Q3 2020 Anthem Inc Earnings Call
Ladies and gentlemen, thank you for standing by and welcome to anthems third 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.
You will hear problems that you have been cute you may withdraw your question at any time by pressing Star then two 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 would now like to turn the conference over to the company's management. Please go ahead.
Good morning, and welcome to anthems third quarter 2020 earnings call.
This is Chris Rigg, Vice President of Investor Relations.
And with US this morning for Gail Boudreaux, President and CEO.
John Galena Park.
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 to the most directly comparable GAAP measures are available on our web site.
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 to 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 Gail.
Good morning, and thank you for joining us for anthem third quarter 2020 earnings call today, we will discuss our third quarter results and expectations for the remainder of the year against the backdrop of the ongoing koby 19 tendon.
Also provide our preliminary view of the headwinds and Tailwinds, we project heading into 2021.
This morning anthem reported third quarter 2020, GAAP earnings per share of 87 cents.
Adjusted earnings per share a $4.20 down 14% over the prior year quarter.
Our results in the quarter reflect the impacts of ongoing COVID-19 treatment costs. The continued return of a more traditional utilization environment as well as our ongoing commitment to address financial imbalances for our customers and members.
That's the onset of the health crisis I've.
I've been incredibly proud of the way the anthem has continued to respond as a trusted health partner.
Getting with the early stage of the crisis.
We pivoted quickly and look for opportunities to serve in new ways.
To address the evolving needs of our customers and members and to make a positive difference in the lives we serve.
Armed with our purpose of improving the health of humanity, yes.
Anthem has continued to leverage our insights innovation and partnerships.
Improve lives.
And deliver a simpler more affordable and more effective health care experience.
The heart of anthem is our local legacy and longstanding focus on the communities, where we live and work.
Today, those communities are struggling with issues around food insecurity, and health disparities, social unrest and economic challenges.
Our focus on community health.
Fueled by a 50 million dollar commitment seeks.
Seeks to eliminate health disparities and racial in equities.
Our passion for this work is driven by our strong track record of addressing true whole person care either.
Social drivers of health.
Throughout the pandemic, we've been connecting with our high risk members screening for key health factors around housing food and transportation.
As well as ensuring that they have access to safety necessities, such as face masks and sanitizers in cleaning supplies.
Food insecurity is not a new issue in America.
But the pandemic has only intensified the problem.
We know food and securities directly linked to the whole health of the individual families communities and businesses.
Together with our partner feeding America, we're calling on leaders across the country to join together to fight hunger and improve the health of our nation.
Here in Indianapolis, we've committed with our partners to provide 10 million meals to local residents you need to local food banks in program outreach anthem.
Anthem is also partnered with on birth of a leading social care network to help connect individuals and families to free and reduce costs social services in their communities.
These programs include COVID-19 specific assistance with food transportation job training and more in every sip codes across the country.
Supporting efforts to create a more just society is an ongoing priority anthem.
Why did the health disparities in racial and equities laid bare by the pandemic are.
Our work in this area has only accelerated.
For our associates, we continue to reinforce our strong culture and drive an inclusive environment for everyone in.
And in the city of Indianapolis were lending, our voice and commitment to the Indy racial equity pledge.
Its pledge spotlights, our joint commitment, it's a local business and civic community to take meaningful action to address the issues of health and racial equity toward the goal of a more just community for everyone.
We were also pleased to recently be named to Forbes annual list of the most just companies ranking number one in the health care sector. The second year in a row.
We know this year's flu season is going to be particularly challenging for our communities in combination with the rising spread of COVID-19.
In response.
Anthem is watched our fall flu campaign.
Partnering with over 100 community based organizations across our markets to stand up more than 500 pop up and drive to clinics, providing free flu shots in underserved neighborhoods.
Anthem is continuing to lead and shape our industry for the digital future.
And our experiences with COVID-19 have only accelerated our innovative efforts in this space.
Our Sydney health application with more than 2 million unique downloads is helping ensure our members get the care, they need where and when they need it.
Sydney is delivering personalized engagement and real time access to health information Tele health services in AI symptom base tree Arash.
Psych hub is providing a range of mental health resources designed to help consumers and their families cope with the pandemic related stress brought on by social isolation jobless and other challenges.
This resource hub is a collaboration among several national leaders in the mental health community.
Tele health usage has been strong and we see that trend continuing particularly for behavioral health services.
Since the onset of the health crisis.
Tele health now comprises 40% to 50% of all behavioral health services compared to low single digit utilization because of it.
At Investor Day last year, we shared our vision for modernizing our business by consolidating our systems platforms.
Automating and re imagining processes and embedding digital and AI across the enterprise.
Simplify and improve the customer experience.
The charge this quarter enables us to enhance our speed to market as an enterprise.
Streamline our operations Excelerate, our digital journey, and ultimately deliver a better experience for those we serve.
Our experience of the last several months of the pandemic SaaS pivot quickly to operate virtually and challenge our ways of working.
With the insights from this experience we are re imagining our workplace with the reduced real estate footprint more.
More flexible work practices and evolving our offices to serve as collaboration spaces when safely able to do so.
Membership trends in the quarter were strong despite the challenging economic environment.
Medical membership totaled 42.6 million members an.
An increase of 172000 lives sequentially driven.
Driven by continued robust organic growth and market share gains in Medicaid and Medicare.
This was partially offset by attrition in our commercial business as a result of the prevailing economic environment.
The risk of a more significant deterioration in our membership is real but thus far our overall membership trends are outperforming internal expectations.
Our commercial membership declined 0.9% sequentially.
Which beat expectations in both our risk and fee based businesses.
New account sales supported by new virtual strategies and tools.
Outpace lapses for the second consecutive quarter, despite the challenging environment.
In the large group segment net new large group sales have exceeded lapses in 11 of the last 13 months.
Importantly.
We remain disciplined in our pricing and go to market strategies.
Keeping an eye on long term customer retention.
Well, we expect to face a headwind from Ingram changes over the next several quarters.
Our focus on sales effectiveness affordability and offering a portfolio of product options to meet customers, where they are continues to pay off.
Well, the 2021 selling season looks different than most.
Our results year to date increase our confidence for sustained momentum in new sales growth powered by our focus on whole person health.
Our Medicaid membership grew by nearly 390000 lives in the quarter and is up nearly 18% year to date.
Primarily to the pause on re verification.
The financial performance of our Medicaid business in the quarter was significantly impacted by retroactive prior period rate adjustments that totaled nearly $300 million.
As we previously shared our second quarter results were impacted by the broad based deferral of normal health care utilization.
Well their experience in the third quarter reflects a considerable increase included related costs.
We expect to persist through the balance of the year.
More than offsetting the impact of deferred utilization.
We continue to work with our state partners to achieve reimbursement levels that are actuarially sound, while earning a reasonable return on capital and margins in the 2% to 4% range turning to the Medicare business, our growth of more than 16% year to date is outperforming the market average and we expect.
Another year of mid double digit growth in 2021.
The recently released star scores for payment year 2022.
However are disappointing.
Our pharmacy scores remained the single largest driver of our underperformance.
As a reminder, our Medicare advantage members transition to Ingenio Rx on January 1st 2020.
Which limited our ability to improve our pharmacy scores in the latest measurement period.
We are intensely focused on our star ratings with significant improvement expected over the next year.
We're seeing a strong start to the annual enrollment period, demonstrating that our multichannel approach is delivering results.
Digital platforms have long been an area of focus even prior to the pandemic.
And this year, we expect to gain a significant percentage of our sales through digital channels.
The development of our Medicare care guidance is just one way we are enhancing our members onboarding experience.
With proactive outreach to help them understand their benefits and enhance the onboarding process and overall new member experience.
Our 2021 offerings reflect our industry, leading supplemental benefits, which include the popular over the counter offerings.
Transportation dental and vision benefits.
As well as benefits to address social drivers of health.
Just food delivery and service animal care.
Positioning us for another year of above market growth in Medicare advantage.
Importantly, we expect to see nearly 90% of our members in zero dollar premium plans for 2021.
As we continue to the fourth quarter or compassion and commitment to making a positive difference for all of our stakeholders will continue.
With that.
I will now turn the call over to John for a more detailed review of our third quarter financial performance and our preliminary review of the headwinds and Tailwinds, We project heading into 2021.
John Thank.
Thank you Gail and good morning.
Gail mentioned earlier, we reported third quarter adjusted earnings for sure $4.20 for the quarter.
Line of 14% year over year.
Our GAAP quarterly results included a few significant shortages.
Our adjusted earnings were otherwise relatively consistent with our overall expectations.
Our results reflect a departure from normal seasonality trends due to the continued impact over the 19 on utilization.
As well as the actions, we voluntarily took to support or members.
Customers communities and Karen.
We continue to offer expanded benefit policy changes.
This call sure where it was recorded 19 Friedman testing.
Access to 24 seven towables caused.
Brighter groups and support for communities to name a few.
Our adjusted third quarter results exclude or expected sure the impending Blue Cross Blue Shield litigation settlement.
As long as the charges related to the business optimization.
Gill referenced earlier the.
And and Blue Cross Blue Shield litigation settlement removes uncertainty.
While the business optimization charges or the way this milestone.
And our journey to delivering on our commitment to achieving an S.G. in a ratio of 11% to 12% by 2020.
These initiatives are aligned with our enterprise strategy and represent a reallocation of resources to high growth and high impact areas.
Sludges.
In digital.
After transitioning the majority of our associates to work from home in response to the cool the 19 pandemic.
We were able to reassess some further optimizing our real estate footprint as we gained a better understanding of.
Our organization's capacity to work will move.
That sums third quarter operating gain was $201 million for.
A decline of $1.3 billion from the prior year.
Absent the aforementioned major adjustment.
Operating in the quarter declined <unk> percent or $126 million or.
Our underlying results reflect well do that COVID-19 related cost across our commercial and government lines of business.
In retroactive Medicaid rate adjustments.
Partially offset by deferred health care utilization and strong performance in.
Gene Youre.
Medical membership was 42.6 million members at the end of September growth of more than 1.6 million lives today.
This growth is further evidence that anthem has the most balanced and resilient membership mix in the sector.
Time and time again, we have shown the ability to grow in a stronger comp.
Which was illustrated by our industry, leading organic membership growth in 2019 as.
As well as during periods of economic uncertainty as we have continued to grow membership throughout 2020.
Since the end of the first quarter enrollment in Medicaid has grown by more than double the decline in our employer group businesses, excluding blue card.
As a matter of fact, our Medicaid membership growth is approximately 10 times the decline in our commercial risk.
Members.
And of course this is going on while we continue to exhibit double digit growth you're you're in our Medicare advantage.
Operating revenue in the third quarter of 2020.
Was $30.6 billion, an increase of approximately 16% versus the prior year quarter and nearly 15% when they show adjusted basis.
The increase was primarily driven by higher premium revenue from solid growth in our Medicare and Medicaid businesses.
Pharmacy revenue related to the launch of the junior works.
And the return of the health insurer fee.
The increase was partially offset.
Risks these enrollment declines in our commercial and specialty business.
Driven by higher unemployment.
The medical loss ratio in the third quarter was 86.8%.
Decreased 40 basis points year over year.
Well, the hips adjusted basis and more in the quarter increased 80 basis points, primarily driven by increased cost related to cope with 19, including actions to support our members customers and providers.
In addition to the retroactive Medicaid rate adjustments.
Non covert utilization in the third quarter largely returned to normal levels were roughly 95% historical baseline.
And when coupled with the cost of gold is 19 care.
Overall utilization was above baseline.
As discussed on our second quarter call. We continue to expect the second half.
Mix adjusted and more to come in a couple of hundred basis points higher than normal seasonality trends would suggest.
Driven by COVID-19 cost and the continued recovery in non crude utilization throughout the remainder of the year.
Our third quarter asked you and they ratio was 17.3% increase from 440 basis points compared to the prior year quarter.
However.
Moving major adjustment items.
DNA in the quarter was 13.4%.
Watching an increase of 50 basis points.
The increase was primarily due to expenses associated with the return of the health insurer fee and increased spending to support growth.
Partially offset by growth in operating rooms.
We experienced an operating cash outflow of $1.2 billion in the quarter, a decrease of $2.8 billion year over year.
The decrease was primarily driven by the payment of the health insurer fee for the full year as.
As well as the timing of two additional federal tax payments that were previously deferred as permitted by the euro.
Yes.
For the first nine months of the year operating cash flow was $6.9 billion or 1.7 times net income.
Excluding the impact to net income from the major adjustment items in the quarter.
Or multiple of cash flow to net income year to date would have been 1.4 times.
Turning to the balance sheet.
Debt to cap ratio was 39.2% at the end of the third quarter, which is consistent with our target range.
Days in claims payable was 41.1 days.
From 46 days at the end of the second quarter, but up 1.3 days year over year.
With the medical claims liability increasing 14%.
Versus growth in premium revenue of 11% over the same period.
Evidence oversold reserves.
In the quarter, we repurchased 2.9 million shares at a weighted average price of $265.73.
For a total cost of $759 million.
Year to date, we have purchased 5 million shares at an average price of $269.15 or $1.3 billion in total cost.
2020 has been unprecedented many ways with much still unclear on the future course, the pandemic and the macro economy.
However, we are proud of our organizations ability to adopt providing care for those we serve and delivering relieved and support to our stakeholders.
This time, we remain committed to our 2020 adjusted earnings guidance of greater than $22.30. As you have heard this morning, we have consistently demonstrated strong performance. Despite operating in an environment characterized by uncertainty.
While COVID-19, certainly introduced many challenges.
Our long term growth plan remains firmly intact as we seek to gain share in the Medicare advantage market.
Leverage and grow the diversified business group.
To increase the profitability of our fee based business.
And modestly grow share in the commercial real estate business.
Importantly, we invite you to attend or virtual 2021, Investor day meeting on March 3rd.
Where we will discuss our long term strategy in greater detail.
As it relates to 2021 guidance, we will provide a more detailed outlook on our fourth quarter earnings call.
Further as you contemplate the headwinds and Tailwinds, we see for next year. Please keep in mind, there is much more uncertainty than normal given the unknowns related to cold.
Such as the timing and efficacy of the vaccine.
Or if we could see another round of deferred utilization.
With that as background, our initial view of 2021 contemplates following tailwinds.
Permanent repeal of the health insurer fee.
Which we used to partially offset investments in our Medicare business to improve or store scores.
Accretion from the 2020, M&A activity and share repurchases.
In June you Rx growth and the continued progress.
On our commercial five to 123 to one strategy.
And Medicare advantage membership growth.
These will be partially offset by Medicaid reserve for occasions and reductions in the context of a return to a normal operating environment commercial enrollment pressure primarily in group change as a result of broader economic challenges.
And higher investment spending to support long term growth.
At this early stage or view of 2021 would affirm or long term sales growth rate of 12% to 15%.
Albeit skewed to the lower house, given the unusual risks and challenges presented by the ongoing pandemic and.
And with that operator, we will now open the call for questions.
Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your telephone keypad, you'll hear a prompt that you have been skewed you may withdraw your question at any time by pressing Star then she'll give her you are using a speakerphone. Please pick up the handset before pressing the numbers once again, we ask that each.
<unk> 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 call. Our first question will go to the line of Steven Valiquette of Barclays. Your line is open.
Great. Thanks, good morning, everybody.
So you know just on those comments on the tell whether that was that was certainly helpful. When I was curious to hear more about it was the the higher investment spending if you just give a little more color maybe on that piece in particular as you're thinking about you know trends for that for next year versus what you're spending voluntarily this year. Thanks.
Yes. Thank you Steve appreciate the question and you know the the higher investment spending really is.
Putting more and more money into our AI and digital capabilities I'm investing more in stores in order to ensure that we improve or or a number of members covered by four star plans in the next rating period and beyond.
And Oh Im really the way that that care is going to be accessed a here or in the future is slightly different than how it's been access in the past and really investing and in the various networks and capabilities to meet the customers where they need to be met so yeah, we'll provide a lot more specificity on that.
You know at Investor Day.
So in terms of automating and reimagine processes and embedding digital in the eye across the enterprise, it's all about simplifying and improving the customer experience so hopefully that.
You know I can provide you a little bit of context here in the meantime, if they think Steve I'll. Just also reiterate what John just said, which is we have been investing what we found is that there is an opportunity to accelerate those investments as a result of the increased adoption that we've seen over the course of the pandemic, particularly in our digital.
Assets, where we've made significant commitments around our Sydney and our psychology and other things where we are seeing are consumers more actively engaged with those assets and then start.
Stars is obviously, a huge priority for us and we've continued to build a team there as well as invest in ensuring that we can pull through what we're doing in our pharmacy now that we have an under Ingenio Rx. Thank you very much next question. Please.
Next we'll go to the line of AJ Rice with credit Suisse. Please go ahead.
Hi, everybody.
Just one point of clarification and a question the.
What each way would look a growth rate that using a 20 to 20.
20 to 30 jumping off point.
As the base or is there any adjustments, we should make and thinking about what the base.
As for this year and then my broader question is you mentioned the puts and takes you have to deal with it thinking about the outlook for next year and developing a thoughts around medical cost trends can you just maybe flush out a little bit more what are you thinking about next year for medical cost trend and what are some of the major unknown.
Aerials are variables rather the Russell with as you as you think about that calls TRID the expectation for next year, particularly like in the commercial risk business.
Great. Thank you. Thank you very much HM, let me start and I'll have John provide a little bit more color.
As you said at this early stage, our view of 2021 would affirm our long term EPS growth rate of 12% to 15% off the guidance of 20 to 30 as you mentioned, although as John commented in his prepared remarks skewed towards the lower half of the range just given the unusual risks and challenges presented by the ongoing pandemic so with that.
Let me add have John give you a little bit more color on some of the other specifics that you asked in your question John Good.
Thank you Gail and good morning, AJ, you know, our 2021 trend expectations and and really I think you're made me pointing to a commercial pricing actions you know very important obviously many variables are considered as part of our trend in our pricing assumptions and I'll just be clear for every one of them.
On the call here for competitive reasons, you know, we're not going to provide a specific point estimate where we see trend coming or what our pricing assumptions are at this point in time.
But I do think it would be instructive to highlight some of the things that were considered you know.
First of all there is a permanent repeal the health insurer fee and.
<unk> repeal actually is going to save anthem customers approximately $2 billion and 2021 and certainly we're moving as burden helps it helps mitigate the impact of a cost.
But also really looking closely at how care be accessed and 2021 you know for instance, you know telehealth yard visits Standalone surgery centers other side of Us service changes.
How are they going to evolve.
Before and after a vaccine is available and more overall utilization be impacted or just or just the way that the carriers access.
Oh, certainly we're trying to assess the ongoing impact of COVID-19 testing and treatment.
Assessing how much pent up demand still exists.
Versus the permanent cancellation that procedures.
And then how is deferred utilization impacted underlying acuity at.
And you know I suppose.
I suppose out those are all just variables that are incremental and on top of the normal variables that exist each and every year when we assess trends.
One thing I will say with all of that though is that we are being very disciplined in our approach, we're being very disciplined or pricing or pricing or.
Covers forward trend, we have committed that we will price to cover forward trending well continue to do so so we'll provide more insights into this another 2021 questions on our fourth quarter call next January and of course as I stated on March 3rd during our virtual Investor day provide a lot more insights but.
You know these are a many of the variables that we really are working our way through right now as we finalize our 2020 a year. Thank you Ajay. Thank very much next question. Please.
Next we'll go to the line of Justin Lake with Wolfe Research. Please go ahead.
Thanks. Good morning, all one quick numbers question, but I wanted to ask about Medicaid so.
So on numbers can you can you can you share with us the net if so when.
I wanted to talk to that you're thinking about the 2021 I know you said there was offset by some reinvestment start wanting to get that number for you and then can you talk to your views on Medicaid reductions for 2021 being as good.
I remember you expected to end this year at 3% Mcguigan Medicaid can you talk about that we didn't need the expectation for next year in terms of you expect to be at that 3% target only 41 or if somebody leaves you know and so everything he machines within that 2021 guidance. Thanks.
Justin I apologize can you repeat the first half of your a two part question I'm not sure I understood everything you said.
Sure just first look it's had a net tailwind from 2021, oh than that yes, Danielle when indicate wall jeans spring that's either games are yeah. You know the you know that.
Yeah as I said that was part of the overall headwinds and Tailwinds that we had and in response to age Jays question. You know Weve certainly tried to factor everything into our headwinds and tailwinds as part of reaffirming or long term a growth rate and I really don't want to get into cherry picking certain items as though why something is part of a.
Starting point and why something else is not but you know on hips him in of itself.
Yeah, we're looking at 60 80 cents of Oh.
Well they tailwind in 2021 associated with the permanent repeal of that law.
Related to a and as we said you know part of it's going to be used to help fund some of the investments in Medicare to improved star ratings and other things. So yeah. There's certainly a lot of fungibility associated with any number of headwinds and tailwinds, but 60 to 80 cents I think is the the dollarized impact of your question.
Oh, you know related to the 2021 and you know the Oh, yeah. The Medicaid rate environment. Obviously, we're working very closely with the states to ensure that we get actually really appropriate raids.
Working through a you know whether it be the collars or the core doors and and how those things are impacting the you know the the methodology I mean, we'll have eyes very wide open in terms of that and you know as I said conversations or stay partners regarding the need to have sound rates is weak.
Quickly returned to a normal operating environment.
So our expectation is that we'll be able to achieve a a appropriate return on capital and in and operate well within the target margin range in Medicaid and 2021, and there are actually a focused on being a relatively close to the midpoint of that range.
Thank you next question please.
Next we'll go to the line of Ricky Goldwasser with Morgan Stanley. Please go ahead.
Yeah, Hi, Good morning. My question is on utilization trends that you're seeing or you are saying that where were returning back to normal, but maybe you can give a little bit more color about the difference between the different books and what type of procedures, you're seeing coming back and especially when we think about this is it.
Looking ahead to 2021, John you talked about the difference in the type of person interested that's coming back. So if you think about E. R visits Uh huh.
If you are seeing less utilization there does this mean that that's likely to expected these type of Oh utilisation.
Well that will be back in 2021, and how's that shaping your your your thoughts for next year.
Sure. Thank you Rick you for that question and maybe I'll provide some some context that might answer other questions that are in the queue as well.
In terms of of your question.
So if you look at the underlying.
Claims that were seeing as I stated in my prepared comments that you know the.
They are excluding cold it would be below a baseline levels, but then when you add cobot cost back in you know we are exiting the third quarter at greater than baseline.
So we started the third quarter with a combination of both.
Underlying procedures and cobrand costs being below baseline and we ended the quarter with other combination to being above baseline, but we fully expect that the fourth quarter will be above baseline for the entire quarter given the recent surge in coal that as well as all the other trends that we're seeing associated with a where we are.
It seems some of the rebound.
Outpatient surgery as we covered the fastest recoded.
And is actually even trending above baseline in some instances of some of the more costly procedures, such as joint replacement surgeries and come back faster and a lot of that was anticipated.
You know and the actions we took to intentionally redirect care to the outpatient setting to ensure continuity of care are coming through.
You want to that end, we are focused on ensuring our members are getting the care they need in a timely manner or whether it be through tele health or by redirecting certain procedures delicacy outpatient settings.
The the our utilization is still below baseline at this point in time.
And Oh, we expect that to continue for a while as well. So we're clearly taking all these things into consideration as we look at 2021 trends and a in as a as I stated for competitive reasons, we're not going to provide a point estimate at this.
This call.
But you know there is a natural system capacity constraint that cause some utilization to carry into 2021 and were certainly factoring that into our thought process at this point in time.
Thank you for the question Ricky. Thank you next question. Please.
Next we'll go to the line of Steven to now from the the Leerink. Your line is open.
Good morning, guys sales and the question I Miss out on Medicaid to maybe two part question on this show some Medicaid enrollment, obviously diminished looks like Redeterminations will be suspended at least through your own based on the loss.
Public health.
So wondering if you guys have a view on one woman peak and then sort of related but no small follow up sounds like a pretty decent not with the margins I guess or appointed wanted rate costs. Another core Doyle.
College watching states are taking Nielsen so what that all in home. When you will look like in 20, I think you said it was almost.
In the quarter, I think 21 looks versus 20 <unk>.
Yes.
Sure. Thanks for the question I'm going to ask off leash in Norwich address some of your specific questions about regasification and timing of rates, but in terms of your very specific question about the all in.
What we expect that to be as I said in my prepared remarks 300 million was what we had in the quarter and were expecting you, obviously, given where utilization goes and things that could move a little but around 500 million would be that number so with that let me out Felicia speak to the other question Chad Felicia that's good morning, Steven and thanks for the question you know she meant.
And Medicaid growth has certainly been accelerated during this period were up 4.8% quarter over quarter and almost 389000 over second quarter and at this point I don't know if we would expect to save went up he is going to happen. When you take a look at where we are.
Today States have suspended their read their vacation at least through the end of the public health emergency that public health emergency right. Now we'll go through January 20% next year, but in addition to the public health Emergency States are also receiving enhanced app now so.
So we would expect that states will continue to suspend re verification through that period up the enhanced apt map so that could be certainly through the end of January next year as we head into February we've been in constant conversations with our state partners with respect to continuity of care for our members, particularly during this time.
Of a pandemic and continuity of care, it's very important so we work with our state partners trying to make sure that we're working closely around averting any type of clip event. So I'm not sure at this point when things are going to peak certainly as long as you have the continuation of the public health emergency.
And the enhanced ask now that states are currently receiving thank.
Thank you thank.
Thank you next question please.
Next we'll go to the line of Ralph Jacoby from Citi. Please go ahead.
Thanks. Good morning, just one of the first just clarify quickly on the Medicaid side I think you mentioned target marketing to get to 3% by 2021 I was hoping you could give us a sense of where you think you'll shake out for 2020 and then.
Just wanted to ask about membership was obviously held in better than our expectations and sounds like your expectations as well.
But the the overall performance seems generally in line and guidance maintained so if you could help on what what's that Delta is it just costs coming back faster than you thought is it higher coded or something else. Thanks.
Yes, Ralph Thank you for the Oh for the questions.
So in terms of of target margins associated with with Medicaid you know we.
As you know, we have well over half of our states.
Did you anyway, one renewals and working very closely with them on the rate actions.
And you know that the trend information that utilized for January one renewals is typically the two prior years, So 2018 2019 or.
Or the.
Really the the Actuarially sound a rate information, we have associated with that.
So we feel very good about how those conversations are going and where those rates are coming out in terms of 2020, you know it's a it's an interesting dynamic with all the deferred utilization.
The increase in a in co because some of the claw backs of premiums all in you know we are as you know we have a.
Yeah, the $22.30 EPS guidance that we have reaffirmed you know.
The overall margins within Medicaid Youre coming out within the target margin range, but there's a lot of variables and a lot of hard work to get there but.
But clearly we are we are trending in the right direction. During this period of uncertainty.
And associated with the the membership.
Yeah as you know we feel very good about our membership we think we have the most resilient membership mix in the business as we grow in periods of a strong economic times, we grow in periods of economic uncertainty.
And you know we made a cognizant decision here in 2020.
You know we would help address the imbalances in equities in the system created by the pandemic. So as our membership continues to get stronger and stronger.
Well, we're hoping give it back to to maintain or guidance and then lastly in terms of the fourth quarter. We do expect the fourth quarter to have an elevated medical loss ratio.
That's because the underlying cost of services plus the pent up demand that is partially coming through plus the cove and costs that we're covering on top of all of that we expect to be above baseline and so we're easily looking at a 300 to 350 basis points.
Ammo or in the fourth quarter higher than what normal seasonality would suggest.
Thank you for those questions next question. Please.
Next we will go to the line of Sarah James from Piper Sandler. Please go ahead.
Thank you [laughter].
[laughter] to what is in federal versus the individual state control of when me determinations and Medicaid turns back on I'm wondering if we could end up with different states turning on at different times and then when it does turn on how long does it take for the state to catch up on the valuations and.
<unk> <unk> <unk>.
Felicia.
Good morning, Sarah and thanks for the question <unk> as I said I would expect that states with suspended their applications at least through the public health emergency and enhanced App now once that happens they have the ability to control when they return to read their appetite re verifications with respect to membership.
Federal government requires it's that Medicaid members have their eligibility re determine at least once every 12 months.
States can decide whether or not they want to then execute upon that you know beginning in the next quarter. It thereafter, but you generally get through your entire Medicaid book of business over a 12 month period.
So as we take a look at our portfolio, which as you know its 23 states all of those states will make determinations around when they commit to be their applications at varying different intervals. We're working very closely with our state partners and they've been very collaborative with us around helping us to educate members around the re verification process and.
Necessary once that re verification process commences, but the return to re verification the timing the cadence around when that happens with respect to membership is certainly lap what the state partners in terms of when that happens.
Thanks, Lisa next question please.
Next question well go to the line of.
Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks was wondering if you could quantify the financial impact of the settlement on the Blue Cross Blue Shield that none of US wanted to see this obviously other aspects to that settlement beyond just the financial.
Payment was wondering.
Provide some color on if that settlement and anyway with.
Impact your view on close to 15% long term growth and or change.
Change the way in which you get to that 12% to 15% growth number.
Thanks, and the Cat a question Kevin in terms of the settlement that we announced today and the financial component of it we will be including in our 10-Q, a much more fulsome discussion, but just to give you a perspective of that which will be filed this morning, BCBS a and the blue plans have approved the settlement agreement and released for the subscriber settlement.
As part of the case.
If approved on which the court still has to review it requires us to make the monetary settlement, which we took our portion of his part of the third quarter charge, but also a there are a couple of nonmonetary terms on one eliminating the national best efforts role in our license agreements on the second is allowing for some large national employers with self funded.
Benefits to be able to request to bid for insurance coverage from a second Blue plan. In addition to the local blues plan as you know we fully accrued our estimated liability in the third quarter of 2020 in.
In terms of the impact to that we view our strategy has been very consistent and don't really see any changes in our overall strategy.
Thanks to the question on next question. Please.
Next we'll go to the line of Joshua Raskin with net friend Research. Please go ahead.
Hi, Thanks, Good morning, I guess just back on a commercial membership holding up a little bit better I'm curious if you're seeing any recent signs of furloughs, becoming more permanent if you guys have a better view on sort of what percentage of your membership is currently in for low meaning not getting salary, but still getting their benefits and then maybe any geographic.
Areas or segments that are you not seeing different trends from the overall book. It's thanks for the question, Josh I'm Gonna have Pete high tie in I respond to that around the commercial business. Yeah. Thanks for the the question, Josh and yes, definitely commercial membership enrollment activity.
Continue to perform better than we expected you noted furloughs, we don't have specific information I'm on the volume of furloughs, we obviously staying close contact with our employer and broker partners regarding this and we've done a lot to make sure that we protect the membership and provide them with a lot of with a lot of options in that regard I'd say.
No that furloughs as well as the fact that we have a disproportionate share of our membership and less risky segments, which has certainly helped US and then you know as I think you alluded to the unemployment rate is certainly lower than we had originally expected I'd say, but most important link from an execution perspective in terms of what we can control.
I'm really pleased with the teams performance our sales exceeded our lapses again.
As we have for the last several quarters one important point sent to note are fully insured membership in commercial actually only declined 27000 members in the quarter. So the overall net negativity that that you are seeing in our membership is really caused by buying group change and a and then as we look forward to.
Your point about the future. We are modeling continued declines in the commercial market, we aren't necessarily seeing a great variation by market, it's really hard to predict that with precision, but we are expecting a continued decline I would say that our early read on October is a continuation of what we saw in Q3.
So nothing that fundamentally changes that and then finally I'd just say I think we're really well positioned I'm very pleased with the team. The last couple of years. We've spent a lot of time on investing in a product portfolio and having product options to meet customers, where they are and as the economy improves you know I'm confident that we'll have a solution for them.
Thank you next question please.
Next we'll go to the line of Lance Wilkes from Bernstein. Your line is open.
Yeah, one of the.
Ask a little further on 21 with respect to the employer business and in particular interested in your outlook for.
Kind of wins losses, so not the him group aspect of it.
And then cross sales and in Jennie O penetration how's that looking as you're kind of getting through the the sewing Susan there.
Yeah. Thanks. Thanks for the question I'll have Pete out additional more color, but as I shared in our opening remarks, we feel really good about our ability to increase our sales relative to our lapses and so while this has been a very unusual year, we are still seeing particularly in the mid and lower you know our small group business we're seeing.
Really strong results because of our sales effectiveness.
But I'll have Pete give you a bit more because I think the work that his team has done over the last few years is really I'm showing results this year.
Yeah. Thanks, Thanks, a lot for the question Lance.
The areas that we've we've closed out selling so for example in national accounts and group retiree, we're very pleased as Gil said with our execution and how we've done the activity in 20 for 21 at least in in National for example in group Retiree was was it was active as you'd expect.
Some of the larger jumbo accounts, they did differ and you would expect that in light of what's going on associated with cold there, but as Gil said no downmarket smaller accounts, we're seeing a lot of really good activity our value proposition is really resonating in the marketplace. Our focus on advocacy with solutions like Gale mentioned in the.
Prepared remarks, the Sydney technology, our consumer engagement platform innovative programs you know like total health total you et cetera are really playing well in the market. We launched as you probably have heard high performing networks with our blue sister plans across the country covering 55 M. assays for all these things are are playing into.
Sure our growth into 2021, and we feel good about that obviously in group change in the economy remains a big variable as it relates to the ultimate impacts as it relates to the second part of your question in Jennie O and Upselling our approach five to one to three to one as it relates to what we can control I feel really good about our progress and.
Feature prospects getting to the three to one prior to Cove. It. This year, we were solidly on track to get to four to one covert definitely did set us back a little bit as you'd expect but even with cold, but we're seeing really good activity across all the component parts that generate growth in our strategy from one to three to one our penetration rate.
It's an up selling rates around specialty products continues to improve obviously with affordability being a big big focal point on selling the total value <unk> proposition across medical specialty in pharmacy really seem to be playing well our animal health connections is really resonating similarly, with all our clinical programs, we've actually push push.
Really good programs like total helpful you down into the local into the local markets and then as it relates to Ingenio Rx, we do feel really good about the future opportunities again very similar as it relates to big Jumbo opportunities. There there was a a little slowing in that regard and people potentially deferred.
Going into the future on but as we head into 2021, we have some sales ready we feel really good about the upsell opportunity you know a pharmacy into our medical and selling that total value proposition I look forward to working with my new colleagues, Jeff Walter and the Ingenio team on that.
Thank you next question please.
Next we'll go to the line of Frank Morgan with our VC capital markets. Please go ahead.
Good morning appreciate your updated color around the mid double digit growth into it may side of the business and I think in the past you talked about the growth in telephonics sales, but I think I heard you did I say.
Expectations around higher growth in the digital channel. So just any incremental color around that versus the telephonic channel and given covidien any thoughts or expectations around the level of planned switching within M&A plans. This AG Pete. Thank you well. Thank you very much for the question just real quickly let me.
Starting with the plan switching you know we do expect less switching this year as people are shopping less.
We've had a strong and growing amount of sales from our digital channels and we do think that that is going to be particularly strong early returns are showing that already.
Obviously face to face during a time of Cove. It is a little more difficult. So again, we're expecting a very strong strong results as I shared in her opening comments around Medicare advantage in digital will be a very big part of that thank you next question.
Next we'll go to the line of Robert Jones with Goldman Sachs. Please go ahead.
Oh, great. Thanks for the question I just wanted to go back to the investment comments and just get a better sense about the investments not only for this year, but you know you highlighted a headwind from investments next year. So I guess, maybe this year just the 600 million in the business optimization charge that you had in the quarter I know you cited areas like speed to market you know streamlining.
Operations and then some of the digital initiatives it sounded like so maybe just a little bit more on those investments and then in 2021, you know how I guess are those investments or potentially different in what areas would they be focused in any anything around the size of those investments.
Sit here today and think about next year would be really helpful. Thanks, Yes, I think there's two areas of the charge that I just want to make sure. One is around the reduction in the footprint because we are re imagining our office space.
And again, we're going to still be an office based company and we will still have a presence in all the states, where we do business, but what we've learned as part of the pandemic is that we're really going to change the nature of those spaces and consolidate the number of them. We have in each of the places that we work.
In terms of the investments we made those are all very consistent with what we discussed back in our Investor day last year and again, it's what we've learned as part of the pandemic is an acceleration of both our ability to implement so acceleration of digital that weve been building.
Building Sydney is a great example, psych hubs another one tele health all of the things Weve seen consumers much more readily.
Adapt and use that than we had even predicted and some part of that is accelerating that and how our workflows and business processes as part of what we've been doing we embarked on an initiative to really simplify our operating environment to improve experiences for consumers. So take out redundant steps improve how we reach out to us.
Consumers on use AI enabled claim adjudication, so things along that nature very consistent but it's an accent again, an acceleration that we've seen usage pick up dramatically. So weve been XL able to accelerate the work that we're doing thanks for the question. The next question. Please.
Next we'll go to the line of George Hill from Deutsche Bank.
Please go ahead.
Hey, good morning, guys. Thanks for taking the question I guess, John not a numbers question, but just interested in how you guys think about how if utilization mix continues to change I guess can you talk about how that how you guys think that reflects in pricing for 21.
And you got have you guys looked at current utilization kind of modeled that into the pricing for 21, and then just kind of nitpicking question. When you talked about the lower end of the range for 21 was it your intention to basically tightened the range to 12% to 13% growth. So we'll see a tighter EPS guidance range for next range for next year as opposed to a wider range could be 12% to 15%.
Thank you for a for the questions George I'll start with your last question first you know our long term stated growth rate is still 12% to 15%. There's no intention of tightening tightening that and we do believe that the 12% to 15% range is a sustainable range that.
We can deliver on for quite some time, a comment about being to the lower end was just really due to a over abundance of caution given the uncertainties related to the entire pandemic and covance situation.
Yeah related to the to the utilization question at the beginning we have done.
Really a lot of sophisticated modeling or a or various scenarios that we modeled since the beginning of the crisis I have been going on 'em, we constantly updated and incorporate new learnings into our model as a pandemic is involved.
Yeah, the recovery and utilization may be lumpy we.
We do believe our assumptions are very sound.
Yeah as I stated I think in answer to a earlier question there will be some natural system capacity constraints that we do believe will cause some utilization to naturally carry over into 2021 and just to be clear. Yes. We have tried to think through all those incorporate all of those variables indoor.
2021 thought process.
And and then as I stated before we are pricing to cover forward trend.
And so our expectation is that and we will we will cover forward trend in terms of our or pricing and or our revenue associated with 2021. Thank you next question. Please.
Next we'll go to the line of Whit Mayo with yes.
Please go ahead.
Thanks. Good morning, what are you guys thinking about cost sharing support and 2021 that you know some level support across almost.
All your lines of business. This year, so maybe instead of asking when do you.
Suspend this what are the signposts that you're looking for it so perhaps shipset policy.
Well thanks for the question, which you know as we think about the policy is obviously a in our government business. That's you know continues to be and I think part of the guideposts really are about where we are in the pandemic and access to care right. Now we are seeing office is open and we sing individuals who have.
Access to care clearly as long as there you know there is a serious issue on cove, it and the pandemic and we are seeing rising cases.
It's something that we continue to evaluate there's a lot of uncertainties right now and a lot of questions and timing of the vaccine expanded testing, which we continue to model pent up demand and we are seeing as we mentioned.
That going above the baseline. So we are seeing people access care, which is important and remember our goal is also were reaching out to make sure that people have the right access to care, particularly those we know who have multiple chronic conditions across our book of business. So.
In terms of that we continue to model. It we continue to look at it and our goal is to ensure that we have appropriate access to care and that as you know we are learning a lot more about each of the events that are happening with covance.
So the question next one please.
Next we'll go to the line of Dave Styblo with Jefferies. Please go ahead.
Hi, there. Thanks for the question just a quick clarification, John when you talked about the Fourq you got more being 300 to 350 basis points above normal is sort of the fourth quarter of 18, a reasonable proxy to think about it as a point of clarification and then.
The other question really about Medicare advantage now you guys are talking about double digit growth again more strong momentum I guess in past years.
Did your graphic expansion of your footprint has certainly helped that as we looked at that and May landscape filed this year. It looks like you're you're only expanding by one or 2% of the senior population. So I'm just wondering what gives you confidence that you can sustain that momentum.
In terms of taking share from peers.
Thank you Dave I'll answer the first half of the question associated with the CMO or.
Yeah Yeah.
Fourth quarter of 2018 of course doesn't need to be mix adjusted a bit for the the fact that our membership mix has changed but the fourth quarter of 18 as a.
As as good of a starting point as any from a comparative basis.
You want to look at that 300, 350 basis point increase that I referenced.
In terms of the second question why do we feel confident about our growth projections are a few things one I I shared in my opening comments, which is really very strong product offering. When you expect you know not when 90 plus percent of our members to be in or have access to zero premium plans or supplemental benefits continue to be some of the stronger.
So offerings in this space and then third we believe that there is still significant opportunity in our states to expand I mean right. Now you know we don't have number one market share in many of those states and there was growth. We do have number one market share in the commercial space and our Blue brand is extra incredibly strong in those states and in states, where we are.
Selling outside of our Blue brand. We also are seeing some really nice momentum, we have partnerships and joint ventures with their blue rather and so again, we're seeing a lot of momentum our brand resonates well. Our digital channels are are also resonating very well in terms of the sales marketplace. So so overall, while we don't have a significant.
And we have some expansion we expect to gain market share in our states and we do think that you know our 85, new counties that we ventured will also help us but again, we feel our offerings are very strong and are resonating quite well.
You next question please.
And we'll go to the line of Steve Willoughby with Cleveland Research. Please go ahead.
Hi, Good morning, just a quick question I was wondering how you guys are thinking about the.
Cost of vaccines and therapies for coated in 2021 in terms of.
Essentially who is going to be paid for them and how much.
Well. Thanks for the question you know I think what are you focused on vaccines first you know no. One really has the ultimate answer is at this stage, we are watching the situation very closely and learning.
About the potential we'd modeled a lot of scenarios into our pricing. There's a number of variables obviously around vaccines, including you know when they will be available from as early as January to the summer of 2021, clearly dosing requirements vaccination rates storage transportation, a whole lot of things I mean that obviously goes to say that there's a.
Kinda variables, but remember vaccines are only one cost of cove it in total.
We are looking at the total cost of co that and I wouldn't look at this and just isolation.
Goal, obviously is to advocate to protect our highest risk members first so again that gets to the timing, but we also understand that CMS is going to be providing guidance at some point and we'll obviously look to follow their lead accordingly.
Thank you next question please.
Next we'll go to the line of Charles Rhyee with Cowen.
Please go ahead.
I apologize.
Next we'll go to line of Gary Taylor with JP Morgan.
Please go ahead.
Hi, Good morning, a two part question given the.
HM this optimization benefits are.
Fairly material number which you anticipate also excluding those from adjusted earnings guidance in 2021.
Second part of the question I'm. Just wondering you know we looked the last four years share repurchases run between.
About a billion seven at 2 billion annualized and on an annualized basis you'd you'd be in that range again. This year anything extraordinary contemplated thing for either fourq or 21 in the 21 outlet. Thanks.
Yeah, Hey, good morning, Gary and thank you for the questions. You know first of all on the business optimization. You know we did certainly exclude the charge here in the third quarter.
And you know the benefits associated with that Joe will certainly come through over a period of years and.
Become part of our run rate cost savings.
Associated with the administrative structure of this company and they goes we had talked about you know we've got a plan to get the 11% to 12% asked you in a ratio by 2023.
We had referenced at our Investor day, and this is certainly one step to get there the other part of the.
The question or the answer I would say is that we've also talked about.
<unk> incrementally investing really putting more money into the digital and they are by putting more money into the stars type of Ah of investments and yeah. We're obviously not going to exclude any of those costs from our numbers. So a 2021, we think should be fairly clean from that perspective.
I will have some savings moves from reinvestment opportunities to really help position the company much much better for the future.
Yeah, I, just like to reiterate too it's a one time charge. So just so we're clear about that yeah. This year, yes. Thank you and then the men on the share repurchase yeah, we've we repurchased approximately $1.3 billion through the end of September we have increase there.
Share repurchase a pace a bit here in the third quarter, especially a you know when our stock price was Ah.
It was really a a down we thought a far greater than ER than what it is.
Could or should have been based on the P. Multiple perspective, yeah, we're obviously going to be up we do opportunistic and watch world market conditions.
<unk> are stated goal.
Is to reinvest about 50% of our free cash flow into either M&A or back into the business, 30% and the share buyback and 20% of the dividends as I've stated I do believe that those buckets are going to be appropriate over a five year period of time, there will never be exactly correct in any one quarter impact.
Probably not even exactly correct in any one full year, but I would expect that we would continue a ER.
Our share buyback here in the fourth quarter and maybe in the year, a little bit higher than what we've been in the last couple of years, just given the weakness in the stock price that we saw and then and then head into 2021 from there but at the end of the day, we need to be opportunistic with our capital and ensure that its being oh.
'cause it appropriately.
Thank you Gary thank.
Thank you John I think we have time for one last question.
And our final question comes from Scott Fidel with Stephens. Please go ahead.
Okay. Thanks, Thanks for fitting me in here under the wire question I just wanted to circle back just on the blues a settlement and I know it's early here in terms of how this ultimately may affect the.
The broader blues landscape, but I'm just interested Gail I.
I guess two parts one do you think that ultimately this could lead to a renewal overtime.
Luiz consolidation theme, which obviously has been dormant for the last 15 years or so and then also just from a strategy perspective for and whether the elimination of the blues rules would lead you to think about doing a larger non blues acquisitions over time.
Well. Thanks, Thanks for the question, Scott and John <unk>, as I said before our strategy, which we laid out at Investor Day has remained incredibly consistent and so we don't see that changing our strategy, we have significant opportunities to partner with Liz as part of our diversified business group, we've been very successful.
On selling and services and Genie, our Acs offers other opportunities and as you know from our Medicaid and Medicare business, we've done a number of partnerships with them well and we recently and just announced actually a partnership and our group Medicare. So I think from our perspective as I said before I see I really don't see this changing our stated strategy and I think.
And we're very excited about the growth prospects, we have across the anthem. So thanks very much for that question.
With that I want to thank everyone for joining us on the call. This morning.
As we shared today anthem is on a bull path for growth across our enterprise driven by our commitment to deliver a simpler more affordable and more effective health care experience for those that were privileged to serve.
As always I want to express my gratitude to our associates for their unwavering commitment to our customers members and communities. During this most challenging time for our country.
As you can see we remain committed to delivering a simpler more affordable and personalized experience for those we serve and I look forward to building on our momentum throughout 2020.
Thank you for your time and your continued interest in them.
Ladies and gentlemen, a recording of this conference will be available for replay. After 11 am today through November 27, 2020, you may access the replay system at anytime by dialing 885, 660, 406 and entering the access code eight 850 international.
Participants can dial for zero to 998 0591, those numbers again are 885.
Fivesixty six.
Zero 406, and four zero to 998 years.
Yeah, 591 and use the access code eight 850. This concludes our conference for today. Thank you for your participation and for using Verizon Conference you may now disconnect.
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