Q1 2020 Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to anthem first quarter, earning conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session instructions will be given that.
That time, if you should require assistance during the call. Please press star and then zero as a reminder, todays conference is being recorded I would now like turn the conference over to the company's management. Please go ahead.
Good morning, and welcome to anthem is first quarter 2020 earnings call. This is Chris Rigg, Vice President of Investor Relations.
And with US this morning, Gail Boudreaux, President and CEO.
John Galena.
Our CFO.
Pete high tie in president of our commercial and specialty business Division.
Felicia nor would.
Thank you Didnt have our government business Division.
During the call, we'll reference certain non-GAAP measures.
Reconciliations of these non-GAAP measures for the most directly comparable GAAP measures are available on our website at Anthony Dot com.
We will also be making some forward looking statements on this call.
Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control Dan.
These risks and uncertainties can cause actual results could differ materially from our current expectation.
We advise listeners to carefully review the risk factors discussed in todays press release entered our quarterly filings with the SEC.
I will now turn the call over to Gail.
Good morning, and thank you for joining us.
Across the globe and right here at home, we're facing a critical humanitarian crisis.
All of us are impacted and our hearts go out to those struggling.
I will focus my comments this morning, and the impact of the Cobiz 19 Global health crisis on our business.
Along with the actions we've taken to provide support really.
I will direct you to the earnings release for the financial results for the first quarter.
Let me begin by saying, how incredibly grateful I am to the men and women, including many of the anthem own clinical associates fighting in the frontline said this healthcare crisis. Some small rural communities to the heart of New York City I am also incredibly proud of the more than 77000 intimacy.
I see it.
I've been providing compassionate entirely support for our customers members care providers and communities. Each day as we battled is pandemic together.
Sure the safety and health of our associates.
Support the nation wide effort to contain the virus in March we began transitioning our employees away from offices now at nearly 99% working safely at home in recognition of these unprecedented times, we're offering our associates up to 80 hours of additional paid leave.
Providing online workout expanding mental health support and have increased our anthem cares emergency relief on help associates, Yeah. That's true this crisis.
Yeah. Some has long served and met the unique needs of our local community.
Our commitment to improving lives and communities is core to our mission.
We have approached our response to the Koby 19 pandemic with the local and personal loans.
I have some along with our association of 35, other independent and locally operated Blue Cross Blue Shield companies have committed nearly $3 billion to ensure that more than 100 million Americans along with care providers in hospitals have access to the resources and support they need help improve.
Health in America.
Because of our strong blue brand in deep local routes, we were well positioned to work quickly and seamlessly with local state and federal officials local care providers, he customers and community partners from day, one of the pandemic.
And our associates or at the forefront of our comprehensive effort.
Our add some culture and values service our foundation forgiving back in our local communities.
Our deeply committed associates have been getting back in various ways.
Such as online teaching outreach via phone or meal to those isolated at home.
Making masks for non healthcare industry workers, helping to provide personal care supplies.
Providing neal delivery, so those homebound by the crisis.
Across the country with partners like the American Red Cross Boys and Girls Club feeding America and Americares.
Anthem is on the forefront to delivering relief and support to those most impacted.
We know there is great fear and uncertainty among consumers right now.
Typically when it comes to safe and affordable access to care.
We remove barriers to care awaiting cost sharing for treatment of Koby 19.
Including coverage for testing treatment and inpatient hospital stays.
Weve way prior authorizations for Kobe, 19, diagnostic tests and related covered services.
As well as ensure continuity of care by waiting early prescription refill limits on 30 day maintenance medications and encouraging the use of 90 day mail order benefits if applicable.
We've also expanded access to tele health and nurse lines for both medical and emotional how to meet the growing needs for 24 by seven information support in care.
For our most vulnerable consumers in Medicare and Medicaid.
We've also reinforced our longstanding focus on social drivers of health.
To provide support with food housing transportation and more.
From outreach to isolated seniors and families.
The donating meals and other needed personal care items.
We're working to ensure our members' needs are being that the day realized they are not alone in the fight against the virus.
Our associates working with these populations are demonstrating their enlist compassion and care during this time as well.
We've seen examples of our team members personally delivering boxes, the food and much needed supply safely to our members in dire need.
Their commitment is inspiring.
But not surprising.
This is how anthem shows up every day to serve others.
At the core the crisis, there's been tremendous focus on the need for testing.
No bigger push for that testing than in the crisis epicenter of New York City.
There we partner with the coalition of Asian American IP, a to provide free mobile testing in the five boroughs across the city.
We also establish the anthem medical associate volunteer program.
For associates with professional medical training and licensure to volunteer at hospitals, and other clinical settings, and a variety of states, including New York within needs are so great.
Clinical associates are demonstrating anthem strong values and commitment to service as they stand fearlessly on the front lines to deliver critical care.
As anthems care provider partners continue their important work in local markets across the country.
We have simplified policies designed to help them deliver care to patients more quickly and effectively.
Unless otherwise required under specific state and federal mandates, we have suspended prior authorization requirements for patient transfers and the use of medical equipment critical to covert 19 treatment. Additionally, anthem is covering respiratory services for acute treatment of covert 19 a.
Along with in network and out of network coverage for covert 19 laboratory testing the actions we've taken our ensuring that healthcare providers are focused where they need to be.
With your patience.
Partnerships are foundational to our work and anthem.
Today, we're partnering with X prize and other industry leaders to form a global pandemic alliance to combat covert 19.
And leverage learning how prepare for future pandemics.
Across the digital landscape anthem has been collaborating extensively with various state and federal partners as well as other private sector partners to innovate and help simplify the entire health care system experience through the use of technology.
Yes, some digital first capabilities are proactively addressing issues with covert 19 to simplify health care for consumers.
Our Sydney care mobile App and the new Corona virus assessment tool are helping people safely inconveniently assess their risk of having covered 19 locate testing sites as may be needed and connect directly with the doctor via our virtual care solution.
To date, we've seen more than 170000 downloads of the App and a witness the 250% surge in virtual care engagement via text and video.
This crisis it made clear that tele health and virtual care will continue to be a key component of how and where care is delivered going forward.
Our employer partners are certainly feeling the impacts of the crisis.
Anthem is working closely with our customers since you're not only the safety in well being of their employees, but to also provide affordable flexible payment terms as they work through the financial implications of covered 19.
We recognize this action may add payment risk to our business. We also now it's the right thing to do.
The economic impacts of the crisis May also drive an unprecedented shifting consumers from the employer market.
Our Medicaid and Asea segments.
We are quickly reallocating resources as may be needed to meet these potential challenges.
And the small group market segment, especially vulnerable to disruption, we are proactively identifying groups at risk and providing more affordable product offerings.
Helping displaced members fine coverage in the individual marketplace or in Medicaid.
Anthem entered 2020 in a position of strength.
Ready to achieve our financial objectives and serve as a trusted partner in house.
Our first quarter performance was in line with our expectations.
Well, we know cobot 19 is likely to produce unforeseen challenges, both short and long term.
We also see tremendous opportunities to reimagine, what's possible for our company and health care more broadly.
Well there is much uncertainty as you saw in our press release, we're maintaining our 2020 EPS guidance. We view this as the most reasonable posture given the multitude of offsetting factors across our diversified business.
A moment John will discuss the financial scenarios underlying our guidance decision in greater detail.
As we look ahead.
Im confident that organization will grow stronger based on the learnings from the current crisis.
More effective and better prepared to deliver on what we are interested to do.
As this crisis evolves.
We are unwavering in our efforts to support the medical in social needs of our consumers.
Improved total health and wellbeing.
And we'll be ready to execute on the momentum we had prior to the onset of the pandemic.
I'll now turn it over to John to discuss our financial position John Thank you Gail and good morning.
My objective today is the share with you the actions that we've taken to enhance our liquidity and strengthen our already solid capital position as well as sharing some of the scenarios that forming the basis of or how.
But first I'll briefly review, our first quarter results, which were both strong and largely unaffected by the current crisis.
This morning, we reported first quarter GAAP earnings per share of $5 in 94 cents and adjusted earnings per share of $6.48.
Medical membership totaled 42.1 million members as of the ended the quarter, an increase of 1.3 million lives year over year, and 1.1 million lives sequentially import the acquisitions over murder band and the Missouri in Nebraska Medicaid plans.
Also aided by our strong organic growth.
Medical cost in the quarter were well controlled and slightly better than expectations.
As anticipated our individual business margin began the normalized more sustainable levels or Medicaid business was on track to achieve the midpoint over a 2% to 4% target margin range by year end.
Our more for the quarter was 84.2% exceeding expectations.
We had strong cash flow at 1.7 times earnings were 1.3 times earnings normalized for the health insurer fee.
While simultaneously seeing an increase of almost four days and the days claims payable metric sequentially.
Of note in June Youre, Alex is now a standalone reportable segment.
In the quarter operating gain in the segment was $349 million.
Which includes approximately $75 million to $100 million that under prior segment reporting would've resided in the commercial and specialty business Division.
That said in June Youre Axis core performance is running slightly ahead of prior expectations.
As a threat of covert 19 began to accelerate mid March we further was prudent to enhance our liquidity by drawing down total of $600 million more various credit facilities.
On an incremental $900 million through the commercial paper market.
We are well positioned.
With total undrawn borrowing capacity of an additional $2.1 billion.
Our total debt to capital at the end of the first quarter was 41.7%.
Slightly more than 150 basis points higher than if we have not taken these proactive steps in march to enhance liquidity.
We will continue to closely monitor our capital position and evaluate ways to optimize with debt structure, including accessing capital markets.
We also temporarily suspended our share repurchases beginning in the second half in March.
It is clear the covered 19 is having a profound impact on the global economy, and there remains significant uncertainty around the shape and timing when eventual recovery.
We have spent considerable time evaluating various scenarios on how covert 19 and rapidly rising unemployment.
Impact our financial results.
Key factors we evaluated include.
The anticipated infection rate hospitalization rate associated with members that contract Corona virus as well as estimating the number that need a ventilator, we're ecmo machine.
The intensity and duration of the infection in the impacts on the healthcare system.
Unemployment rates membership mix changes.
Thus far we've seen a slight uptick in the Medicaid enrollment as result of state temporarily suspending re verification efforts and limited changes in our commercial business.
As time goes on we expect a more significant shift of commercial group members in the Medicaid and the AC a marketplace.
Deferred not a merger or elective procedures in the eventual timing of a rebound, including assessing the capacity of the system and the ability to address pent up demand.
Extended payment terms in the likelihood of higher than normal bad debt expense.
Lower interest rates and overall capital market conditions.
Higher interest expense due to increased borrowing to enhance liquidity.
And the impact to our decision to temporarily suspend share repurchases overall, we estimate that approximately 30% to 40% of our annual medical expense is related to deferrable elective procedures.
As a result of deferrals, we currently expect the second quarter RMR to be well below historical levels.
I would expect an elevated them or in the second half of the year as elective procedures return.
We recognize many of you are requesting details on our expected business mix changes and the broader impact of coded 19 on our business.
Unfortunately rapidly changing environment prevents us today from sharing the level of specificity you would normally expect from us as a management team.
We intend to regularly update the investment community as conditions evolve and visibility improves on key operating metrics.
We are in uncharted territory in the future may look markedly different from what anyone expects.
That said, we recognize our business is more diverse im resilient today.
And then past periods of economic disruption.
In 2008 at the time of the great recession, commercial and individual customers comprise nearly 75% of our risk based membership.
Was less than 30% today.
We currently operate Medicaid plans in 23 states and DC.
And in most of our markets, where first or second in terms of market share.
This compares to operating and only 14 states in 2008.
At the same time on Medicare advantage business is expanding we expect strong growth for the foreseeable future.
The diversity of our business today positions as well to mitigate the challenges we see ahead.
While the detailed metrics underlying our EPS guidance will undoubtedly look different from previous expectations.
Based on our balance business mix, coupled with extensive modeling.
During various scenarios.
We are maintaining our original full year adjusted earnings per share guidance of greater than $22.30.
Operator, we will now open it up for questions.
Thank you and ladies and gentlemen, if you wish to ask a question. Please press one than zero on your Touchtone phone.
We'll hear an acknowledgment telling that you've been placed into Q you may remove yourself from Q at any time by repeating the one zero command.
If you're on a speakerphone, please pick up the handset before pressing those numbers once again for any questions. Please press one zero, we'll go to the line of Steven Valiquette with Barclays. Please go ahead.
Great. Thanks, good morning, everyone.
Let me commend you and everyone at anthem on the work you're doing around the pandemic that you highlighted earlier.
And.
Question is just around the medical reserves I guess I'm curious, if you're able to provide a little more color on the actuarial process around medical reserving.
For all the puts and takes related to covert 19.
And then that any extra ordinary reserving impact that reported.
One Q 20 ml are at all just want to confirm that one way or the other thanks.
Thank you Steve This is John.
I'll just start off by stating that our reserving philosophy is consistent which is both prudent and reasonably conservative.
Hey.
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Reserves are estimated based on the immediate view of our claims are developing.
Our GAAP accounting, we cannot reserve now for claims that will be incurred later in the year.
Which might include accruals for pent up demand and utilization of leftover discretionary services.
So we've been very very consistent conservative with our view.
The the impact of Cobot 19 actually is rather minimal on the first quarter results in on our March 30, Onest reserve balances is.
GAAP accounting does require.
So when we look at what's been incurred through the end of the reporting period, we do have conservatism factors and to ensure that roll actuarially justified, but really covered 19 has minimal impact on March 31st Reserve.
Thank you. Thank you for the question Stephen again appreciate your comments, we're really proud of the work that all of our associates and anthem has done to help respond to this incredible humanitarian crisis and as Jan said I just want to reiterate we've been very consistent in our reserving practices in process next question. Please.
Well go to the line of Ralph Giacobbe with Citi. Please go ahead.
Thanks, Good morning appreciate all the details.
It's a recovery is slower and costs do remain suppressed.
Can you give us a sense of how close you, Florida MLL R floors and potential for.
Our rebates and then how that impacts or influences your thoughts around pricing into 2021, just given the timing of all this thanks.
Thank you Ralph Great questions first of all in terms of some of the MLR rebate is you know when our individual line of business we have.
And above target margins in both 2018 2019 than we expected a normalization of that to occur over margins to occur here in 2020.
So obviously regardless of.
The length or the.
Recovery of the Covance situation, I think individuals' going to have them or rebates under any circumstance.
Turning some of the other lines of business will clearly that does play a role in our modeling.
And impacting that impacting really how the imbalance we're in equities in the system might be.
Handled by us throughout the year in terms of.
The the forward view of trend, we will clearly price to the forward Euro trend, but we'll also have to understand the impacts on.
On the providers on the members on the customers here in 2020 and make decisions accordingly.
Thanks, Yeah. Thanks, Ralph I'll, just follow up a little bit on John's comments, because I think you hit the high points I mean, we're closely monitoring the situation and as you know this is emerging information for us around how the Corona virus will translate over the course of this year at this stage, we're really in the early I did say stages of understand.
And the cost of treating our patients, including you know, we're covering the copays and deductibles et cetera.
But as we think about that.
Fundamentally we believe that as John said, we will we'll put that into we'll think about that and think about at the entire cost structure for all of our customers and at this stage.
And the majority of our our businesses one one.
And that as we get into the course of the year, we'll have much better information be able to share more that thank you.
Next question please.
We'll go to the line Matthew Borsch. Please go ahead.
Yes. Thank you.
I'm just wondering could you comment on how you think about trade off between the commercial and Medicaid membership.
And or the Obama care exchange numbers.
In terms of wealth revenues, maybe more clear, but in terms of the.
The earnings mix, and obviously thats can be pretty different for right would assume per fully insured versus self funded commercial members.
Thanks to the question, Matt Let me, there's a number of things inside of that so let me sort of give you a perspective first and foremost as we think about what's going on our priority right now has been really to work with our customers to help them navigate this this crisis.
In terms of our commercial membership, let me sort of break it into each of the individual pieces.
Pretty early in this process right now we do you expect that we will see because of the.
Potential high unemployment some impact certainly impact on our commercial enrollment.
The early stages have been muted because of what's happening with furloughs. So thinking about that we have up as John mentioned in his comments, we have a much different more diversified business than we historically had.
Thank you talk about where that membership we'd go versus what happened in 2008 in terms of the economic recession. Then we had Medicaid expansion. So we would expect 40% to 50% of of those members to potentially go into the Medicaid markets and.
In that sense were fairly well diversified all 14 of our markets today have both Medicare.
Im sorry, Medicaid commercial and the individual exchanges plus there are 10 additional markets as the 24, we cover for Medicaid, where we don't have commercial and obviously have an opportunity to.
To have an impact in those states as well so again about we think 40% to 50% potentially go into the Medicaid pools. Another.
Probably 30% or so have an opportunity going into the individual exchanges, where we also have a footprint.
And so that's kind of the breakout as we see in terms of enrollment going forward another opportunity as we work with our commercial clients.
They're really trying to understand this impact to their overall business.
And we have a number of affordable options for them as they think about by downs and different products and we are seeing an increase in those opportunities, but again, it's really early for them in our focus has been on them keeping their employee safe and helping them to manage through this but thats roughly how we see the the bright 10 going forward and we'll know a lot more as we get through this over the next several.
Several months, because we're pretty early into that process.
Thank you next question please.
Well go to the line of Ricky Goldwasser Wassa with Morgan Stanley. Please go ahead.
Yes, hi, good morning.
Third remarks, Tom you talked about.
All right. Thanks Amy.
Outperformance in the course performing ahead of your expectations.
Kind of detailed sources of the outperformance and whats looking better and also.
Trends in Ingenio as a result of call that obviously male 90 day.
Seen any increase do you think this is sustainable in housing business evolves to out here.
Thank you Rick you for that question I appreciate the opportunity to provide a well clarification on the junior Rx first quarter results.
As you know if there were a separate FCC reporting segments effective this quarter and the operating gain earnings associated with in junior were $349 million.
Probably differs from what some folks we're thinking about $4 billion of savings that we got from moving to Cvs contract at least 20% of that dropping to the bottom line.
And just very simplistic math.
Say that.
Divided by four quarters, I would be about $200 million quarter.
First of all it's very important to note that.
We had transferred.
DSO PBM business at our commercial lock had been administering for the last few years into in junior Rx effective January one of this year and that added about $75 million to $100 million to the Ingenio performance, which obviously took away $75 million to $100 million from the commercial uplift.
Formats on a year over year basis.
And then.
And then the rest of what was related to stronger performance. There was an impact from covered 19, we did relax the refill twos requirements in mid March and we saw really.
Spike in scripts being filled during march that actually helping in junior performance as well. So the 349 is not run rate because as we look at the rest of the year, we do expect our business mix to change with some of the impacts from the economy.
Medicaid the grow.
And.
Then the run rate of scripts is obviously a different we have seen a slight drop in.
New scripts here in April over historical patterns.
And so a 349 you cannot just multiply by four.
But those are really the key factors and we're very very happy with how Ingenio is performing and as you know this is a full year ahead of schedule that we are we're getting this $800 million dropping to the bottom line effective and for the entirety of 2020, so very happy with in junior performance. Thank you for the core.
Yes.
Next question please.
Well go to the line of AJ Rice with credit Suisse. Please go ahead.
Hi, everybody.
And.
Best wishes to the entire anthem team, obviously most of this well but.
And.
You made the comments in the prepared remarks scale about obviously telemedicine until will help that virtual cares.
Change that probably persist I wonder as you guys are seeing this situation Evault would.
Any other areas or maybe even expand on that little bit, but other areas, where you think theres changes that are happening that will persist long term and then how this crisis is going to impact long term health care delivery of the U.S.
Thanks to the question AJ.
So thanks for your your kind remarks.
It was we think about this again it is.
At a time, we did our first focus was really to ensure that our consumers and members had access to care and we pivoted fairly quickly to virtual care. We had we've always had capabilities, but what we've seen is a real acceleration both.
Through the use of our Sydney App online where people can go check symptoms understand retesting sites are and we've seen a dramatic increase of people using those digital capabilities. In addition, our care providers have been able to go online and use virtual care. So it's not only just virtual consulates, but it's also texting and coming.
Indication.
So as we think about this there has certainly been an increase we do think that as we re enter the economy, obviously and we started a we have to be incredibly thoughtful understand what the testing is and the confidence in the economy. So I do think we're going to continue to see use of.
Virtual care and it will continue to be an important part it is something we started well before.
The pandemic.
But I think it also has accelerated the opportunity and people have become more comfortable with it in addition to sort of physical health. The other area that we think there's significant opportunity is behavioral health and we've seen a big increase in the use of behavioral Tele health again, a capability. We had beacon has always had this and we've expanded as rich.
Also the acquisition of Beacon healthcare.
One and one in three visits right now are being used.
Used to and virtual.
Opportunity and we actually do you see that continuing for behavioral and mental health support. So so overall I think thats one of the most interesting the other opportunities have as we've been working with our care providers.
Trying to ensure that.
They are able to support their patients we've seen our own teams through Cameron aspire, reaching out to those patients in ensuring one of our concerns is that that they don't that they do get the appropriate care that they need so our teams have been.
Working with them both on the social support so I think thats another area, that's really growing and.
As part of our Medicare advantage plans today, we do offer supplemental benefits that include many of those things so I as I think about this.
We're going to see much more virtual care I think the social support you're going to continue to be really important behavioral health aspects to not only because of loneliness, which we've always known but also the use of virtual care is very important I'd say so those are the areas that I think right now we are going to see an uptick and I think we'll see a continued one as people become much more confident.
In that usage.
Next question please.
Well go to the line of Justin Lake with Wolfe Research. Please go ahead.
Thanks. Good morning, just a couple of quick numbers questions from the first can you give us an update on your Medicaid margin trajectory toward that 3% target by year end and then would appreciate any comments on your employer customers in terms of what you're seeing in April around premium collectability, given what's going on the economy. Thanks, great. Thanks Justin.
I'm going to ask Felicia, maybe to comment on Medicaid and then I'll go to Pete I tie in to talk a little bit more about the commercial marketplace Felicia.
Good morning, and thank you for the question. Jeff then when you said a cycle, Dave Awram Medicaid business was on track to end the year around 3%, which is consistent with our original outlook our rate actions came in as expected during the quarter in our out of period adjustments were actually Nick on negligible. So we re.
We had a clean quarter with respect to.
To Medicaid when you think are about our Medicaid business over 50% of our Medicaid market cap rate actions that occur in the first half of the year. So we have very good visibility around that performance and as we look to the end of 2020, we may remain confident around ending the year at the midpoint of our target margin range.
You to 4% for Medicaid.
Thanks, Felicia Pete.
Yes, Thanks, Justin I hope, you're you're well and family as well.
We.
Well said, we recognized that but this obviously really really challenging time.
Employers and for brokers and we're very focused on creating value for them.
We've been frequent communications with them on providing solutions as it relates to.
Premium collections. This has been a topic of conversation first for March March was really in line with normal months.
As you'd expect covered that in really hit until the second or third weeks, our premium collections as related to March was generally in line as it relates to April we are seeing a slight uptick and in the months for clients that are useless utilizing grace periods.
Oman.
Percentage of premium for groups that are that are basically taking advantage of business that's basically what.
The half a percent 12%.
Versus April we've seen it will be around 3%, so a slight uptick but as Gill said, we continue to work with our clients.
Runs around affordability and certainly.
Providing solutions around a premium payments as a part of that.
Thanks, Pete and yet and just another piece of information Justin as you think about our overall premium at 70% of our total insured premiums as part of the government business and that has been collected in time and we expect that to continue.
Next question please.
The line of Lance Wilkes with Bernstein. Please go ahead.
First off certainly appreciate everything you guys are doing during the crisis.
My question is really related to a number of the actions you're taking.
And was interested in what you think the impacts are going to be from a cash flow net investment income standpoint.
Given acceleration of payables, maybe offset by.
Slow slower claims submissions and then looking over on the receivable side.
To the point of maybe some delays in premium collection.
Also just had a quick clarification on your dental way ASO business membership and maybe what what occurred there.
As well thanks a lot.
Sure Lance this is John Thank you for the question.
So.
The investment income and interest expense is probably going to be most instructive to view these on a combined basis.
So, let's just maybe started to began the year.
And.
What has happened in the meantime is that the markets experienced a 150 basis point fed rate cuts that we did not anticipate.
And then we say whats the impact to that well above 90% of our portfolios in fixed maturities and they're all very high quality, what's the duration of over four.
And so which means that clearly any reinvested earnings were going to be down from what our original expectations.
The other 10% of our portfolio certainly has been subjected to a lot of volatility.
Subject in the same way that the overall market's been subject to a lot of volatility in that sort of difficult to predict where that's going to end up by the end of year at this point in time.
On the debt side, we do have some variable rate debt. So we have a natural hedge against interest rates dropping and so we'll have a benefit on that side, but maybe more importantly in order to optimize liquidity, we've access more debt and we're carrying really higher levels of short term cash than normal.
And.
Additionally, we do have some bonds that are going to mature in August in November under normal circumstances would refinance those later in the year.
But we're going to certainly be.
Opportunistic in terms of timing associated with that in the impacts of a carrying that that so all in I would say that we're really looking at the net of investment income in interest expense to be a tailwind or I'm, sorry headwind against us for the rest of the year. So we had a slight tailwind with.
First quarter actual results, but for the rest of the year, we think it'll be a headwind and and we've obviously, taking all that in consideration as part of the.
$22 in 30 sat reaffirmation.
And last in terms of your question on specialty dental that really is the result of one large client that we knew we were going to lose it came to us as the results of our acquisition of Decaire under contract roughly 10 years ago.
And that contract expired in 2019, so overall, our specialty business. When you take that out actually had a strong quarter, but that was unknown loss coming out of this contract expiration as part of an acquisition.
Next question please.
Welcome to the line of Gary Taylor with Jpmorgan. Please go ahead.
Hi, good morning.
I wanted to just ask a little bit for a little more detail on what you're doing with providers both.
Hospitals health systems, and your medical groups I know you alluded to the $3 billion you've made.
Available to providers I think thats, the broader bluecross system, but just wanted little more detail on is that.
Just extending.
Quitting the.
Thats seen something from Blue shield, those being done in conjunction with the bank, taking the credit risk else I know you made the 50 million dollar donation to the.
Sounds patients. So just wondering a little bit what are you dealing with these fee for service physician groups, who are seeing really dramatic reductions and revenue and income in the near term.
Thanks for your question, Gary and you're right first of all the 3 billion as part of the entire Bluecross Blueshield system that we had been working really close with I think.
Part of what makes our affiliation unique here is that just our local and deep roots and we've been sharing best practices and really trying to make sure that we can respond to the needs that we're seeing in our local communities. So as part of your direct question on care providers, we've been working really closely with them and have taken several steps to help support them.
Challenging times, we've obviously talked a little bit about just the.
Co pays and things like that but more importantly, one of our immediate efforts is to work with them and ensure that payments are made to them on a timely basis. So first and foremost we've been working with each of our provider groups to ensure that they're receivables et cetera are important.
And reducing their administrative burden as well ticking off preauthorizations and really our focus has been.
To help them do what they need to do best which has served patients in this environment.
Proactively as we think about.
Our focus has also been on working closely in our communities.
You mentioned you know our fee for service providers in our local markets. That's an area that we have.
We have worked on and each of our communities a little different in terms of their needs, but our care provider teams are working with them to try to understand how we ensure that were good partner to them as part of our value based care. Many of them are in our value based care arrangements. So.
Then again working with them to support their needs. So that they can stay viable during this time as well as enhance their ability to do tele health and other things to make sure that they can serve their patients and on the government side of our business, particularly in Medicaid we've been working very closely with our state partners.
I understand those critical providers and that that we can provide them right resources and support across their patient base. So we think as we look at that.
One of the things that we also I think is important to point out is that pre coded anthem and the blues across the system has some of the lowest days in claims payable in the industry. So we were already a fairly quick payer for these providers, but even addition of that we wanted to make sure that any of their receivables we are working to clean that.
Yep and ensure that they had a set of appropriate capital. So those have been.
The areas that we've been predominately focused on but again across the system, we're sharing best practices and really trying to understand how we help and support providers as they really focus on direct delivery of patient care.
Next question please.
We'll go to the line of Sarah James with Piper Sandler. Please go ahead.
Hey, this is Chris NIM on this on for Sarah.
A quick question around the commercial look and how you pricing for the June one renewals that you can share kind of.
Around the conversation you're having for those and I guess, specifically are you assuming that we do have a fall covert peak that will drive some delayed surgery than a 21. So you just any commentary on pricing for that cost trend assumption.
Sure I'm going to ask Pete I tie and I think it's pretty consistent with previous questions I'll ask Pete maybe to give a little bit more color just about our commercial business Pete.
Yes, sure Gail and I think it is consistent most of our book as as Gill said.
Renews January Onest and this is such an unprecedented event there so many moving pieces and parts and so getting our arms around it.
The thing that we're very focused on but things will evolve over the next few weeks and months that will give us better visibility and to rates and what we do with increases in the back half of the year and towards January one.
We feel like we still have time in that regard as it relates to the near term rate increases.
We don't have a lot of our book really renewing.
In the near term and since coven wasn't it was apparent at that time. It was not as greatly considered but as you know as Gale said most of our book where knowing in January one we have plenty of time, once we see how medical costs and and deferred electives.
Occur in the back half of the year.
Thank you Pete and also just I think to reiterate we said this in the earlier commentary, but I think its part we always we're going to keep our same consistent disciplined pricing to our for review of class, but we also recognize that this is.
A unique situation in terms of what's happening and we will work with our consumers and our customers to ensure that in equities that occur along the way that we are taking into that into consideration as we understand the cost patterns of exactly what's happening.
Next question please.
Well go to the line of Dave Windley with Jefferies. Please go ahead.
Hi, Good morning, it's Dave Styblo and for Windley.
First question was just on I was curious about the use of the $3.2 billion. The PBM savings, that's not going to shareholders is that something.
Which is obviously your control, but that you might use to support some of it as headwinds that you guys have disclosed and then just a quick second one I'm wondering if you could provide an apples to apples.
Commercial operating margin comparison than the commercially so pharmacies now.
Out of that for the first quarter events this year.
Thank you Dave for the question. So first of all on the 3.2 billion that you're referencing which is the.
There will be amount that's been provided back to members and consumers.
Help control health care cost associated with our better PBM deal.
The way that we approach that is we really looked at each line of business and looked at it from a competitive marketplace looked at it from a geographic marketplace, we're where we versus the competitors how close we'll read through a more rebates them or floors and went through and.
Medicare advantage looked at the benefit designs and.
How.
How we could include or enhance benefit designs and still ensure we achieve target margins and we went through a very painstaking process as I said, but every line of business geography by geography by geography, we ended up going a little bit better than the 20% as you can tell by our first quarter.
Operating results, but it's not a lever and in of itself that we could just pool in.
Thanks.
Large chunk that down to the bottom line, we are in a very competitive environment and we are trying to develop.
Deliver the appropriate value to our members at the appropriate pricing. So we always aspire to.
I do a bit better, but it's not just a short term lever that we can pull with something that is part of a larger overall strategy in terms of.
Price points product designs and all the other types of things.
And then.
And then the second part of your question associated with just year over year comparison really the most significant issues to take the.
Commercial.
Operating gain that shown in the press release.
And just go ahead and.
Subtract a $75 million to $100 million out of the op gained from the first quarter 2019.
And then what you will have something thats much closer to an apples to apples comparison of how the commercial segment actually.
Performed year over year.
Next question please.
Got it the line of Scott Fidel with Stephens. Please go ahead.
Hi, Hi, Thanks, good morning.
A question just stop on how you're thinking about the the exchange strategy in terms of the footprint.
And participation for next year, I know that you've taken a pretty disciplined approach towards market selection over the last couple of years, but clearly just given the significant market shifts that will likely occur.
How aggressively you're thinking about ramping that up and then maybe you could just remind us at this point across your 14 Blue States just in terms of what you are.
Current footprint as on the exchange market.
Great. Thank you for the question Scott I'll start and then I'll maybe ask.
Pete to give a little bit more color on it but I think I. Appreciate your comments because I think you're right on that we have Ben I think taken an active enroll involvement in the individual market in state in the exchanges, but have been prudent in terms of where we think we have the best opportunities to have an impact than we've been balance. So we modestly expanded our footprint with.
Then our 14 states in 2020, but we as we shared with you on previous calls we weren't re scaling it we're really taking a measured balanced approach.
We actually feel that we have a really good footprint going into this and an opportunity to offer some really compelling products to our members.
Those 14 states as part of the individual exchange.
With that maybe I'll ask Pete to give some commentary just on the thinking because his team has been really involved in how we think about the exchanges and our opportunities.
Yes, yes, sure. Thanks, Gail and thanks for the question I mean, I'm I'm really proud of the team and the approach we've been very thoughtful in over the last couple of years with regard to how we expand we have been expanding our focal point.
In almost every instance is ensuring that we can partner with the bright providers. We look very closely at value based relationships, we look at.
Where we can partner on critical clinical programs as well as programs like risk adjustment and and then obviously, where we can have the most viable and affordable product and choice for membership and that that strategy is really played through over the last couple of years.
We havent fundamentally change that and so as we think about what's happening with coated.
And the potential recession.
We still have our following those principles, but but as Gill said with respect to coverage, we have pretty decent coverage across our 14 states. It certainly does vary in some states. We are very competitive across most of the counties in the state.
And other state we are much more targeted and I don't think we're going to fundamentally change that approach. If we can be competitive in many county in the state we will be.
But if we don't feel like we can we're going to be disciplined and not necessarily reenter.
Next question please.
Well go to the line of Kevin Fischbeck with Bank of America. Please go ahead.
Great. Thanks, I wanted to follow up on the comments that's on made earlier about picking that about 30 or 40% of the costs that you guys.
Cover our deferrable in some way of just wondering.
Is that based upon kind of real time data I think most of the providers that we've talked too.
That said that that is there a much bigger dropping legs procedure to than they ever would have thought was possible. So just trying to understand that this where your historical view on.
Costs are kind of.
Form by the real term.
Real time drop in utilization that seems more perverse than average and then just trying to get a sense of when you do see crops like this in the past what percentage.
Goes away versus ultimately gets rescheduled and whether you think you know that percentage like change this time around.
Thank you Kevin for the question in terms of the 30% to 40% that was based more on a historical view and it may be.
Closer to the higher end of the range in terms of what we're seeing right now with real time utilization, but that's our historical view and we call it not emergent care and things you can pick up the phone and schedule.
And but.
Pretty consistent for us over a over the last couple of years when we've done the study in the analysis.
In terms of the percent that gets deferred in the pent up demand is comes back and increase utilization versus west its cancelled altogether.
Certainly looked into that we've studied things like when there were snow days were when there were hurricanes or natural disasters, but yeah.
Well those are all helpful. I don't know that we're really going to provide us the exact.
Information, we knew from a modeling perspective, because this is such an unprecedented time.
And it's just different scope and duration of the entire covert 19 issue is going to be different than anything we've seen.
And so while we do expect a small amount to two not come back it's really too early to provide an estimate or percentage of what we think we'll be pent up demand increase utilization future, but we know that there will be increased utilization in future.
People are more comfortable going back to the hospitals.
Yeah, and I would also add that we also know and appreciate.
Pete that patients are waiting seeking some care in the interim and so thats an area with underlying medical conditions that we are concerned about and that could worsen. So we are closely trying to monitor and help those patients.
And make sure that they have the right access, but so again as John share. This is unlike any of the historical models that we had we have certainly done a lot of modeling but.
But at this stage I think it's really hard to give any point estimates about where this will end up and really appreciate your understanding of that next question. Please.
Any we're checking to see if we have any more questions in the Q.
Charles Ride your line is open.
Yeah, Hi can you hear me.
Yes, please okay, great. Thanks for taking the question.
First a clarification I think to an earlier question I think you're just question on virtual care.
Did you mention on sort of what percent of Youre. So clients are currently signed up for life health online and is that something that's easily turned on so clients.
Wanted to access a tele health is that something they can get on to.
For this current period or is that something that up look out for next year, and then and then secondly.
John you're talking about we've been talking a lot about sort of the port costs and one area, where we're looking at it seems like investment income.
Came in higher than respect in that I think if youre annualized.
Amount in the first quarter, we'd be probably above sort of the guidance range for the full year, we've seen rates fall.
Is there something in the once you number that we're missing here.
So we think that number normalizes for where interest rates are kind of fall into right, we have less share repos well.
We have hired incremental interest expense.
Are you kind of implying that the amount of elective procedures you do expect to come back still we're going to set the big drop in second quarter.
It's going to come back a little bit third and fourth but net net we're still going to be down fairly significantly for the full year or you or do you think at the end of the day, we might net out roughly close as we kind of exceed normal capacity, let's say in the fourth quarter.
Thank you up well. Thank you for that very thorough question now I know, we had a gap in the timing you're accumulating all of those that appreciate the question, we'll try to address them. Let me let me start with first your question around like South online first and foremost.
Sydney care, which is the App that life health online is in as well as our engage we've seen more than 39% increase since 2019, well ahead of our expectations.
And by the way Sydney care as part of covered 19, we've offered to anyone who wants to use. It. So this is not a subscription service you can essentially.
Sign on download the application do the current a virus symptom checking as well as the testing and that's that's been very strongly.
Certainly use so we think it's obviously a capability more broadly as you think about live out online. It's one of the aspects of virtual care and again very strong usage, but also I also think we're going to see more virtual care within our sort of traditional care providers because they have also pivoted to that so not only are we seeing an.
Increased usage in the virtual part of it but also texting back and forth in terms of symptom checking and other things. So a lot of strength. There continued we've seen continued growth. We saw an initial surge certainly when sheltering place orders were given what we're continuing to see that week over week. So I think we're going to.
It's going to continue to grow and again.
39% increase so far and I'd expect it to continue to grow through the course of the year with that I'll ask John maybe address your other questions.
Thank you Charles so in terms of the investment income and interest expense, it's consistent with the question Atlanta asked earlier.
That is that we did have a very strong first quarter from that perspective, but given all the comments or they may be for about 150%.
As for 150 basis point fed rate cuts.
The fact that 10% of our portfolios and subject to some extreme volatility.
The fact that we're accumulating cash too.
Really address our liquidity issues and to ensure that we have enough cash in assets to.
Maintain and pay all of our claims in accessing the debt markets, maybe a little bit earlier than normal on that basis that will be a headwind for the rest of the year.
And we just haven't quantified that at this point, but it's all part of the 22 hour in 30 cents.
And then the the last question on the Deferrable procedures.
During the 30% to 40%.
Right now, we're expecting that the second quarter medical loss ratio in the second.
Earnings per share will will be very favorable to historical.
Numbers and low very low ammo or on it.
Comparable basis here in the second quarter and then we do expect the pent up demand to come in.
The real question is what's the.
Duration of the code with 19.
Situation before the deferral deferrable procedures really pick back up and there is a very good chance that many of those deferrable regions will work their way into 2021 and and so when you're looking at 2020 in a vacuum.
There's a good chance it will be in that positive, but over the course of a couple of years people will get their care and we will have the cost structure associated.
Okay. Thank you John next question please.
Well go to the line of George Ho with Deutsche Bank. Please go ahead.
Mr Hill, you have taken yourself out of Q.
Please protect one zero if you would like to ask a question.
Hello.
Hello Your line is open.
Okay, sorry, I don't know what happened there team.
I guess, just we would probably be in the beginning of the PBM and managed care selling season for 2021, right now and I guess I was focused on ingenio with the market traction. It had shown recently I guess can you say.
You know whether or not you started to see the PBM selling season for 2021 start to move as normal with people working remotely and benefits consultants working remotely.
Are you kind of expect this selling season to to be a push until the 21 selling season starts or I guess any comments around this selling season as it relates to the the virus would be helpful. Sure. Thank you for the question I'll I'll now I think we are operating in an incredibly rapidly changing environment I think it's still early to really understand the full implications.
That the way our sales cycle work a lot of activity for the beginning of next year really does occur now and we are seeing a slowdown in decisions. I mean, I think employers are particularly focused on ensuring the safety and health of their employees first and foremost and also trying to understand the implications to their own.
Businesses with that said, we had a really strong pipeline and what we expect across many of these procurement opportunities that they'll just they'll move out further into.
The next year and so I think we still haven't really strong opportunities, but I do think we are going to see some deferred decisions just because of what's happening across this environment.
From players really to focus on their own business right now and the health and safety of their employees with that said I think we've had a very compelling offering and I'm still feel really strongly about the value proposition, particularly the opportunities inside of our.
Fee based business and.
In the commercial business.
Thank you.
Next question.
Well go to the line of Josh Raskin with Nephron Research. Please go ahead.
Hi, Thanks, Good morning can you hear me okay.
We can thanks Jess excellent.
A follow up on the commercial membership and understand that March was quite on what normal months from an enrollment perspective, but sort of curious on early membership trends in April and do you get information on furloughs.
Now that where people actually maintain their benefits or you just getting benefit wells are you actually getting.
Employment roles, and then sort of the the last part of that is just ancillary benefit cross sell you guys. You talked a lot about that trying to increase your area. So Fianna PMPM basis, and do you think that sort of slows down the process you sort of mentioned that in the last question that employers are kind of just making sure everybody is okay. First so a couple of questions there.
Just on commercial membership sure. Thanks, Josh I'm going ask Pete I tie into to answer your questions Keith.
Yes, thanks, Thanks, Josh.
Yeah with respect to to April it hasn't been fundamentally different than March as Gale said.
Her commentary, we are seeing furloughs accelerate we obviously had the PPP the federal relief and.
Folks taking advantage of that we've been working closely with our employers and brokers on affordable options, we've been working closely with them on creating relief around premium payments, so all that activity.
As it relates to April.
We really haven't we havent seen an acceleration you know yet and disenrollment.
Beginning to see.
Signs of that and the last couple of weeks of April we did see in group change well start to accelerate so employees beginning to fall off the roles, but not to a very much.
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The numbers more broadly we are expecting that to accelerate and the next month or so and again, our focal point has been creating solutions for employers and brokers by downs alternative products et cetera.
As it relates to furloughs, yes, we do get information from clients. We are very closely connected with.
Our brokers and our employers we've called multiple Webinars, we've had multiple outreaches, we're staying close to them actually asking us for a lot of advice around things like that so for example, if they have if the furloughing employees and or if they're reducing.
Hours of employees, what kind of options exists for them. So I think that as part of the reason why you're not seeing as much activity.
In April out of the gate.
And then as it relates to our our ancillary benefits strategy and our margin improvement and the DSO business. We had a really strong 19 in that regard we had a strong first quarter in that regard the gales point earlier with respect the RFP slowing down so that will inevitably affect us and 20.
20, as it relates to performing around the five to one to three to one but I think the other important part part to point out around that is we're selling a lot of incremental value as it relates to.
Going from five one to three to one and it actually.
Translates into affordability. So when you think about critical clinical programs and packaging of those programs. When you think of stop loss.
When you think of pharmacy in the integrated value proposition of pharmacy to the extent that we can sell through on that have anthem be a single source solution I think we're enabling more more affordability, but that's what eyes wide open and the understanding that that some of that may slow down.
2020, we are though once we get out of this we feel very good you know about continuing on our path. The three to one and if not for if copper cobot, Josh we would stick with what we had said and that is that we were on a path to definitely get the four to one in 2020. So I, just we might see a slight slowdown them out, but it will pick up again.
Thanks, Pete and Josh just a little bit more color on.
Piece commentary in your specifics about how do we know what's happening as we do the deep analytics on our business. We are looking at it by as I see code, obviously, a and just a little bit of color around that we.
Our book does skew a little more towards large municipalities, which are a little more stable as well as essential workers right now so thats why you wouldnt see as much of that kind of furlough activity early on in our book of business.
We're going to take the last question. Please.
And that question comes from Steve Willoughby with Cleveland Research. Please go ahead.
Hi, good morning, and thanks for taking my question just a quick follow up on the continent.
The John was discussing earlier as it relates to.
Utilization coming back in the back half of the year jot. It in your prepared remarks made a comment about assessing the healthcare systems capacity.
And I was just wondering if you could provide any more color how you're thinking about that.
Once we get any other side of this virus.
How are you guys thinking in terms of healthcare system being able to absorb.
Capacity or utilization above normal thank you.
Thank you, Steve that's a great question and certainly affairs.
Couple of thousand provide thousands of providers out there, there's probably thousands of answers to that question.
But there's only so many surgeons there's only so many beds there's only so.
So many access or availability to.
Appropriate points of care and it's really difficult go too.
To give a exact percentage or difficult to provide something that's really specific from a modeling perspective.
But.
As you look at the at the various facilities that are out there and the information that many of us have ah have available to us.
Public marketplace and you look at some of the.
Some of the productivity and capacity percentages that at these.
Large public hospitals, you can make assumptions from there in terms of.
Just how much they can even too.
And quite honestly given the duration of this oh.
Virus in the situation.
Once.
Once the pent up demand comes through I don't think it's possible that it will be able to be handled in a short period of time I think it's an elongated period of time for the pent up demand to work its way through the system.
In that and that assumes that everyone is comfortable scheduling their procedures and going back to the hospital and going back to the doctor's offices as well, which is another variable in that so it's just one of many many many variables but.
But it's a very important.
Thank you for the question.
Thank you John and thank you to everyone who joined US this morning.
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The lives of those we serve we now have changed in that spirit anthem is also evolving to create a simpler more affordable and more effective healthcare experience in this new context I.
Im confident we will emerge on the other side at this current pandemic, even stronger and more nimble as the health care partner of choice.
Demonstrating the strength of our brand we're Bluecross Blueshield currently serves nearly one in three people in the United States. Today, We hope you all stay safe and well and thank you again for joining us.
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