to sustain our momentum. The entire health care industry faces significant financial and regulatory headwinds, and the regional markets remain exceedingly competitive. The enterprise's strong performance in 2017 reinforces our belief that our strategy for success is the right one. We remain committed to delivering a vastly better health care experience for our members, patients, and communities, and to building a workplace where our employees can meaningfully contribute to our efforts to get health care right.

Sincerely,