Q2 2020 Anthem Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to anthem second quarter earnings Conference call. At this time, all participants are in a listen only mode.

Later, we will conduct a question and answer session, where participants are encouraged to present a single question.

If you wish to ask a question. Please press Star then one on your telephone keypad.

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These instructions will be repeated prior to the question and answer portion of this call.

As a reminder, today's conference is being recorded.

I'd now like to turn the conference over to the company's management. Please go ahead.

Good morning, and welcome to anthems second quarter 2020 earnings call.

This is Chris Rigg, Vice President of Investor Relations.

And with this this morning are Gail Boudreaux, President and CEO.

John Galena.

Our CFO.

Hi tie in president of our commercial and specialty business Division and Felicia Norwood.

President of our government business Division.

During the call we will reference certain non-GAAP measures reconciliations of these non-GAAP measures. The most directly comparable GAAP measures are available on our website anthem Inc. dotcom.

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 of anthem.

These risks and uncertainties can cause actual results could differ materially from our current expectations.

We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC.

I will now turn the call over to Gale.

Good morning, and thank you for joining us for anthem second quarter 2020 earnings call.

Since our last earnings review, our businesses continue to evolve in response to the ongoing health crisis, and social justice issues facing society.

The impact of these events or profound for associates local communities and all those we serve.

Over the past several months anthem has continued to take bold steps to directly support those who need our help.

Last quarter, we took actions <unk> $2.5 billion and financial assistance East the burden of Koby 19, among our members employer customers air providers and nonprofit partners.

The needs are ongoing and I'm proud of the weight anthem has responded quickly to provide needed support.

We remain committed to creating a more affordable health care experience are valued members and customers.

To that end, we remove barriers to care I weighed in cost sharing for treatment of cobot 19.

Including coverage for testing treatment in inpatient hospital stays.

We also weighed prior authorizations for covert 19 diagnostic tests and related covered services.

To date, we paid approximately $500 million associated with covert 19 related diagnoses.

In addition, we provided our associates individual and employer group customers, where they one month premium credit ranging from 10% to 15%.

Well individuals on our Standalone and group dental plans proceed to 50% credits.

We continue to deliver value to our customers by providing them with flexible payment terms as well as affordable by down options as they navigate the crisis.

Our unwavering commitment to our local communities is an integral part of our strategy and legacy an anthem.

For more than 75 years, we've understood the privilege and responsibility we have to make positive change in the communities, where we live and work.

This commitment reflects our mission and all that we stand for.

And it was at the heart of our recent 50 million dollar pledge over the next five years to focus directly on health disparities racial in equities and the key drivers of health such as food insecurity mental health housing and economic recovery.

We know the food security is one of the most profound needs in the wake of the pandemic.

A recent studies showed that nearly 40% of households today report moderate to high levels of food and security with children being impacted the most.

To combat this trend, we're increasing our support is a leading national partner with feeding America.

Here in our home state of Indiana, We were pleased to recently announced a partnership with cleaner sued bank to provide more than 10 million meals as part of our 1 million dollar matching grant to expand access to nutritious food.

Our associates are doing their parts, you get back as well and it's inspiring.

There are deeply committed to fulfilling our purpose and have donated more than 27000 hours of virtual volunteering.

With online mentoring teaching community outreach, along with donating much needed resources to local organizations.

And today, our social responsibility efforts take a bold new step as I am pleased to announce we're signing on to the UN global contact.

Now more than ever we recognize the importance societal role we play help shape is stronger more inclusive and more sustainable world.

As we reflect in our performance the quarter clearly demonstrates the strength of our diverse portfolio and trust in the anthem brand.

Despite declines in our commercial business losses were less than expected, particularly in our local group risk based business. We're in group attrition was partially offset by new sales exceeding lapses.

Medical enrollment increased by 1.6 million lives or nearly 4% compared to the prior year quarter, reflecting growth in our commercial Medicare and Medicaid businesses.

Putting that growth in perspective, Medicaid enrollment grew sequentially by nearly 10 times the decline in our risk based employer group enrollment.

The pandemic has impacted our Medicaid and Medicare population, particularly hard.

And we have moved quickly to deliver true full person care.

Our customer care associates have been doing one on one outreach to our vulnerable members ensuring access to food safe housing as we're guiding new members through onboarding and helping them enroll and support programs.

Such as the supplemental nutrition assistance program.

To date, we've reached out to 80% of our high risk Medicaid and Medicare members and this work continues.

I remain grateful to our care provider partners for their ongoing work on the front lines of care delivery.

As part of our support to those partners.

We simplified policies and procedures, including temporarily suspending prior authorization requirements for patient transfers oxygen supplies respiratory devices and multi function ventilators, enabling them to focus on delivering exceptional care.

In addition, we're extending financial support to targeted primary care physicians were facing undo pressures during this period as utilization slowly returns to normal levels.

Our can passionate and committed care providers and Caremore fire and health son.

Are beginning to return to direct care for most vulnerable members.

These touchpoints include the use of remote patient monitoring for a variety of chronic conditions, such as congestive heart failure and C O PD, along with in home and online care and support.

If we think about innovation anthem is helping shape our industry for the digital future.

We are pioneering technologies to deliver personalized care designed to improve total health.

How consumers manage their health and wellness every stage of life digital first is the cornerstone of the future of health care and our experiences with covert 19 of only accelerated our efforts in this space.

For our employer customers and government partners, we recently launched Cnineteen navigator in Cnineteen explore tools to aggregate real time, Kobe 19 data to help inform and guide returned to work place decisions and resource planning.

And for consumers are Sydney care solution is using data in AI help individuals tree on their own symptoms and seek care directly from their phone.

To date, we facilitated more than 475000 telehealth visits in 82000 covert 19 assessments.

As one of the first managed care companies to partner with Amazon Alexa anthem members can now use our new anthem skill personal voice assistant to check their health plan details schedule calls with customer representatives and renew prescriptions directly through their Alexa enabled devices.

And its recent peak virtual health visits by our members were up 300% relative to pre covert levels.

Life Health online our on demand Tele health solution surpassed 1 million visits in early April and demand continues.

Demand for telemedicine and the behavioral health space is also increasing with usage is 56 times pre cove at levels.

Our Beacon behavioral health team has responded to this growing need and pivoted quickly to help transition care providers to digital interface.

Enhance online supports in services for consumers and conduct outreach for most at risk members to address special care needs.

Collaborative partnerships continue to be a strategic focus any anthem.

We were pleased to join the fight is in Us campaign.

The results driven public private partnership focused on the promising use of coded 19 convalescent plasma.

Help improve outcomes and treatments for those with active infection.

We're also pleased to serve as a founding partner of the X Prize pandemic Alliance working to help develop scalable tests that are rapid accurate and low cost.

The alliance is a global coalition leveraging the power of collaboration competition in shared innovation to accelerate solutions that can be applied to covert 19 and future pandemics.

Looking ahead, we recognize there is much unknown regarding the magnitude in duration of this pandemic given the recent resurgence in Kobin 19 cases across the country.

Despite this uncertainty Hampton is well positioned to achieve our 2020 EPS guidance and deliver on our longer term financial goals.

And with that I'll now turn the call over to John to discuss our financial results.

John.

Thank you Gail and good morning.

Since the inception of recorded 19 pandemic, we have worked diligently to serve as a trusted partner were members and care providers.

We proactively committed $2.5 billion in financial support including extended car share waivers premium credits provider grants and community support.

And this is all while rolling out new and innovative solutions to maximize the health and wellbeing of our members.

While much remains uncertain, we are guided by our values are firmly committed to rectify and further imbalances for the benefit of our consumers.

Covert 19 significantly impacted the normal seasonality inherent in our business as a result, the broad based deferral of healthcare utilization in the second quarter.

We achieved adjusted earnings per share of $9.20 in the second quarter.

Bringing year to date adjusted earnings per share to $15 in 68 cents.

The seasonality of our earnings will differ from more historic patterns.

And as we have previously announced we expect to earn approximately 70% of our annual total in the first six months of the year.

Relative door based learning financial expectations.

Aggregate utilization was 40% below expectations in April and 20% in may as people nationwide adhered to shelter in place orders.

Our June experience, while still early suggests a utilization recovered to roughly 90% baseline.

Looking ahead, our guidance assumes the recent recovery and utilization persist in second half utilization comes in slightly ahead of a pre coded 19 baseline expectations.

All in we expect this dynamic to increase or second half medical loss ratio.

A couple hundred basis points relative what normal seasonality would have suggested.

Medical membership totaled 42.5 million members at the end of the second quarter, reflecting an increase of 1.6 million members, representing nearly 4% growth over the prior year quarter.

Even more impressive is that we grew during the second quarter organically, adding 309000 net new members during these uncertain times.

Government business enrollment grew by nearly 600000 lives in the quarter more than double the decline in commercial loan.

Attrition in our commercial business has been less than expected today.

However, we believe attrition is likely to accelerate when federal assistance expires.

Nonetheless, we expect to mitigate declines in commercial enrollment through.

Through growth and our Medicaid in individual CA businesses.

We believe we have the most balanced and resilient membership mix in the sector.

In periods of strong economic success, such as the company enjoyed in 2019, we grew our membership.

In 2020 during more economically challenging times, we again, it's been able to grow our membership.

Our strategy and business mix allows us to perform well in both positive and negative economic conditions.

Overall, we're pleased with Howard membership is trending.

Results through the second quarter reflect our deliberate effort to build a more diversified anthem over the last decade.

Maintaining our strong commercial franchise.

While establishing an industry, leading Medicaid platform.

A rapidly growing Medicare business.

Operating revenue was $29.2 billion in the quarter growth of nearly 16% over the prior year and 14% on a have adjusted basis.

Growth in operating revenue was driven by the launch of Ingenio Rx and the related increase in product revenue.

Membership gains in Medicaid and Medicare.

As well as the return of the health insurer fee in Twentytwenty.

Days in claims payable was 46 days, an increase of 4.1 days from the first quarter and a 6.9 to increase from the second quarter of 2019.

Given the uncertainty we have taken a conservative posture related to our claims reserves.

We expect DCP the decline to levels more in line with historical norms as utilization rebounds in the second half for the year.

Operating cash flow is very strong at 2.4 times net income.

Cash flow in the quarter benefited from several timing related items, including the delay of certain federal and payroll tax payments in accordance with the carriers.

In the third quarter, we'll be making three federal tax payments and the 1.6 billion dollar health insurer fee payments.

As a reminder, we took a number of immediate actions in the first quarter to enhance our financial flexibility.

We ended the second quarter with approximately $4.1 billion of cash in investments at the parent company.

Our debt to cap ratio was 39.5% decrease of 220 basis points.

Where do the 41.7% in the first quarter, reflecting or enhance liquidity position.

With liquidity concerns not as prevalent as they were earlier in the year, we have resumed or share repurchase program and continue to expect to repurchase greater than $1.5 billion of shares for the year.

To conclude our performance in the quarter clearly demonstrates the value of our diversified model is real.

As we look ahead, we expect additional commercial enrollment attrition and strong growth in our Medicaid business.

Thus far Covidien team is not significantly impacting our individual Medicare advantage growth.

Which continues to enjoy a mid double digit growth trajectory.

Although much remains uncertain about the impact in ramifications of the pandemic.

Our rigorous scenario analysis continued support our original full year adjusted earnings per share guidance of.

Greater than $22 in 30 cents.

While we have reconfirmed our earnings per share guidance, we continue to withhold guidance on all other metrics.

And with that we will now open it up for questions.

Operator.

Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your telephone keypad you will hear prompts that you have been cute you may withdraw your question at any time by pressing Star then too.

If you are using a speakerphone, please pick up the handset before pressing the numbers.

Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each participant that may wish to participate in this portion of the costs.

For our first question, we'll go to the line of Ricky Goldwasser with Morgan Stanley. Your line is open. Please go ahead.

Oh, Yeah, hi, Thanks, good morning.

So you've maintained guidance if you assume.

Some returned to more normal normalization in the back office here.

Can you give us some more color on what you're seeing in specific regions, where cobot cases are coming back obviously, we've seen some reports that some of the places are dysregulated again, how should we think about the net of whats coming back from being deferred in seconds to versus.

Second half.

Thank you Ricky I appreciate the question.

And it's certainly an understatement to say that theres lot of uncertainty associated with the situation.

We still have a lot of pent up demand from the second quarter, and we have extended payment of covering copays and deductibles recovered 19 treatment.

And in addition, we're providing reimbursement for PB for dental providers as well as no other benefits will providing or to the provider community.

And while an increase in the the co bid in the recent Spike we have certainly may cause more deferred procedures right now we're not expecting full shutdown of the system similar to what we experienced in April.

And so given all the variables.

We still do believe that a reasonable estimate will be that our second half medical loss ratio will be about 200 basis points higher in the.

The last last part of the year versus what would it be expected under normal circumstances.

And I guess, the only other comment as to note that we did provide the $2.5 billion.

Value through the system as a result of what's going on in a non emergent utilization dropped significantly again.

We'll certainly take a appropriate actions to help address.

Whatever imbalance exist associated with that so I appreciate the question, but we really do think that the the $22.30 EPS guidance is.

Yes, that's gas right now.

Thanks for the question Ricky next question. Please.

Next we'll go to line of Justin Lake with Wolfe Research. Your line is open. Please go ahead.

Thanks, Good morning.

Just a couple of questions. Our Medicaid can you talk about your Ah you saw in membership in the second quarter. It turns out wacker churn versus new membership.

Thanks, Thats it for us into the back half of the year in any comments on rate pressure built.

Or herg assumption there.

To a into 2020 Dod would be helpful as well thanks.

Thanks for the question, Justin I'm going to have Felicia comment, but I think a as you noted we feel very strongly about the membership gains we saw and specific to your question. The vast majority were due to the stopping of re verification versus.

Unemployment and other things that would have occurred during during that time, but as we look at our overall membership growth again, we feel we also gained share during this time as strong brand resonated about I'll have Felicia, maybe give you a little bit more color in terms of the discussions with the state Felicia.

Thank you Gal and thank you for the question our Medicaid enrollment in the second quarter ended at approximately 8.2 million members. This was up 566000 compared to the first quarter and his skill mentioned that was primarily due to the temporary suspension of free verification.

Our early indications for July is well indicates continued growth in the Medicaid program, we feel very good about our brand and we continue to grow share in the Medicaid space.

Looking ahead, we believe we're well positioned to be able to navigate whatever happens in this emerging environment and the expectation is that we will continue to see Medicaid growth. During this time, roughly 13% to 15% up our members reside in state square Medicaid it's been a span.

So while it's too early to quantified the potential impact certainly if the unemployment rate increases we would expect growth in our government business to certainly continue to offset any membership declines that might happen on the commercial side.

In terms of your question with respect to rate.

We certainly won't disclose the amount of any up the experience rated refunds or rate actions, but as John mentioned earlier, our guidance reflects a reasonable view.

Both our known and expected rate actions and the experience rated refunds as you know rates are required to be Actuarially sound and we work with our state partners on a daily basis on developing rates that are going to be appropriate you know the performance across our 24.

Market, Barry even under normal circumstances, but as you know some states the reopening in other states are seeing a resurgence in cobot cases.

Roughly 15 of our states today have risk quarters or collars in place that effectively already limit managed care profitability within certain defined ranges and we're in discussions with other states that are also considering these kind of mechanisms, which really provide.

Right.

Predictability for both the states in our own business and really tries to ensure that risk. It's really properly balanced Oh, we have long history with our state partners and we're going to continue to work through this with them and make sure. We are able to provide access to care to our members and that really remains.

Our foremost concerned during this time. Thank you, yes. Thanks to the question Justin and just sort of reiterating has increased leashes said, we feel that it's been very constructive dialogue with the states and it's part of our model that it's a continuous conversation that were in with them, but overall from a growth perspective, and and where we are from a share we feel good about our Medicaid performance.

Our next question please.

The next question comes from Stephen to now with SVB Leerink. Your line is open. Please go ahead.

Good morning, guys. Thanks for the question.

Just wanted to ask on the down on the segment. It looks like the government business profit dollars margin rate kind of maybe benefited more from from Covidien the quarter anyway on the commercial side there are enough I'm reading too much into that but just wanted to understand how the.

And then make affected the two lines of business and latest separately just following up on solutions comment just now I think she said that you guys expect.

Government enrollment to offset any changes on the commercial side going forward. So other clarify that maybe get a little bit of context on just the mix shift between commercial and Medicaid and how you guys think about the profit dollars and the revenue associated with those two businesses.

As one what is one commercial life worth on the Medicaid side for example that would be helpful. Thank you.

Yes. Thank you for the question Steve.

First of all in the segment reporting.

And and the benefit of the of the deferred utilization you know the deferred utilization actually was a little bit more significant in the commercial market than it was in a in Medicaid and then it was the least amount Medicare in terms of the impact of Oh.

Of the non immersion procedures in the decrease cost structure. However in the commercial segment, we provided the premium credits do the membership.

To all of our customers know, 10% to 15% on the.

On the local business in up to 50% on the specialty business in the entirety of that was recorded in the second quarter.

And for that entire a premium credit and so thats what it is probably the reconciling item in your your analysis when you're looking at the quarter over quarter is that the premium credits or in the.

Or in the commercial market and then the commercial market also has the premium cost share waivers for cobot testing and treatment.

That are part of the commercial results.

Associated with the.

The ongoing business in the profitability, we certainly have target margins on all of our businesses and in the commercial marketplace.

The target margins on a fully insured business.

Could easily be a 5% the.

Even high single digits and that could easily work out based on average premium to 25 to $30 PMPM operating game. However on the air so side.

The fee revenue is obviously much much less and a target profit on the.

On the fee side could be just $5 PMPM.

And then you look over at the Medicaid will Medicaid you have Tana for you have the higher acuity.

There's a lot of variations there but.

Even at a 2% to 4% op margin, which is our stated op margin for or Medicaid if you utilize the midpoint being 3%.

Based on the various premium.

Volumes you have maybe a 12 to 18 dollar target margin on a PMPM basis. So as you can see when we lose a.

Our commercial member.

Depending on if it's fully insured array of so and it goes over to government.

It could actually a balance out quite nicely. That's one of the reasons that we continue to talk about how diversified our our business mix is in our resilient. Our membership is is because the the profit margins on the various lines of business really help offset each other when there's a shift between the various areas.

Thank you for that question, Steve has a little clarification on the membership comment you said about the offset I just want to clarify a couple of things one as we look at our overall commercial enrollment as we shared in our prepared remarks, we were down 290000 lives, but as you think about unemployment that was fairly muted and particular.

Okay. So our risk base lives. So that was we do expect we think that furloughs have dampen that impact over the course of your day, but we feel are very resilient quite frankly in our commercial business and we're really pleased.

That our sales offset our lapses actually in the quarter as we look at our risk group business. So another sign that I think our teams have really put out some affordable products and of doing a nice job on managing through this.

On an overall basis, we've often talked about having this large catcher's mitt of opportunity.

I think clarifying what Felicia was saying a little more specifically as you look at the quarter.

And I shared in my remarks, our Medicaid outpaced our risk lives by 10 times, So clearly offset much of that and also it's quite compelling when you're trading.

Risk lives for fee base lives. So a lot of our losses came in our self funded so customers and we were able to generate much more nervous life. So overall.

We do expect as unemployment continues to lose more commercial lives I don't want to leave you with the impression that we won't but overall, we feel we had a very resilient petrus met across our book of business. So thanks to the question and next question. Please.

Thank you for next question will go to AG Rice with A. J Rice with credit Suisse. Your line is open. Please go ahead.

Yeah, I guess, the firstly the tough when there but anyway.

Our from everyone.

Maybe I'll just ask about Jennie O obviously, the ramp up in profitability.

We did clubs story this year how're you doing relative to your expectations, there how's that kogas.

Duration impacting trends that you would have otherwise expected to see the normal year any comment on the selling seasons for the TV as we get toward the end of that were 2021.

Yeah, Good morning, AJ and thank you for the question.

No.

Ingenio Rx is actually going quite well and is really a than a nice job of meeting our expectations.

You know.

We really are in the the ingenio.

Swing of things a full year earlier than we had expected to based on the original timeline of the of the ESI contract and being able to get out of that a year ahead. So 2020 is actually a run rate year as opposed to an implementation year and.

In terms of the profitability itself, we made about 350 million in first quarter 304 million here this quarter and there's really a few key things going into that.

The $4 billion in savings that we got from the.

Better contract with Cvs and we've always talked about returning 20% of that to the shareholders and which would be 800 million dollar as well as we've gone through the first half of the year.

And really tried the OPSM optimize and maximize the situation that we believe that we're going to actually returned closer to 900 million of that value throughout the course of 2020 and be part of our run rate on a go forward basis also ingenio includes the shift of Ah.

7500, or 75 million to 100 million of operating gain related to existing self funded pharmacy customers that was previously recorded in the commercial segment and there is now being recorded.

In the junior segment, and so Thats all part of the situation and then.

You know certainly any revenues are profits from a third party business are included in June you as well or that are helping with the overall profitability of segment.

And the first quarter was benefited by the the refill too soon relaxation.

That that edit and we had a head and impact there that helped the first quarter to be maybe higher than a run rate type basis.

But we really do believe that the second quarter is a good indication of what the run rate to be maybe even a little bit better because is scripts, while maintenance scripts were consistent in the second quarter versus historical patterns, new scripts were down 10% to 15% in April.

And so actually the second quarter is probably the low end of a sustainable level for in junior for the future.

Thank you for the question in terms of the selling season Ha you know it's been an interesting operating environment given all the change and I think we shared this in the last quarter things are I would say at least slightly delayed as customers try to work through their own.

Stability across their business and well I think it's still early I would say that our pipeline is still quite good we're seeing some delays and overall decisions to move from 22021 to 2022.

But overall the sales cycle has been pretty active we've seen an increase year over year in that pipeline, we feel that one of our best opportunities is to embed ingenio accent around fee based business and that's been going well and we're also pleased that we'll be adding blue cross Idaho as part of our Medicare.

Basin, one 121, so that's a nice out as well as you know we brought on their commercial business. This year as part of the transition. So overall I think we're probably going to expect some delays in the overall.

Decision, making for our largest customers, but we still feel very compelling sales proposition, particularly as we added to our self funded business. This year.

Thanks to the question next one please.

Next question comes from Sarah James with Piper Sandler. Your line is open. Please go ahead.

Thank you.

Could you talk a little bit more about a change in assumptions impacting DC key.

Good day completion.

Assumption move or you are you getting those little bit well or was there any impact on analyze from that assumption change.

Yes. Thank you Sarah a great question on days in claims payable and as we said that days in claims payables up 4.1 days sequentially as well as 6.9 days year over year.

And.

Days in claims payable as a function of many things and at times some of those changes.

Can impact DCP without impacting the income statement and we certainly have part of that going on with the way the math works.

But we have seen a.

ER.

Elongation of the amount of time that has taken providers from the point of service to actually submitting the claims to us so.

The cycle time of.

Date of service to claim submission has gone up a couple of days across our entire book of business. During this pandemic.

And a lot of reasons for that but clearly that would impact the days in claims calculation all else being equal.

Then also given the fact that occurred I mentioned the conservatism in the.

Prepared comments.

We have them further made the completion factors a bit slower.

Given the uncertainty associated with the billing patterns that we wanted to ensure that we were totally covered and and so that would cause or medical loss ratio to be a bit higher and our DCP to be a bit higher and if it turns out that we need that we are fully covered.

And if it turns out that theres a bit of conservatism then that will be great. We'll have some releases later in the year in the next year when when we have more transparency into the situation.

So all those things taken.

Then we also were able to have very very solid cash flow as percent of earnings as a result, so I think they all points of very high quality of earnings.

Thank you for the question next question please.

Next question comes from Joshua Raskin much Nephron research your line is open.

Hi, Thanks, Good morning question around the commercial membership I don't know us it's easy to answer but do you have a sense of how many of your members at June quarter, and we're unemployed or for a load, but still receiving benefits and I'm curious if there's any difference in your view the DSO book versus the risk book and then.

My real question is more around in that commercial book in the and the current environment is it impacting your ability to that strategic initiative to sell more services to existing members.

Thanks, Yes, I'm going ask Pete I tie in to answer. Please yeah. Thanks, Josh for the question and as Gill said the membership in the quarter.

And that up a lot better than we had originally expected with a broad unemployment and as you referred to a big.

Causes that was furloughs in terms of having deep insights there was with respect to the exact amount of folks that are that are furloughed I don't have that information.

Not at a precise level, so I don't want to sort of making assumptions associated with that but it definitely has been a big factor. The other thing that I had mentioned that's noteworthy is.

The makeup of our commercial book, which is really disproportionately in in less risky segments. So we have as you know a lot of sustain government business accounts.

As well as providing services for a lot of folks and essential services. So we feel really good you know about about that.

In terms of.

Upselling and selling more value into our Esso accounts, we have seen a bit of a a slow down when we talk about on the air So side, improving our margins and going from five to one to three to one you hear us talk a lot about us up selling those services and prior to covert occurring we were on a very strong path I.

I could say with with great confidence that we would have likely been out around the four to one level. So slightly ahead of where we wanted to be but does scale noted when you think about things like pharmacy, and you think about other value added services that we provide and that were up selling there has been a bit of a slow down because of coated and hesitation.

And and folks deferring some of those decisions into 2021 and 2022.

So we have seen a little bit of a bump on the road, but as it relates to moving forward. We are we're very confident as we as we are on our path to the three to one and the value proposition is really selling and as we are in co, but we continue to innovate and deploy new programs. For example, when we acquire new asset like Beacon it.

Creates a lot of additional opportunity for us to so for example behaviors favorable favorite health services. So we feel very good about long term.

And just the only other thing I'd add is we've seen really strong retention of our accounts. So the in group attrition is obviously driving that and that gets your question around furloughs versus downsizing and then the second thing and I'll just reiterate it and I think the commercial team has really done a incredible job I'm coming out of 19, but also into this year that our sales are out.

Hey, outpacing lapses, so despite the environment, particularly iteris space business, we're continuing to see traction of the new product offerings in the segment focus that we put in under under Pete's leadership. So I think those are all contributing as well as I think the just the makeup of our book is helpful. There too.

Last question please.

Our next question will go to Steven Valiquette at Barclays. Your line is open. Please go ahead.

Great. Thanks, good morning, everybody.

So as we think ahead to the upcoming Medicare advantage annual enrollment period, starting in October of this year for 2021, which is now really not that far away.

I'm curious if you have any preliminary thoughts on whether you expect the overall I am a market to see any disruption in enrollment growth due to co vid.

Do you think with greater technology and other factors the industry can still overcome the risk of fewer face to face meetings with brokers sales people et cetera, and still see I may growth in line with historical averages I can you talk about what happened is changing to combat this risk for your own Medicare growth outlook for next year. Thanks.

Yes. Thanks, a question Steve I'll, let me offer a few comments and I'll ask Felicia who leads at business to provide more more detail you know we did when the pandemic. Originally hit we did see a slowdown in sales just because historically it has been face to face.

But weve actually recovered very nicely since over the last few months and I think a working with our brokers and others. We've been able to really put in much more direct selling and channels, where there isn't as much face to face. So we've been working very diligently and as you look at our growth we had very strong growth last year over 20% in this year.

Quarter over quarter up 17% over prior year, and 13% year to date and expect to continue to see.

The alternative methodologies, we put in place I'll ask we should a comment, particularly about how we're ensuring the safety as well as how we're engaging with our Medicare advantage members in particular Felicia I.

Thank you gallons Steve Thank you for the question.

Scale wrap right. We've we've seen strong performance in our business. We certainly had two to pivot in light of cold It and we saw a up three slowdown in our sales.

Soon after Kobe, but you know sales of actually picked up since that time in our early read on July membership indicates that performance is certainly a improving as well you know the safety of our associates is certainly a up a paramount concern and so it's the safety of the seniors that we serve so we are fully prepared to.

Adjust our sales processes accordingly in light of its pandemic you know in fact, we are expecting that that more than 50% of our sales activity will probably be virtual for this year's ATP.

Similarly, I would think that more of our aging gaped engagement in training activities are going to be held virtually as well. So you know much of the EPA activity is going to depend on CMS guidance says the future of cobot remains uncertain for all Abbas and that guidance is changing every day and we are closely monitor.

During that guidance as well so we are fully prepared and proactively investing so that we can make sure we're prepared to support agent engagement and our sales activity through any channel that the member want to by being very mindful of the changes that are head Abbas, but still very prepared to.

Able to continue to deliver the strong sales performance in this new environment, including the virtual environment, which will be in our as we head into one one at 2021.

Next question please.

Next we'll go to Ralph Giacobbe with Citi. Your line is open. Please go ahead.

Thanks. Good morning, you talked about DCP up and reserves building, but you know the expectation that cost essentially come back in the second half and obviously lots of uncertainty out there.

Unfortunately, you can't really take a wait and see approach to pricing for 2021. So I guess at this point what can you tell us about your approach to pricing for the commercial book next year, and maybe assumption of pent up demand and perhaps acuity that timing wise may push into 2021, and then along those lines how have come.

Acquisitions gone with employers and do you expect movement or switching next year. Thanks therapy.

Yes, thanks, Ralph Thanks for the question I appreciate it I think you know a majority of we've talked about this last quarter, but the majority of our book were news in January. So we certainly do have the luxury of some additional time before we finalize rates.

That said, we are obviously closely monitoring the situation. We're considering all factors many of which you mentioned from our expectation on the for utilization.

[music] electives to the cost of treatment and other cost of testing and we're really.

Using the best information, we have before us at this time I think another important factor, we all know that the hep will be going away in 2021. So that is certainly a factor that serves as a as a buffer over.

Overall, we're going to remain really balance than most importantly, we are not going to be shortsighted, we're going to remain disciplined with respect to pricing and we're going to price to our view of normalized forward trend.

As it relates to our conversations.

With commercial clients and growth.

It's going really going really well our value proposition is selling through.

You know obviously as Gill alluded to when she was talking about ingenio in other parts of our business as it relates to growth in the back half of 2020 and as it relates to some decisions for 2021 as you'd expect there were some deferrals. So for national accounts. For example, we had some expectations of some some pretty big accounts that we thought would.

Come through in 2021 that were that were deferred to the 2022 cycle.

But importantly, you know as it relates to adjust our sales cycle currently and that which we feel good about into 2021, and we do feel good about growing groups I think the the most significant factor and unknown right. Now is the impacts of in group change that has been.

The biggest driver.

Of our membership attrition and so obviously theres a lot of factors associated this and we can't be precise about it but we do feel we do feel good about growing groups going into 2021, and then importantly believe it or not even though we're in the last 30 or so days of our selling cycle for national already having conversations about 2022.

And the pipeline for 2022 looks very good as well.

Thank you next question please.

Next we'll go to Kevin Fischbeck, a bank of America. Your line is open. Please go ahead.

Great. Thanks, just one last question about the exchanges keeps up over about what you're seeing there as far as a membership trends now.

And if any that on the acuity of those that members and then how you're thinking about next year does seem like more competitors are getting onto the exchanges.

The view on preliminary rates and and whether pricing looks a rational for next year. Thanks, Yes. Thanks to the question. Kevin You know I think as we look at the individual market today and the overall individual exchange, it's been pretty consistent and as we shared.

Most of our membership growth has come from the re verification and we haven't seen we've seen some small pick up in individual.

Around the AC a compliant plans, but overall, we have not seen dramatic increases across the book of business and we think a lot of that is because theres sort of a delay between when people either on furloughs are then they go off and player coverage and there's a delay in the timing.

In terms of our strategy. We've stayed really consistent we expanded in certain geographies, where we felt it made sense. We've stayed in our footprint overall I don't think it's too early to opine on acuity because again the book hasn't really significantly changed very much and we haven't seen significant growth because of Anil.

Climates. So I think those those factors are important as we think about the future we've been really disciplined in our individual exchange strategy.

And we feel good about that we're going to continue it and we'll look to expand in areas, where it makes sense where footprint is strong I mean, where we think that we obviously have a strong blue advantage given our brand in the network configuration that we have so overall.

I think we'll look for modest expansion. Our strategy has played a very well over the last few years and we'll continue with it we've got deep get teams focused on that business and deep analytics. So thanks to the question.

Excellent please.

Next question comes from Gary Taylor JP Morgan. Your line is open go ahead.

Hi, Good morning, just wanted to ask a little bit more about Yale your thoughts on commercial market as you know I heard and appreciate all the.

The comments about you know how well the catcher's Mitt is performing so far it definitely is and the fact that.

Your book of businesses.

The differentiated better position, but we.

We still sit here in an environment, where national unemployment sub 750 basis points, there our expectations that that moves higher and I don't think any of us would've guessed that you'd only have local group enrollment down 1.5% you know sequentially and another large pair.

Down 1% unchanged sequentially. So I know you're contemplating that that you know logically will deteriorate further but I guess big picture. You know is this all just federal stimulus dollars supporting these temporary furloughs do you see a quarter, where theres, an inflection point where.

The stimulus dollars falloff and Thats really accelerates and could you just give us a little more color on.

How the last few months have develop has the has the commercial risk enrollment just slowly deteriorated and July was down even a little more than June or has there been relative stability and those declines in June and July.

Yeah. Thanks, Thanks for the question Gary It Theres a lot in there and I think let me start with as it relates to the remainder of the year, we do and I want to be clear. We do expect further declines no assuming the economy continues to operate at less than full capacity in terms of the dynamics is very unusual set of circumstances and it's hard to really predict.

As we think about 2008 and the deep recession that we face then we've obviously done a lot of modeling.

And you're trying to understand where unemployment rate isn't at this stage in a part of the reason we don't have full year guidance on enrollment is because of that very factor. There's so many things that are puts and takes in it.

But as I think more broadly about our business and with a different and I'll go back. So a couple of key things. One is the mix of our businesses different that we are much more resilient in terms of the type of groups that we have two I do think that were focused on affordable product offerings and what we've done.

On to really work with our local sales teams to reach out to our brokers to provide solutions, whether it's a premium credits or some of the opportunities to help them make sure that they can find the right products that meet their price point I retention is really strong you asked about sort of are we seeing acceleration or changes into.

Well I again early but early signals are really strong there we're not seeing any real changes at this stage.

So I think that resilience is showing up but again people are still under furloughs, we can't predict exactly what's going to happen when they come off it will depend on the strengthening of the economy and what happens there and what employers decide to do so again, what we are predicting further declines in the commercial business I do think.

Overall that our team has I give our team a lot of credit they've done a really nice job finding solutions to keep employers with their employees insured under our programs and give them options and I think we didn't have that years ago, and that's really wanted the big differences of real broad portfolio of offerings.

So hopefully that answers your question, but it gives you a little sense that we feel.

That we have.

Provided solutions to employers and that's done one of the reasons and we also expect retention is stayed very strong and that's going to help but again in group attrition is the one thing thats very hard to predict through the rest of this year.

Next question please.

Next we'll go to the line of Whit Mayo of UBI S. Your line is open. Please go ahead.

Hey, Thanks, I'm, just curious if you're seeing any changes in the stop loss markets work for 2021, I'm not sure how employers are approaching.

Any coverage changes, what the reinsurance market looks like whether or not employers looking for more or less protection just not shriver a really good grasp on what this means through.

Renewal cycle.

Yeah. Thanks, Thanks to the question in terms of trends and things that we're saying, we really haven't seen a whole lot of difference in that marketplace. It's been pretty consistent we have a dedicated team that works.

On stop loss and folks isn't that both across our business and also offering to our.

Self funded clients. So at this stage now no real significant changes or trends.

Next question please.

Next we'll go to George Hill with Deutsche Bank. Your line is open. Please go ahead.

Yeah. Good morning, guys and thanks for taking the questions and jump I guess first I have kind of a clarification did you say that you guys took the entire $2.5 billion.

Premium credits and other subsidies during the quarter and I guess should we effectively you should we think of seeing that is kind of a contra revenue account from from how the revenue was reported and then kind of my follow up question to that is that when you think about the utilization growth expectations you outlined for the back half I was thinking that you guys were going to spread the 2.5 billion out over the year.

Yes, that's not the case I guess you guys are than expecting a couple hundred basis points of what I would call met utilization growth as opposed to kind of gross utilization growth trying to netted up trying trying to understand interplay between the numerator and denominator. If you can see where I'm going here.

In the George Thank you for the question I appreciate the opportunity to clarify anything that maybe.

Could have been a stated a little bit more.

Clearly earlier so it was 2.5 billion is comprised of many different aspects theirs.

Certainly things that we're providing to our customers certainly things we're running the members things were running providers and support were riding community and they all.

Our different timing associated with when they're being incurred not all of which will hit the income statement.

As some of them are a various grants and loans to providers in terms of providing liquidity and value to system.

My comment earlier was related specifically to the premium credits.

In the commercial marketplace at the entirety of the premium credits were recorded in the second quarter.

However, part of the 2.5 billion also.

Encompasses.

Paying for all of the waivers in deductibles and various other out of pocket costs that would have been incurred associated with coded testing and co. The treatment and obviously that will be incurred throughout the rest of 2020, obviously anyone that has a co. The diagnoses last six months of year there's.

And incremental cost to us associated with that that is in the 2.5 billion.

And then also with writing for example.

10 dollar P. P E credit.

Every dental provider for every dental visit that occurs for the next few months. So obviously that will be recorded in the third quarter as well when that's incurred so you know the.

A lot of the things that we've done for the community including of the 50 mile 50 million dollar a foundation funding associated with.

Oh, the social issues.

That was all recorded in the second quarter.

So a lot of moving parts there but.

There is a significant amount that's going to be incurred in the latter half of the year. It's just that the premium credits on commercial we're all recorded in the second quarter hopefully that clarifies. Your your question.

Next question please.

Our next question comes from Robert Jones with Goldman Sachs. Your line is open. Please go ahead.

Great Great. Thanks for the question just you just two quick clarification is at this 0.1 back on Ingenio I know scripts, you guys noted inter quarter global down.

Pretty meaningfully I think people understand that dynamic there, but no revenue in Ingenio was actually up sequentially. So just want to make sure I understand the dynamic at play there and how we should think about that through the balance of the year and then I guess just in a similar vein net investment income to took a decent step down in the quarter. Just was curious if there was anything onetime in nature. There. Thanks, so much.

Yes. Thank you for the question and yes, there are a some onetime issues going on.

Related to a in junior Rx and had made comments earlier about the profitability and just how well performing I just want to make sure that everyone has some context to this question in the answer.

That within the PBM industry or the PBM comes are able to recognize as product revenue as well as cost of goods sold the cost of drugs that are incurred by nonres business. So that would be all of our air so customers and the.

The script volume that.

Those customers are incurring.

We are grossing up our income statement in accordance with appropriate PBM accounting.

For the cost of goods sold in the product revenue.

And one of our one of our overall strategies and our five to one of the three to one.

As to increase the penetration rate of a vast so for how many of them Oh utilize PBM services and we certainly expect to see continued growth in product revenue as result of increasing penetration.

Or even in these these uncertain time, so that's really a key factor or key element that line item or not much no income statement effect in terms of bottom line is those items offset each other but we should continue to see growth in revenue.

Associated with investment income.

You know very clearly there's some of some onetime issues that have occurred in the marketplace.

But first of all I just want to make sure everybody is clear that about 90% of our portfolios invested in high quality fixed maturities.

And back in March and April we made the decision this part of trying to enhance our liquidity position.

To not reinvest or positive cash flow into to go that up so that we could have access to the liquidity immediately and so that actually put a drag on on the investment income we would have earned otherwise and then the fed.

Drop rates a couple of times early in the year 150 basis points in total and so obviously that impacted the new money rate associated with investments up at the most significant difference is really the third one and that's the fact that.

We're also invested in alternative investments you know, it's a nice diversified strategy that includes investments in private equity core real estate, a diversified credit and in energy and any changes in market value.

In that or mark to market them run through the income statement immediately.

And ER and the alternatives did fairly well versus the broader markets.

But energy was the worst performer and what you're seeing on the income statement in terms of net investment income is the mark to market impact of the alternative investments.

Changing or second quarter trajectory.

I think you should expect that for the rest of year that our investment income will will exceed a couple of hundred million dollars per quarter.

Were in line with a historical results.

Thanks for the opportunity to clarify that.

Next question please.

Next question comes from Lance Wilkes of Bernstein. Your line is open. Please go ahead.

Yeah I was wondering if you could talk a little bit about the Medicaid pricing outlook as youre looking out in the 2021 or kind of the rating involvement there and if you could talk a little bit about discussions you've had to date.

With states and maybe just help us to kind of scale and understand the magnitude of rate cut proposals or the state level and maybe the process there. Thanks.

Solution.

Sure so.

When you think about our Medicare pricing outlook for 2021, well and Medicaid. Please.

Medicaid Oh, yes, you know Lance we are certainly in the metal up our rate discussions with our state.

About 50% of our state tax rate discussion for January.

So half of our state to January state in light of everything that's going on right. Now you can imagine theres quite a lot of BOP related eat in the conversations we're having with our state partners now when you take a look at where we are the bottom Loughney line and Foundationally rates are always required to be.

Actuarially sound and as you think about our portfolio, which is 24 states across the country. We are engaged in ongoing discussions with many of our state partners. Many of those partners plants have asked us to provide regular updates with respect to what's going on on a month to month basis and some of those states habits.

Eventually set they want to continue to see what's going on with respect to our populations as we had between now and the ended the year. So we will continue to engage in dialogue, which really is almost on a weekly basis with our state partners around what's going on with respect to perform at and we certainly would expect that utilize.

Station will pick up in the back half of the year. When it's all said and done. This is a long game and certainly performance in any one quarter won't reflect what we expect to see in our population over the course of the year and our state partner. It's right. Now if we are are very focused on what's going on with respect to access.

The care with our members and trying to make sure that never taken care off during this time with respect to all kinds of needs, but particularly behavior. How so as we continue at these discussions between now and the back half of the year.

We are engaged in our ongoing process is with our state partners. We are regularly exchanging information from our perspective with respect to perform at what we are seeing with respect to those new 566000 members that I referenced what the performance and acuity if that membership looks like and what.

Patients should be between now in the back half of the year.

This is going to be an interview process with our state partners as we continue to learn more about the virus in the impact on our business, we will make update with our state partners and they will do like life with that thank you very much next question. Please.

Next question comes from Matthew Borsch CMO capital markets. Your line is open.

Thank you.

I was hoping you could just talked about.

What is you had said that I think the healthcare spending you seen was at about 90% of normal during the month of June can you give us a sense I imagine Medicare is lower.

Right.

As a lower percentage offset by commercial in Medicaid, but.

Within that is it is more commercial more Medicaid or just any additional detail there would be really interesting.

Yeah. Thanks, Matt for the question and a you know just reiterate a comment that made a little earlier is that you are the most significant impact of.

Deferral of procedures occurred in the commercial marketplace and then a Medicaid was in the middle and then Medicare have much much less impact on on the deferral.

And we.

As we said that there is a another a spike in cobot here in July we're actually monitoring it very closely trying to understand what the impact of the deferrals are.

And how the pent up demand is impacting as well.

And so you'll but they're like we've seen an increase in procedures, such as joint replacement surgeries and other procedures. Some things can only be delayed so long until the the pain or the severity of so significant that.

The person is going to go in and actually get the procedure. So a lot of moving parts there, but no commercial as the the most significant impact and Medicare actually has a has minimal impact here.

As we head into the third quarter.

Okay. Thank you.

Thank you next question.

Next question comes from Dave Windley of Jefferies. Your line is open. Please go ahead, hi, hi, Thanks for taking my question squeeze when I was wondering if the covert crisis has brought to light any cost structure changes that might be of a more permanent in nature. So for example, things like real estate in the US you know your line.

In or perhaps co pay structures or paving of virtual visits at parity things like that in the medical cost structure, just looking for things that that indoor beyond the crisis.

You know day those are great questions and certainly a it's probably premature to declare specifically what things are going to look like but I do agree with you that we're looking very closely at our real estate footprint in the the virtual environment that.

Associates around and just how proud we our of our associates that we've been able to maintain proto productive and a efficient workforce. During this timeframe and really take a closer look at that for the future.

You know tele health clearly is here to stay and its really hoping as find the right setting and it's really all about getting the right care at the right time in the right place for our members and how we're utilizing a.

You know the various virtual engagements in the digital type capabilities that we've been a.

We have been creating as well, it's very clear that those are here to stay in so it's going to be a lot about optimizing those things.

Your volume is down.

I think we've seen about 50% of commercial your utilization is actually not emerging and so that can actually be a positive to the health care trends in the future as we Oh, we really get that rate.

To find the sweet spot of that so great questions and other things that we're talking about on the daily basis here.

Yes, thanks, Thanks, Dave and just to reiterate what John said, we're obviously looking at our entire enterprise and we always take a look at our admin expenses than where we are but importantly, digital health is here to stay and we've seen a real acceleration in that scenario, we put quite a bit investment and so we feel very well positioned.

Next question please.

Your next question comes first excuse me, Steve Willoughby with Cleveland Research. Your line is open.

Hi, yes.

Two questions for you thanks for taking my call.

First John I was just wondering if you could follow briefly on Ingenio you made a comment about an additional $100 million of.

ER flow through to shareholders just wanted to confirm that added approximately means roughly $500 million of earnings upside from Ingenio cost savings from Ingenio relative your initial expectations.

I'm not.

So I didn't qualify quite followed with the 500, just let me, let me clarify a being junior numbers.

You know, but that 90 days ago. When we gave guidance at the end of year, we talked about 4 billion dollar savings on the contract and that at least 20% that would in order to shareholders.

So that would be or 800 million, we raise that today to approximately 900 million.

In addition, the Ingenio reporting segment includes business that has been anthem business. Historically that has been recorded in the commercial business Division and that's where we had the.

The PBM services for air so customers that actually we had contracted with historically to provide PBM services and that $75 million to $100 million per quarter of a of op game that had previously been in.

Commercial segment that starting in 2020, starting in January of 2020 is from reclassified those members have been reclassified and are now reflected in the in junior Rx segment.

And so those two things are the vast vast majority of the earnings in the in Junior segment I mean other things in the Angie Junior segment would include a third party business, we're where the PBM for another company or other a business that we have with third parties.

That is a very small and the overall profitability of the.

Of the segment.

Hopefully that clarifies your question.

Next question please.

The next question comes from Charles read from Cowen Your line is open.

Yes. Thanks, Thanks for taking my question I wanted to follow up from earlier on the talking about the membership and I think as I've mentioned that about the attrition in commercial being less than expected because sort of the enhanced benefits, which which I think youre, referring to but did you expect it to pick up in the back half the year.

Related to what are you seeing this membership shifting around into areas like the exchanges or or an uptick in cobra.

And what would you expect to see if enhanced benefits our extended.

Because it seems like your guidance assumes that they end here in July so and if and if those aren't extended do you see them then the membership.

Shifting more into Medicaid. Thanks.

Yes, thanks to the question, there's a there's a lot in there and just given that we're not giving guidance part of this is there's so many moving parts. So I'll give you a little bit of color first on Cobra, we really haven't seen any increasing help cover its very very low just given the cost structure Cobra so that hasn't changed at all very different from 2018.

For 2008, rather in terms of your other questions as I mentioned earlier on a response <unk> the exchanges have not seen a significant impact because of unemployment. So it's been sort of the normal growth pattern that we expected and the exchanges and again, we do think there's just some delays.

I really can't comment on Furloughing, and what employers are going to do relative to unemployment I'm clearly we've made some commentary that we do think that we'll see attrition increases in group in group increases over the course of the back half of the year in our expectation is that the unemployment rate improved sit the ended the year.

It's a roughly a little over 10%, but that makes it challenging to reasonably project the impact of enrollment at this time.

But again I think really what we're seeing in our current results is the result of.

Our existing business segments executing strategies to keep retention high and give employers options to keep people enrolled so our group retention numbers are high.

And where we're seeing attrition is inside of groups and those are based on the employment decisions that are occurring.

Thanks to the question next question please.

Next question comes from Frank Morgan of RBC Capital. Your line is open. Please go ahead.

Yes, a real quick when I was curious if you could give an update on the grace periods granted in your commercial segment I think last quarter. You mentioned it was about between one half to 1% in the quarter and maybe ended at around 3% any updates on the second quarter or maybe how you're doing in June or July. Thanks, Cheryl happy to answer yes. Thanks for the question Frank.

We obviously recognize these are these are unprecedented times and ever since covert started we've been focused on partnering with our employer and broker partners to really see this through together.

And as you know you alluded to we instituted a variety approaches including Grace periods, but also other payment options.

All that said, we're very encouraged where we are with collections you mentioned that last call I mentioned that about 1% of premium as representative of groups that typically utilize grace periods and at that time, our expectation was with co would we could see that creep to 3%, but but our collection rates actually.

Look a lot more like a normalized environment pre cobot and in fact in the last couple of months, we've seen an improvement when you look at for example of small group segment, which is indicative of a lot. It's really really held up well with premium payments really following normal patterns.

And and them with the overall book overall makeup of our book being skewed to essential services. We're also seeing good payment patterns Theres overall, that's been a real positive development.

Great. Thank you I think we have time for one last question.

And our final question comes from Mike you sell of Evercore ISI. Your line is open. Please go ahead.

Hi, Thanks, since the Medicaid enrollment growth, you're seeing is being driven primarily by the suspend the refer re verification Oh, just wondering if you can confirm whether that will be a margin tailwind as well since those enrollees, who would otherwise churn tend be relatively healthier. So essentially the reversal of the margin pressure when re verification pushing enrollment down.

And when we got sufficient dozens of them at some point would you expect to see that margin pressure again or whenever theres. Some data in a track record is there an upside potential to work with stays to mitigate the effect in rates faster. The next time. Thanks.

Yeah no. Thank you for the for the question and.

One of the things that we've always said about the Medicaid business is that it is.

Typically that the acuity and the risk that we have in a particular quarter.

And the the revenue that's recognized associated with that risk almost never match I'm, just having a out of period adjustments in true ups and retroactive rate increases and decreases et cetera is just a way of business within Medicaid, especially when you have such a large invest port.

Folio States we have.

But your point is very well made that you know the overall acuity you would you would perceive the overall acuity of those members to be a little bit better because when when we lost them a year ago. It did change the remaining acuity.

So clearly we will continue to work with the states to ensure that we have actuarially sound rates.

We are in a a in a risk corridor position with the majority of our rates or majority of our state Im sorry, a that will help provide downside risk protection as well as a limit the upside associated with that really does balance it very well for.

Both sides of the equation.

But you know you point as well made that no that it should change the acuity a bit but I really do think that the the risk corridors that we've been advocating for for quite some time.

Really help address the issue a pretty significantly.

Appreciate the question.

Thank you and I'd like to thank everyone for joining us for the call today.

As we shared anthem has shown resiliency and agility in times of great change in our industry.

Despite these suicidal headwinds I remain confident in our dedicated associates are strong anthem brand in our ability to serve as the trusted health care partner of choice for those who need us now more than ever.

As we move forward in 2020, well continue to lend our voice and our leadership to say shaping a safer more affordable and more effective healthcare experience for all we serve thank you.

Ladies and gentlemen, a recording this conference will be available for replay after 11 am central today through August 29.

You may access the replay by dialing 800 568 fix for one one.

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Those numbers again, our 805 686 for one one.

And plus 120 33693 to nine one.

This concludes our conference for today. Thank you for your participation and for using for I think conferencing you may now disconnect.