Q1 2020 Earnings Call

Good day, and welcome to the centene corporation first quarter 2020 Financial results. All participants will be in listen-only mode. Should you need assistance on a conference specialist by pressing the star key followed by zero after today's presentation. There will be an opportunity to ask questions to ask a question. You may press * then 1 month touch-tone phone if your question has been answered and you wish to remove yourself from the queue, please press * then two, please note today's event is being recorded. I would now like to turn the conference over to Jim Gilligan, please go ahead.

Thank you and good morning everyone. Thank you for joining us on our first quarter 2020 earnings results conference call President and chief executive officer off and Jeff schwannecke Executive Vice President and Chief Financial Officer of 17 will host this morning's call which also can be accessed through our website at home.

A replay will be available shortly after the call completion also at or by dialing 877-344-7529 in the US and Canada or in other countries by dialing 412-317-0088 the playback number for both dial ends in 01412. 97.

any remark

Did Seventeen make about future expectations plans and Prospects constitute forward-looking statements for purposes of the Safe Harbor provision under the private Securities litigation Reform Act of 95 actual results May differ materially from those indicated by those forward-looking statements as a result of various important factors, including those discussed and send teens most often form 10-q filed today, April 28th, and the form 10-K dated February 18th, 2020 and other public SEC filings, including a risk and uncertainty described with respect to the potential impact of covid-19 on our business and results of operations.

17 anticipates that subsequent events and developments will cause it's estimates to change.

Well, the company may elect update these forward-looking statements at some point in the future. We specifically disclaim any obligation to do so, the call will also refer to certain non-gaap measures page one of these measures with the most directly comparable gaap measures can be found in our first quarter 2020 press release, which is available on the company's website at 7, under the name section. Additionally. I'd like to highlight sentence upcoming investor day scheduled for Friday, June 12th, 2020. This will use a virtual format, and we will provide more information as we get closer to the date with that. I would like to turn the call over to our chairman president and CEO Michael neidorff Michael. Thank you Jennifer, excuse me, Thursday morning, and thank you for joining centene's first quarter 2020 earnings call.

I'd like to welcome Jennifer Seventeen a senior vice president finance and investor relations. She has taken the reins from April who many of you know, so well.

Would like to congratulate at on his retirement and thank him for his impactful contribution over the years. We look forward to celebrating him in person when gathering together is considered safe. Let me start by saying I hope you your families and loved ones who aren't staying safe and healthy Hearts go out to all that's been impacted by the crisis and we are thankful to the essential workers on the front lines and the family supporting them for fighting the pandemic every day off.

We be we believe we are in a strong financial position with a solid balance sheet and abundant liquidity. We have always been effective may have a balance sheet which has become more important than ever as it enables us to fund our priorities as well as responded to the pandemic.

With that, let me start with our response to covid-19 prices make sure that sent to you is clear. We have to provide accessible high-quality affordable healthcare to our members some of whom are among the nation's most vulnerable population as we were seeing both the public health at an economic crisis of unprecedented nature and scale unfold we are acutely aware of the vital role. We must play dead.

We have never been more.

Consuming our members as well as supporting our providers.

Who maintain our approach which focuses on our members Whole Health is exceptionally local and provide early looking at these critical challenge in front of us priorities are as follows.

First and foremost is a health and safety about employees. We have taken significant steps to support our employees and are doing everything we can to protect the health and safety while ensuring continuity of operations to the sin. We have implemented our business continuity plans. I'm taking actions to support our Workforce. I am proud that we're able to transition approx 90% of our Workforce to remove Network remotely within just 3 days.

This allowed Seventeen to continue to operate as close to full capacity without disruption.

I'd like to give a special thanks to the remaining 10% whose roles are critical and cannot be performed outside the office.

Second it is critically important that we Safeguard people's access to high quality Health Care, especially the most vulnerable in our society.

It is with this in mind that we have taken important steps to support our members during the pandemic including class waivers for both testing and treatment and increased access to Telehealth services.

We also announced a series of Investments that build on the long-standing commitment to address broader social determinants of Health.

We continue to support initiatives that address hunger connectivity and increased demand for health care and educational supplies to name. Just a few. For example. We are donating 1 million 1 million a month for 12 months to feed our neighbors and communities all over the country.

And delivering 50,000 gift cards to be used to purchase essential Healthcare and educational items.

Our third priority is to support the organizations that are Partners on the front lines as you it's all about exceptionally local provider let approach since teenage understanding deep relationships across our provider Network. We have initiated a broad range of efforts to support those on the front lines these include provision a month and facilitation of additional medical personnel across virus a spa relaxation of administrative burdens for positions and access to financial resources. We will continue to be proactive in thinking through how we can best contribute as the situation evolves.

to that end

Let me touch and how would thinking through the trajectory of this pandemic we are preparing for a range of scenarios relating to the shape intensity and duration of the page.

We are in close contact with the relevant Health authorities and we are closely tracking the data and organizations such as the Institute of Health metrics and evaluation the CDC and the World Health Organization of providing ongoing basis.

What is difficult to predict precisely what future weeks and months will bring we are prepared for the scenarios scenarios which incorporate a number of key considerations month including the potential for multiple piece has local federal and state governments balance the need to reopen economies with the risk of increased viral transmission and a return to normalization may take some time until we have widely available testing effective medications or safe vaccine off next. Let me provide a brief overview of high performance in the first quarter overall. We delivered solid results including a just wage is $0.86. First quarter revenues was $26 billion dollars represent a 41% increase on the prior-year. Yep.

Really driven by the acquisition of world here from our Marketplace business and the addition of new members to expansion and new programs across our state of Managed Care membership now stands at 23.8 million included eleven point eight million in our Medicaid business with two point two million in Marketplace and 5.4 million across our Medicare products. As I mentioned financial position is robust month. We remain focused on ensuring we have the right capital structure and capital allocation policies in place that ensure will continue to affect the employees managed to this crisis.

No, not a fool. You only seat you actually remains consistent as you can see from the unchanged adjusted EPS guidance wage that said there will be some variability when it comes to how we get there.

We expect our results to be choppy from quarter-to-quarter, but overall we continue to view our prior guidance range has the most reliable Baseline wage. Let me offer a few of the variables that we continue to monitor first membership. We expect economic impact and resulting unemployment to drive increases to members of these increases will be partially reversed as and when the economy reaches the recovery Stage II utilization they have been wage and are expected to be continued declines in general types of deferral services for example, dental and Optical business.

That mostly in the second quarter.

Large provider groups expect pent-up demand to return early in the third quarter and continue into our fourth quarter.

We expect your reservation to increase as restrictions are lifted and members return to more normal pandemic Behavior.

Costs related to covid-19. We expect to see an impact from the cost waivers for Kovac related testing and treatment during the second quarter which could continue throughout the bouncy to you the way this Dynamic materializes will be dependent on how the pandemic evolves. We also expect costs significant greater in the third and fourth quarter as the intensity of utilization rates increase, especially for members with chronic conditions and other medical needs which may not have been met during this period of uncertainty.

Fourth intensity and duration of the pandemic where he was leading epidemiologist. We continue to monitor closely to the potential promoter Port infection wage as we prepare for significant levels of seasonality and choppiness. We continue to work with our state partners and other stakeholders including Regulators took such as CMS to establish holistic ways to address these different costs Dynamics. We continue applying abundance of conservatism to Outlaw. We anticipate an increase in membership, but at the same time acknowledge the fluid nature of the employment landscape, it is prudent to recognize the very back tones this operating environment creates. We will continue to update you as the impact for the pandemic take shape if we see development that wage

Maturity change a guidance assumptions we commit to updating you on those immediately outside our regular calendar.

22 work here the integration remains a positive and important aspect of our operations the team continues to focus on education and the executor of a seamless transition and delivery of synergies. Well our view of the total run-rate opportunity remains unchanged the current operating environment is generate some variability in the timing of synergy capture. For example in Georgia the timeline to combine the two plans has been delayed twenty twenty two twenty Twenty-One by the state.

Recognizing the economic environment and the difficulty of finding new positions. We are offering extended benefits to those impacted by the integration of such a daunting time Carnation Jennifer discuss these Dynamics and pretty detailed.

and closing

Our mission has never been more vital today. We have taken significant actions to ensure we serve the most vulnerable during this time of need am undergoing rigorous planning processes and will continue to be guided by the facts as we know them while remaining flexible in this Dynamic environment. If she has a shin is united in our Focus to deliver for our members providers State partners and shareholders as we face this pandemic together.

It's Builder by a press release. We have raised our Revenue guidance. We continue to make significant progress on the welfare and immigration and our balance sheet remains very strong.

Now I'd like to turn the call over to Jeff who provide the financial details.

Thank you, Michael and good morning. Let me just start by echoing Michael's comments. I hope you and your families are all staying safe and healthy today. I'd like to keep our discussion of the quarter's performance relatively briefing will spend more time on our Outlook and light of the extraordinary circumstances. We are facing and provide you with more detail on our expectations for the year overall was a good start to the year. We reported first-quarter revenues a $26 billion dollars an increase of 7.6 billion or 41% over the first quarter of 2019 as a reminder. We also close the WellCare acquisition as a quarter and completed several other capital structure items that are included in our first quarterly report as a combined company the closure of the acquisition and the inclusion of WellCare in the results beginning January 23rd has impacted a lot of the usual metrics. I'd also refer you to the detailed explanations in our press release.

We reported adjusted diluted earnings per share of $0.86 compared to a dollar thirty-nine last year. Both diluted earnings per share and adjusted diluted earnings per share for the first quarter were negatively affected birth family $0.05 associated with lower investment income and higher interest expense.

Our investment in other income was $167 during the first quarter compared to $99 last year and $126 billion last quarter the increase over last year reflects the gain on the Statue of our Illinois business as well as higher investment balances partially offset by the sharp decline in interest rates in March, which you negatively affected. The fair values is some of our bond portfolios that flame burning things and are deferred compensation Investment Portfolio, which fluctuates with its underlying Investments interest expense was a hundred and eighty million dollars for the first quarter 2020 compared to ninety-nine Million last year and $113 billion last quarter the increase reflects a net increase in borrowings related to the issuance of an additional seven billion in senior notes in December 2019 to finance the cash consideration of the WellCare acquisition and the two billion dollars in senior notes issued in February 2020. We decided to defer the Redemption of the 20 22 age.

your notes as a result of the covid-19 mc2 mean

teen further flexibility

operating cash flow used in operations was $240 in the first quarter operating cash flow was negatively affected by a delay and premium payment in New York of approximately seven hundred million dollars off and the growth in the PDP business, which use working capital.

Given that the code would pan demek did not accelerate in the United States until the second half of March. We experienced a minimal impact during the quarter in terms of claims. We did experience a significant drop in dental and vision claims, which was offset by Investments and our technology and employee infrastructure to support a work from home environment and higher covid-19 in our International operations primarily in Spain, which was affected much earlier in March.

Turning now to our outlook for 2020 broadly. We are maintaining our guidance for the bottom line demonstrating our ability to navigate this environment that said the pandemic has impacted the vagaries Dynamics that affect our business. I want to take a few minutes and highlight the headwinds and Tailwinds of the current environment on the top and bottom line to provide as much transparency as possible in terms of how we believe these Dynamics could potentially play out through the remainder of the Year. First Total revenues setting aside the effects of the pandemic. We are increasing our total revenue guidance by two billion dollars at the midpoint. I'm driven by an increase in past three payments of 1.3 billion and 700 million due to actual membership and premium changes as we exited the first quarter.

Second as a result of the higher unemployment rate in the US the suspension of Eligibility determinations and our product mix. We are increasing our total revenue guidance by an additional four billion at the point bringing our total guidance increase to $6 billion dollars at the midpoint. We are also widening our guidance range reflecting the lack of visibility with regard to the magnitude and duration of the high unemployment rate in the US. We have seen early evidence of membership growth in April driven primarily by state suspending eligibility determinations and special enrollment periods for Marketplace businesses in some states. However, we are also conscious that some of these Trends May lessened significantly as economic conditions improve. We now expect our total revenues for 20 20 to be in the range of 110000 to 112 billion next Gap and adjusted diluted earnings per share.

There are numerous items that affect the bottom line and I'm going to highlight those that are most material as I just discussed. The additional membership will be a Tailwind to 2020 earnings particularly in our Medicaid business all expect normalization of enrollment during the second half of the year as the economic recovery progresses.

Next utilization while we saw a minor effect of lower utilization on the first quarter's results. We expect to see a significant impact of shelter in place policies on utilization rates during the second quarter month. We also expect a potential reversal of these Trends during the second half of the Year while we cannot at this stage predict the exact scale and scope of normalization as this will be highly dependent on where we were both in the economic recovery at that time. We expect that there would be 10:00 up demand for medical services in the back half of the year. We also expect that the deferral of Medical Services may lead to higher costs of treatment once members returned to seeking Medical Care as their health issues may have become more acute in terms of the cost impact of covid-19 and the waivers for tests and treatments expect the bulk of those costs to begin in the second quarter and continue through the second half of the year. We also expect lower investment income and higher interest expense due to the lower interest rates and maintaining the 2022 Ninja

on another note

We expect our Marketplace risk-adjustment efforts for 2019 to be lower than our previous expectations as a result of the current environment finally wait while we continue to expect to achieve our run a Saturday Target of seven hundred million dollars associated with the WellCare acquisition. The timing of synergy capture will be affected due to shifting regulatory timelines and relax provider policies in the current environment suspect are synergies to be lower than our previous expectations in year one at this point. It is too early to predict the effect on synergies for twenty Twenty-One, but we continue to drive to the $500 netcenergy Target.

When you combine all these items we continue to expect adjusted diluted earnings per share to be in the same range as our previous guidance.

We have a strong balance sheet that are well positioned to meet our operational and strategic needs from a liquidity perspective. We have taken proactive measures to strengthen our liquidity even further in this environment. We had approximately two billion dollars of unregulated cash on hand at the end of the first quarter and approximately 1.4 billion available on our revolving credit facility creating almost 3.5 billion of immediate liquidity.

The increase in leverage at quarter-end was intentional driven by the decision to defer the Redemption of our 2022 senior notes this increased our cash on hand and our debt by 1 billion dollars each quarter in driving our debt-to-capital ratio to 41.9% excluding are non-recourse debt. Our debt-to-capital ratio would be 38.9% when netting are unregulated cash with are dead at quarter-end in addition as we highlighted at our earnings guidance call in early, March will utilize five hundred million dollars of the divestiture proceeds to repurchase shares at a weighted average price of $50,000.66 during the quarter as we progress through this year. We will continue to revisit our capital structure and adjust as appropriate overall. We had a good start to the year and have a strong balance sheet and liquidity position for the environment. We are dealing with today.

That concludes my remarks and operator. You may now open the line for questions.

Thank you. We will now begin the question-and-answer session to ask a question. You may press * then 1 on your touchtone phone. If you are using a speaker phone, please pick up your handset before pressing the keys to withdraw your question, please press * then two. We will pause for just one moment to assemble our roster.

And our first question today will come from Kevin fish back with Bank of America, please go ahead sir.

Great. Thanks. I want to I appreciate the GPS bridge that you guys walked through. I would love to get a little more color though about you know, how much of what you're seeing is kind of an impact is going to flow through into next year. I guess, you know the expectation if we assume that go over this is the thing completely back to normal next year. We do assume how much of that interests you know had one is going to persist next year versus paying it down. As soon as you captured you get back to normal to a year to talk to that is everything kind of get pushed back, you know, six to twelve months, but just left to go through those with my hands and kind of see which ones are kind of more this year versus maybe have an impact in you know in 2012 or do you have it all start off? I think the biggest issue we have is

we've never seen it like

This before know where we have we have seen all the models. We it's difficult to model when you have no prior experience and the biggest the biggest issue. I see is for Thursday and employment. It could reach his high as 20% It's right now, I'm fifteen that's

Depression level and the forecast I see say that in the first quarter first half of next year. You're not going to see a normalized return even if they had the vaccine because I'm going to have probably 79% unemployment. And so what's the various programs are so while we would love to be able to you know, say this what it is. I am planning assumptions have to be to take it quarter-by-quarter and that's why we thought it very important to maintain guidance cuz we really believe that's achievable but that's a baseline from which we can judge when you have nothing out there. You know, what's the baseline from which you compare and look at and so I wish I could say what I think twenty twenty one month will be I'm hoping it would be improved. We don't even know how many Peaks are going to have this year. We're trying to return to work. We understand I'm giving you a long-winded answer to Thursday.

To talk about and I work with epidemiologist and they keep telling me that the return to work before we have the in a massive sort of way the vaccine it's unpredictable where this is going to go and I think the earliest we here hopefully vaccine sooner, but first half of next year is from the earth respective altesi vaccine. So I guess what I'm saying is as we plan through this we're going to we're going to do growing quarters and try and get a sense as we look at the models of what life is going to be and what's that mean to our business what support the states will be able to provide. I wish I could be more definitive.

No, that's that's fairly. Maybe you know, you mentioned the four billion dollars of extra Revenue. I guess. How do you think about the mlr on that business? I guess your last time if I remember correctly. There was some pent-up Demand on the New Jersey in Romans or for the first six to nine months and obviously on changes, you might get some of that Cobra membership that was higher Millar jumping onto the exchanges. How do you think about the mlr of that New York? I think I think the MRI mean from the new membership. I think I have to take the approach that it's fairly normalized. But at the same time these are people are just lost their jobs and they may have had Insurance previously. So they may not have a lot of pent-up demand. They may be something that's that's part of the variable. We're dealing with but the the the biggest issue is when our people return to work, you know, we everybody believes that we are visual planning was that the second quarter we would see reduce utilization now,

The issue there is I'm talking to Major hospitals, which is right here in st. Louis why she's Barnes and others. They're doing everything.

They can to get things back to normal today and get people back in because their income and everything is being affected by it and they don't want people to lose confidence in the hospital. So I thought well, I thought we may not see anything to July third quarter when we met now see it well in May and June sort of return which means there'll be a more normalized Thursday. We are typically in Jeff can go into more detail. We are typically booking from historical levels expecting that to I'll give you one more big variable and that's that that was true of what we looked at. The first off the submission of bills does not have a normal pattern cuz the people who do it in a position of their offices were working from home or not doing it off and so your ivr lactate we have the finest. I've had the greatest confidence in him. It's all predicated on data service to submission a bill and dead.

That's been thrown out of whack and will be for 12 months to it normalizes. So it's long-winded answer again, but it's this is the the toughest thing. So, I think the MRA hath normalized and Jeff can talk about why the increase in q1 which was anticipated and we we talked about historically but Jeff, why don't you get a little more thoroughly and Mars dead. Yeah, I think you know, we we highlighted in the press release obviously the the q1 mlr and exchanged normalization. Obviously the addition of well care and the blending of two companies will care has a higher hbr in the first quarter because they don't have a significant Marketplace business and then obviously they had a lot of growth in the PDP business this year. And that's the highest for the PDP business is in q1. We had new markets with the start up the ltss in Pennsylvania. And obviously, Iowa carrying over from from last year. We had leap year we had

Effect of New York rates so I guess a lot of a lot of things that were driving them along in in on a year-over-year basis higher partial part of that was offset by the health insurer.

I think what I'll just add is.

I think we we've talked to people recognize our systems and it's allowed us to be on top of it to the maximum extent possible. And I think we'll walk you through the quarters will be able to be more coward but that's why I made the statement because it's unusual for to do that. But this is so variable that if we see some Trend develop that we should have some companies and it's it's real realistic and material. We're not going to wait till next earnings call to tell you we're going to wish you the 8K or whatever set up a car whatever cuz that's the world. We're living in its it require a different approach and you can count on us continue to keep you informed as quickly as we know things.

Thank you. Our next question will come from Matthew Bush of BMO Capital markets, please go ahead with your question. I just try to better understand the month, you know, how the patterns and behavior changed. What is there anything you can spike out in terms of the tear pattern that you're seeing between wage paid commercial Marketplace and and Medicaid

I'm not sure. I'm not sure that.

That there's a lot of differences right now. I think everybody is very much focused on.

Safety home avoiding it the the biggest the biggest issue we see right now is Faith lead services and a very caring man. What worries me is there are some and I'll give you just this as a door, but I was talking to the head of lung cancer as well as you and Susan and he was saying how hospitals and not so much them that they're doing surgery words emerge in a necessary, but there are people that are saved in other locations non-specific. Well we have to

To maybe chemo before we do the surgery cuz it says sweets and things. So the patterns of care are going to be adjusted based on what the availability is home of hospitals and they so it's it's difficult to and I don't I don't think we can call out a difference in the various populations cuz it's the the pandemic kind of overrides at all and and maybe just one more on pent-up demand, you know some experience maybe this anecdotal suggest that you know, the delayed care, you know doesn't necessarily flow through, uh, you know life that maybe more than half of it, you know goes away. I realize we we certainly don't have slept in for this experience, but I'm just wanting to comment on that well made two comments off.

Well, I mean, it seems like utilization that we won't mean when that's not really our that's gone. But that that's a small percentage of it. It's cuz there's still people going to your cuz I'm about the pandemic in that type of thing, but I can't say that other care.

Will not return another words if somebody needs back surgery do they they may have delayed it and be to an exercise thing, but it's going to come back and there's a balance maybe some cases that they said well, you know, I live without you do without it. But there's some that were the intensity and the and the probably more acute. So as you you summarize we've never lived this way. I always tell people experiences of some of experiences and we nobody's had any experience in this where they can rely on anything. So, it's your yes. Yes. Yes. Okay. Thank you. Thank you.

Our next question will come from Joshua. Rascon of nephron research, please go ahead with your questions. Hi. Thanks. Good morning. Good morning. Michael. First question is off on the headwinds that you spoke about. I'm curious if we could get a little bit more color on the sizing and I know it's imperfect and you know, there's no experience but even just relative magnitude of what's biggest versus smallest. It said, you know the welfare synergies and the covid-19.

live with that and it's

It doesn't mean as soon as she's won't be there will just be delayed. Another thing we've done and I alluded to is with the unemployment rate being what it is and individuals who will redeem just through the sheer combination. We've extended their severance pay and their benefits. You just don't that's just the humanistic side of things. It's not their fault. They're very capable people. But so we've we've extended that and that's that's a few million dollars here and there but it's that type of thing and Jeff can comment on the others. Yeah Josh, this is Jeff to a couple of quick things. Obviously. We've sized the the revenue peace in our Revenue guidance and you can imagine as with our income statement, you know, the sizing of the categories is, you know revenue and cost would be the from a dollar perspective just because they're the largest dollar captions on the financial statements. So real quick on the risk-adjustment initiatives, I mentioned in my prepared remarks around town.

2019 risk adjustment as as you may be aware usually in the first half of 2020 or the first half of every year there's a significant amount of chart Chase effort goes on even though risk-adjustment is relative to your competition. We have data that would indicate that we're disproportionately affected because we do a better job of capturing codes and so, you know because of what happened in March, you know that that submission date goes through May because of what happened in March, we think there's going to be an effect there on the 2019 risk-adjustment home and it's kind of hard to size the the magnitude at this point, but you know, you can you can think about it in in that context delay and WellCare synergies again, I think, you know, we've mentioned in the in the past that the WellCare transaction was effectively break even without the share repurchase. I think we'd still be a break even if even include the share share repurchase.

Is this year? So so I think from the transaction perspective that can give you a relative size on the on the Synergy shift. And again, we're still trying to capture those synergies, but as Michael mentioned, there's obviously some regulatory changes that will delay some of that capture. Yeah. I think I just want to make one of the week we put in the press release some of the things that may impact here at the pluses and minuses and we we didn't put we put the one place we had the knowledge of the interest. We put the 17 cents a share but we wanted to give investors the fact that these are the things we're watching and and the order of magnitude in this current environment and she has to be fully determined.

And then are the state's reimbursing for covid-19 and costs. Are you are you are you having discussions? And I understand you're now and literally dozens and dozens of States. But and it's all sort of individual but are you getting feedback states are going to pay for those treatment costs? Well, I mean it's going to be within our premium. It's a we have the premium and we have to look and see where the whole total which to see how many of them was actually have the cost. And so if there's an issue, we'll sit down with the states, but and that's going to vary state-by-state. All right, and I'm sorry last one just on the four billion of higher revenues not the pastor the actual High revenues how much of that is Medicaid versus exchanges in terms of the you know, expected growth. Yeah Josh. I mean it's it's hard to buy for I tell you on on the Medicaid peace. I would say the large portion of that sin the Medicaid side because the eligibility redetermination is suspension, right? So in order for states to get the F Map dead

the enhance F map they have to

Suspend the eligibility redetermination process. And so when I mention that we've already seen increases in in April, you know part of that's because of the eligibility redetermination suspension.

Perfect. Thank you. Thank you.

Our next question comes from Sarah James of Piper Sandler. Please proceed with your question.

Thank you. Can you provide us some color on your conversations with states around budget pressure and whether that could impact rates or program changes wage obviously states have budget pressures. I mean Elizabeth, how is everything with reduced tax revenues? But yeah conversations with your mind them that the F mapped was 6% and and recent legislation to talk about moving it to 12%

So that their revenue and their cost of the sharing for these premiums will be absorbed more by the federal government. So we have to we have to work on how it all plays out. But I we were confident that the the revenue will be there Most states understand the cost and home needs are still be and CMS has been very clear. Some states have asked for some very they asked for a waiver or change an actual soundness and and see clearly they you know, they understand that so the basic principles there are still there and that's where the strength of a balance sheet comes in handy that we we can we we have church friends and wherewithal to work with them and get get issues resolved.

And can you just remind us from the last recession? I know that there's there's more Actuarial soundness, you know Buy rate cell level of protection that came in there's other Obamacare protections that came in so if we went back to last time where their program cuts and would that even be possible this time or is there too much for the the states to lose? I don't really I don't really recall program Cuts. I think the states need doing everything they can to to normalize these types of things, you know, and and I I feel for me they're the biggest question right now is on education system more so than our thoughts and of course schools are out of session and that type of thing but I don't think I don't think we're at risk that I think healthcare is dead.

Certainly leads there and they realize that actions that reduce it and reduce the programs really come back to Harlem very quickly.

Thank you. Thank you.

Our next question will come from Charles of Colin. Please proceed with your question. Yeah, thanks for the taking the question here. Just wanted to maybe touch on you know that you were talking about earlier about potential for multiple Peaks and just kind of thinking about when when you were thinking about the your guidance your particular as we get to the end of the year. Are you anticipating sort of a second wave for a covid-19 sonra car as you think about some of the delays expecting particularly in well casings use at cetera. Are you assuming that sort of covid-19 is more of a regular occurrence as we as you kind of go forward. So it's one thing about twenty Twenty-One. Should we be thinking about sort of choice recording and I'm also it becomes more normalized. I guess. Thanks. Well, he your I'll tell you the taxes were thinking about it. I feel like I'm getting two for a ghost, but I'll try and keep it.

The epidemiologist I'll give you a factor haven't seen much having too much about they there is a factor that measures the intensity of the virus in summer. And what people don't realize is that in the first three days somebody's contracted a virus. It is at the highest maturity and intensity. So you people walking around that have the virus who don't know they have it and spreading it more really remember. I think it was one person came from Chicago. This whole thing started here. And so when we look at the Peaks, but we worry about is that kind of factor and you know to what extent people take the steps to protect themselves, we we're planning on we've said we tone employees letters going out today that we expect that. We will we know we were not open for the end of May and that may be pushed back another time.

few days just in the abundance of

conservative isn't caution. But we're installing the equipment that will measure employees temperatures when they come to the turnstyles that go to work. We're working hard to get these positions a six foot high petitions in we're working through how we get random testing in now.

Do the one or the other more? So thanks. Yeah, I would say it would the delay would skew more to the to the medical the medical line is what I would say not much life a little bit. Okay, you you also just say this offsets there so that our break even in the story is still there. I mean, we we tell people where we like to think of ourselves as managers not victims.

All right. Thank you.

Our next question will come from Scott Fidel of Stevens. Please proceed with your question.

Hi, thanks. Good morning. Everyone. First question just interested. If you could maybe help us just walk through some of the the key dynamics that you're seeing in the New York Market. Just giving me see how how much more disrupted the Dynamics have been there. So specifically, you know, obviously there were delays and payments what the visibility you have on, you know, getting paid in New Jersey or the final rate updates that you saw on the budget from New York. I think it ended up down one and half percent but interested in what you're seeing there and then also just from the member perspective in terms of you know, sort of coping cost impacts and and just what you're seeing with the membership based in New York. If you are a second. Yeah, I'll start on a couple of things. So on the late payment Choice as you all may be aware of New York's fiscal year end, so it's not uncommon for states to delay their payment for a few days at the end of their fiscal years, which is what happens. So we've subsequently been paid on the

The rates the rates still aren't final. So we really don't have any any update. I would say that's that's with some finality compared to what we we said on the March 3rd and March 4th when we gave guidance, so there's no no real change there from that perspective. And what was the your last one?

I mean I was on medical costs essentially just in terms of you know, sort of this being impacted things like that.

Yeah, we certainly yeah, we've certainly seen some some costs from New York as compared to our other states but in general and this is no different than I guess what I mentioned in the prepared remarks, you know, as we sit here today the amount of I would call it paid dollars associated with covid-19 been substantial right? So there is there is obviously a delay from when you know, the people seek services and when we obviously get in house and so, you know, we haven't seen a a large amount sitting here today. Yeah. I mean the normal submission patterns just like there right now and that's that's part of the that's part of the package. So it it's

So I think we haven't seen before.

Thank you. Our next question will come from Steve valiquette of Barclays. Please proceed with your question. Okay, great. Thanks. Good morning, everybody. So a couple of questions here, I guess off your first from an Actuarial perspective on how much you can dive into this or not. But I guess I'm curious if we're able to give a little more color or just on how you've approached the the Medical Reserve process for the full-year calendar 2020 just in relation to covid-19 medical costs and was there any you know, bias to potentially over Reserve just out of an abundance of caution, then launches obviously, see how the prior. Wage later this year and early next year and also typing. I'm curious just being pictured medical reserves for the full year for covid-19 have any material impact on the mlr that was received in one particular just to clarify that as well. Thanks also off a little bit and then that just give you a more car but

We are we are looking at what is a normal reserve and that's our starting point. Now I will I will say that I use the words abundance of conservatism. I would hope that we're going to be somewhat conservative in our bookings where there's all these variables cuz I've often said I mean, I'd much rather come back to you and twelve months and I months whatever and say we had a fire. Positive adjustment that a negative adjustment and that that's but even that it's just because it's these are things we've not seen before submission patterns so many variables that will using historic patterns. I think it's fair to say Jeff is a starting point and try to figure was any variable but that's been the basic approach. I don't know. Yeah. Yeah just in general just to to maybe get a grounding point the Actuarial standards require reserving under moderately adverse conditions and anytime there's uncertainty generally you would add additional margin or additional. Yep.

and if you will because of the uncertainty of the environment you're in so two things we can only we can only accrue for

And record our best estimate of what we think our claims liability is going to be under the accounting standards and that best estimate would only be for claims that we believe have occurred prior to birth month or year end. And so at the end of the first quarter, that's what we did to Michael's Point early in the first quarter as we close the books. We did not really see any difference in the claim submission patterns. It looked like the claims that we received were in line with our forecast. And so we recorded a normal level of of Reserve. That's why we indicated that in the first quarter the covid-19 have an effect and that's because in a normal month in a normal month. We really only receive a very small percentage of the claims for the last two weeks of the month. Um, so hopefully that gives you a little insight on on q1 and and kind of how the reserving process works.

Okay, that's perfect. Yeah, I appreciate the extra color. Thanks.

Our next question will come from Dave wisly of Jeffries. Please proceed with your question.

Hi there, good morning. If they've stopped blowing for for Dave Winn Lee just a follow-up on the first quarter to understand. I think previously you guys had indicated that the mlr would be I'll be over here and I think consensus maybe took that to be about fifty basis points and obviously was up over two hundred basis points. I just want to make sure that there weren't any other major differences that came during the quarter that affected it whether that would be a mix issue form or PDP lives in the WellCare book or some of the Investments that you might have made in in the court knowing that that lines were going to be a little bit lighter going forward just to help understand the the Delta again between consensus and and what you were previously talking about. Yeah, I appreciate the difficulty and modeling the the q1 mlr hbr. Obviously. We had a lot of moving Parts specifically with the closure of the well, well cared transaction and the proration of their results. We also wage

Press two to three businesses to Legacy. WellCare one Legacy Seventeen. And so it became challenging. We we did not we did not give a m l r q 1 what we did do was walk in early March when we we gave our guidance. We indicated that the high eighties to low $0.90 range from an adjusted earnings perspective. And the way the way I would think about that is if you look at the 86 Thursday, we had $0.05 that was purely driven by what happened in the second half of March with interest rates. And so that was unknown to us at the beginning. It was unknown to us at the beginning of March when she gave her guidance. And so I guess from that perspective we would kind of view we were in line with what we told people at the beginning of the month. And obviously we said covid-19 for neutral and so that's where we were from our perspective. We didn't give really any guidance on the the q1 mlr and we appreciate it's higher but a lot of the things that I think I highlighted earlier were really the driver's we we'd previously talked about exchanging.

analyzation you have the addition of WellCare

Which runs a higher ml are in the first quarter and specifically they did have significant PDP growth, which it's the highest mlr for the quarter new markets and and Pennsylvania. We have leap years. Then of course the New York rate affect and so I guess from our perspective, you know, it was kind of where we thought it would be.

I'm going to jump in here. We have we have an annual meeting coming up with a few minutes. I'm going to ask everybody to try and limit the questions because we're going to a time in about 10 minutes.

Please continue.

Thank you. Our next question will come from a J Rice Credit Suisse. Please proceed with your question.

Hi, everybody. Just a real quick one point of clarification on the enroll on the revenue increase you referenced the special enrollment for the public exchange extend the lack of predetermination. Does that account in your mind for the full four billion increase are you assuming as the year progresses? You'll see incremental Medicaid enrollment due to the week off the economy and maybe split that out between which actually have in hand now and what's your sort of anticipating is the year progresses and it just real quick any update on North Carolina or Georgia other states that are either in the RFP process or or in the rollout phase of new business. Yeah, you're spot-on. It would include both our our prediction on the higher unemployment as well. So it's both components eligibility redetermination suspension and higher unemployment. I'm not going to split those out at this point in time.

Because I think is Michael mentioned, you know, there's a lot of uncertainty here. So we were comfortable with the the number and Aggregate and I think that's what we're going to stick to at this point as far as State updates. I'm not aware of any significant updates that think we still have North Carolina in for 10 one will you know, we'll have to see how that plays out States right now and talking about about the birth of that. So we were waiting for several here from several but calling saying what's new they're going to say have you just have you played with the vehicle just woken up.

Yeah, okay. Thanks.

Our next question will come from Justin Lake of wolf research. Please proceed with your question.

Thank you. Good morning. Just two things here one quick follow-up on a question for the full-year. Can you give us any money in terms of where you think about that directionally relative to the previous guidance of I think was 8596. Yeah. Yeah, I guess here. Here's here's what I would say Justin. I mean obviously there's a lot of uncertainty here with you know, respect to the cost line and the pandemic and and everything. I would say excluding the effect of the pandemic our rep would still hold. The real variable is going to be you know, how the costs play out for the year both the revenue and the cost play out for the year associated with the pandemic here.

sure, but within you know, you took up the

Topline took down investment income. I assume sg&a benefits a little bit and then it's it a little bit but then in terms of the mlr you're just saying we still think that numbers good relative relative to the EPS guidance. Well, I see we we hire a lower it would still it would still be within the range. But again, I mean there's just a lot of uncertainty here but it's just walk you you guess who's yeah, I don't know about that, but they just my question just a quick follow-up on this and the redetermination and the lack thereof. Yep. I know you don't want to delineate the exact Revenue benefit from this but you know, can you share with us what the typical turnover is or churn rate is Faith terminations. That's not going to happen now for some level of some period of time, you know on a monthly basis. I've heard numbers like 3 to 5% I'm just curious with you when you've experienced wage.

We we said we had commented prior to all this that we determinations were tailing off.

Cuz yesterday going through it. So we determinations right now would be very difficult. They wanted to do it because of the number of people have lost jobs and and where we are so long to try and put any percentage on it. We just when we had our White House meetings, we raised the redetermination and balance billing. There's two things that they regulations to deal with and I guess they heard us.

Okay. Thanks for the call. Thank you. Thanks.

Our next question will come from Ricky goldwasser with Morgan Stanley. Please proceed with your question. Yeah. Hi, good morning. And thank you for holding. Carmen's a couple of questions here. First of all, obviously a lot of uncertainty but it made bids are due soon in June. So, how are you thinking about those and then the second one Michael Moore kind of like I miss you. Could you repeat the first question? I didn't yeah. The first one is just on on the were you thinking about pricing for next year given all the uncertainty and then the second one when when I think longer term given that the spend a bank and and the Public Health crisis. How do you think about expanded government role in health care is a result of this.

Well, I think I I think there's I think there's two aspects of the one on the biz. Our our group will continue to work through the normal process and they have to go through and look at them as they always do. So I see no change there could government's role. I don't think this is a time that politically economically socially off any other way that I see a a shift there. I think this is a time when you want to keep as much constant as you can cuz there's enough variables out there so I don't see any little shifting taking place there.

And then just lastly on the mlr. I know a lot of uncertainty in and I think thank you for the comment and what you're seeing in Saint Louis and in terms of hospitals or if you start to potentially go back to a more normalized environment or a new normal in Maine June versus July but within the animal our guidance that you provided you said it obviously second quarter is going to be meaningfully below the second half. Should we think right now with current guidance that second half is going to be in line with what we've seen in the first quarter or higher than that. Just did we have some context

Well, I think I said that we anticipated them are would be lowering of second-quarter. But even that's now a as for a change as people try to bring back so I I think all I can really say is it's going to be Lumpy from quarter-to-quarter and it's going to be very difficult to

To project it. I mean it's just as we see something that we can say well tell you but it's just going to be very lumpy and it could tell me how it researches. I mean, it's just I I don't want to protect something.

When we when the uncertainty is so great.

managing to it

Thank you. Our next question will come from Lance Wilkes of Bernstein. Please proceed with your question.

Yeah morning. Just wanted to talk about kind of balance sheet impacts and the flow through an investment in coming was just interested. If you could talk to both what Regulators are having you do and what you guys are doing with respect to premium payments from States, you know, allowing delays and that premium payments from individuals and public exchange. And then on the on the payable side what you're doing as far as sending or accelerating payables and what kind of impact that's having on that $0.17 for the full year. In fact an investment income. Yeah, just just this is Jeff Jeff quick. It's not really having an effect. I mean the Seventeen cents is really just driven by the lower interest rates. I mean half of our Investment Portfolio is effectively set aside to pay claims and it's invested in short-term daily liquidity instruments. And so when you lower the short-term interest rates substantially that just has an effect right and then the other piece of that number would be the higher interest.

Cost, you know, we were going to redeem our 2022 Bonds on instead. We've decided to defer that Redemption leave those leave that cash on the books. And so there's a higher interest cost there. And those were a 4.7 5% notes. And so that's really what's driving the $0.17 on the on the provider front. We have historically in continue to pay claims as fast as we can. So I think Michael historically has told stories of if a claim comes in today and it's it's a clean claim and it's automatically adjudicated. It's ready to be paid the next day and so long that's we've we've run it that way for a long time. So it hasn't had a in any impact if you will on the payable side.

And any any impact on the receivable side on the individual anything?

No, no, I mean certainly we've seen some some members have delayed payments. But you know, we just haven't made it that far yet. Right. Mm. It's been 30 35 days. So here so will you know we'll just have to see how that plays out.

Thanks.

Our next question will come from Mike New Shell of evercore is I please proceed with your question.

Thanks. I wanted to follow up on the Medicaid rate situation in New York earlier. I think you're referring to the right Cuts. They're already implemented in January and there's still some discussion still a possibility that will be adjudged. Is that right? And then in addition to that for the Medicaid Cuts in the project for the new fiscal year there any update on where things stand with the redesign team that figure out the details there whether premium package other changes affecting you or are they mix of what they're considering? Yeah. Thanks Mike. I think that's that's the the kind of the point. I was making is it from my from our perspective? I think that's still open wage. Um, and so, you know, we we really are just waiting to get a final resolution there on you know, what the effect is and then ultimately, you know discuss that when it happens, but right now I'd say they're still they're still open at this point and so more more to come.

I just like I mean, it's all very highly dependent the outcome here on whether a federal funding bill comes through for the states. It's a better idea of what the budget is going to be. I mean that could that could be a driver but it's generally I think you know, it's just process-related right now meaning, you know, I think the the Medicaid review task force came out with recommendations and I think we've had one meeting with the state since then maybe so long it's just there's there's a long way to go. I think before those get finalized.

Thank you very much.

Our next question will come from Ralph Giacobbe of City. Please proceed with your question.

Thanks. Good morning. Just just a quick one for me. Can you can you just give us a sense of average claim cost of on a Medicaid patient and does the 20% off entire Medicaid rate apply in Medicaid as well. Thanks.

Yeah. Oh, so I mean we have not seen enough claims as he said it's been we don't know what degree is lack of claims or what degree is he? They haven't had time to submit him. So I'm not seen enough to see the average class but it's not been significant. It's been more the test scene than we haven't seen a lot of true. We know there's some people out there with the number of members we have but we just haven't seen that Jeff know I think Michael's right. I mean, we've certainly paid some claims, but I I would I would not want to give an average cost because we just don't have the volume yet to give a credible number as what I would say.

Fair enough and then just real quick. I may have misunderstood. Did you say you're assuming

Or normalized ml are on new Hicks members and and why wouldn't it be higher? Just considering what could be adverse risk sort of coming onto to The Exchange. Thanks. No. No, we didn't we didn't get the specifics on on the product level as far as you know going forward again. I think that's part of the uncertainty that we're dealing with. I think what I said is I cannot I'm not going to anticipate that these are all new members that have had no healthcare. These are people who have lost their jobs and maybe chose not to go through the other process for cheap insurance with a company so they would like to somebody's had no insurance at all. So there's about I'm just I'm just trying to give a balance and give you a sense of how we're looking at it.

Okay fair enough. Thank you.

Our final question today will come from George Hill of Deutsche Bank. Please proceed with your question. Hey, good morning guys, and thanks for squeezing me and at the end, I guess Mike and Jeff you think about the fact that you're having around the various State program changes. Are you seeing any changes that you think could become permanent after the crisis and needs it could meaningfully impact the business. We're not seeing that we're not wage the states right now or no, we're talking about things we can get it do to get there for the state troopers and a lot of other things just be supportive of the environment where it and Thursday they're pleased with the coverage and what we're doing and I don't see any major changes now or in the future.

Okay. Thank you.

Why would I guess we've done with the questions? I just want to listen close you.

I want to help you understand that this is this business is vital and viable as it's ever been. We are comfortable. We have the systems and capabilities to manage to the uncertainty and the key here. Is that while we at this point or

Confident in our guidance for the year. I cannot emphasize enough. It's going to be lumpy. It's not going to be a normal progression depending on how people come back how the intensity hard-edged Services these are things were managing through and we have managed to in the past and this past so far this year and so employees are in sound working conditions than a business continuity. Is there the growth is there a very able to work on the classes are so going forward will continue to keep you informed and we're going out this with full confidence that will get through this and continue to be very successful for our shareholders and thank you for your interest. Look forward to talking to you soon.

Today's conference has now concluded. Thank you very much for attending today's presentation. You may now disconnect.

Thursday

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