Q3 2020 Humana Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by welcome to the your monitor third quarter 2020 earnings conference call at this.
This time all participants are in listen only mode. After the speakers presentation. There will be a question and answer session to ask a question. During the session you will need to press star one on your telephone please be advised that to the conference is being recorded if you require any further with assistance. Please press star.
Zero I would know like then had a conference over to Miss me.
Vice President of Investor Relations. Thank you. Please go head.
Thank you and good morning.
In a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Brian Kane, Chief Financial Officer will discuss our third quarter Twentytwenty results and our updated financial outlook for 2020.
Following these prepared remarks, then we'll open up the lines for a question and answer session with industry analysts.
Our chief legal Officer, Jobin, Tara will also be joining Bruce and Brian for the Q and a session.
We encourage the investing public and media to listen to both management's prepared remarks, and the related coordinate with analysts.
This call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Dot com later today.
Before we begin our discussion I need to advise call participants.
Our cautionary statement.
Certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties.
Actual results could differ materially.
Investors are advised to read the detailed risk factors discussed in our latest form 10-K.
Our other filings with the Securities and Exchange Commission, and our third quarter Twentytwenty earnings press release as they relate to forward looking statements.
To note in particular that these forward looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic.
Quitting the potential impacts to us as one actions taken by federal state and local governments and mitigate the spread of cold at night team and in turn left those restrictions.
Actions taken by us to expand benefits for our members and provide relief for the health care provider community in connection with COVID-19, and three disruptions in our ability to operate our business effectively.
For negative pressure and economic employment and financial markets, among others, all of which creates additional uncertainties and risks for our business.
Our forward looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our FCC filing.
We undertake no obligation to publicly address or update any forward looking statements and future filings or communication regarding our business or results.
Today's press release, our historical financial news releases and our.
<unk> filings with the FCC are all also available on our Investor Relations site.
Call participants should note that today's discussion include financial measures that are not in accordance with generally accepted accounting principles or GAAP.
Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.
Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that I'll turn the call over to Bruce Broussard.
Thank you Amy and good morning, and thank you for joining us.
I want to begin by thanking our associates from proactively reaching out to check on our members, making sure they have access to care and medications to showing up on members doorsteps for delivery a much needed to.
Our associates continue to go above and beyond to meet the needs of our members and providers.
Our team's discipline and continued focus on quality is evident on humana's recently announced star ratings.
Again, putting us in a leadership position among our peers.
A key tenet of the M.A. program. The stars rating system Incentivizes plans to focus on quality in both care and the consumer experience driving improved clinical outcomes.
Plans, then invest the stars bonus dollars and additional benefits improved care and better member experiences.
We are proud that approximately 4.1 million or 92% of our and May members are currently enrolled in plans rated four stars or higher.
For three straight years, our care plus and they plan in Florida, which covers more than 164000 members received a five star rating.
In addition, more than 99% of our retirees in our group and made plans remain in contracts rated four stars and above.
These outstanding results are testament to our associates commitment to building trust with our customers through simple personalized empathetic experiences.
Here's what we call human care.
You've probably seen our new human care ads human care is a more than AD campaign. It is a strategy for how we run the company centering on a holistic care that addresses our members' most important health care needs.
Our newest adds stresses the importance of continuing to take care of your health during the pandemic and how humana is making it easier for members to seed care Safeway.
This is one of several messages to our members encouraging them to continue to engage with their doctors for managing their ongoing health conditions.
As you know Humana in partnership with CMS was among the first in the industry to quickly implement benefit changes for Medicare advantage members that removed financial barriers improved access to care and address social determinants of health needs during the pandemic.
I've described over the past few earnings calls many of our initiatives to support our members providers and associates, So I won't repeat them here.
However, as the pandemic progress is our actions will continue to evolve to meet the changing needs of our constituents.
For example, the pandemic has highlighted the importance of social needs such as social interaction.
In response to this need Humana extended the Popper program a program that matches college students when members identified as long we were severely allowing it to several south Florida communities.
I'd like to share a story about Otis aim Humana member.
[noise] well registering Otis for the proper program. The case manager noticed it was Otis his birthday and began singing happy birthday to him over the phone.
This was overcome with emotion, noting it had been years since someone else even wish him a happy birthday.
His reaction impacted his case managers so much that she reached out to pop this corporate team and Humana, who immediately took action and it had a birthday cake delivered to Otis is home.
Sometimes the smaller section can make a big difference in someone's life.
Programs like pop on our important element and addressing the holistic needs of our members.
As we look forward to Twentytwenty, one we're able to provide stable or enhanced benefit for most of our members with plans and continue to reflect our commitment to their holistic health.
Our strong clinical and quality programs to drive improved clinical outcomes and cost savings that allow humana mmm plans to invest and expand member benefits beyond those covered by original Medicare parts, a and b, including supplemental Bennett benefits like dental.
Vision.
Hearing coverage prescription drug benefits and gym membership as well as programs that address social determinative health needs like the Papa Terra platform.
For Twentytwenty, one Oh Humana M. A P. D members will enjoy a number of benefits including.
The zero Tele health co pays for primary care physician visit visit urgent care and outpatient behavioral health.
Zero co pays for Covidien, 19 testing and treatment and 14 days at home delivered meals for members with Covidien diagnosis.
And a health essential care, where the useful item for preventing the spread of COVID-19, and other viruses like the flu.
Other 20 2021 plans include highlights include nearly 60% of our members will be in plans that offer care coordination services and enhanced benefits not offered under original Medicare for zero premium member paid premium.
Primary care co pays of $20 or less for approximately 93% of our members, including nearly 60% with zero co pay.
And influence savings program included on approximately half of our Humana's M. A P D plans and a third of our PDP plans members will pay no more than $35 for a 30 day supply of select insolence.
In addition, eligible Humana Medicare advantage members, who need help remaining independent at home have access to their own personal care manager through Humana at home.
We're pleased that for that for Twentytwenty, one Humana M- M- and May PD plans are all recommended by U.S.A. J.
A company known for its customer satisfaction and commitment to the financial security of current and former members of the mill U.S. military.
Our ability to offer enhanced benefits relative to original Medicare is due in large part to our chronic condition management programs and our focus on value based care.
The Medicare advantage program Incentivizes, a holistic focus on health and because of this offers an opportunity for private organizations like humana to partner with providers on value based care models customized to meet both the unique dynamics of the local market.
And the risk tolerance of a given provider.
This ability to customize is key to driving deeper and faster adoption of home based care models and together with our industry peers, we are structurally changing the health care system.
Approximately two thirds of humana's individual Medicare advantage members are cared for by providers and value based arrangements.
With just under one third and full risk arrangements, where the provider is responsible for the entirety of the members care for a capitated payment.
We are pleased that approximately 86% of our value based care partners are in surplus demonstrating the success of driving improved clinical outcomes and these models.
Our annual value based care report for Twentytwenty included several key findings based on 2019 experience.
Humana Medicare advantage members under the current care physicians and value based arrangements would have incurred an additional $4 billion and planned covered medical expenses have they been under Medicare fee for service.
Prevention screen screenings improve medication adherence and effective management of patient treatment plans all contributed to creating these reductions.
Humana Medicare advantage members served by physicians and value based arrangements had 29.2% lower rate of hospital admissions and a 10.3% less emergency room visits when compared with the original Medicare.
Physicians in value based arrangements with Humana with 2016 through 2018 had an average of 4.44. He just our score at the end of 2018 compared to 3.1 for physicians in non value based arrangements.
Our deep value based contracting experience positions us well to participate in other value based care models, including the new direct contracting program.
Initially we intend for both our health plan in primary care assets to participate as a direct contracting entities on a limited basis.
We are working very closely with CMS as there's still a number of points of clarification needed before the programs began and Twentytwenty one.
Why we believe this could be an interesting opportunity to take on original Medicare fee for service members.
We do not expect our participation to have a material impact on our results are operations for Twentytwenty one.
As we will employ a test and learn approach to implementing and evaluating the direct contracting program.
Before turning the call over to Brian I want to touch on our Standalone Medicare part D or PDP offerings for 2021.
As we discussed the last couple of years PDP plans have become a commodity.
Load price leader essentially capturing all of the growth.
As a result, after our meaningful PDP membership losses in 2019, we made significant changes to our portfolio for Twentytwenty, combining two plans to create space to offer a new low premium plan co branded with Walmart.
This low premium plan was the most competitively priced plan in the majority of our regions and grew substantially by adding almost 1 million members.
For Twentytwenty, one the PDP industry remains extremely competitive with multiple carriers offering low premium plans.
We've taken a disciplined approach to pricing balancing membership growth and the overall impact of the enterprise.
As a result, the Walmart value plan will not be the lowest cost leader in Twentytwenty, one but is priced in a similar range to other low premium plans with competitive benefits.
However, one plan sponsor is an outlier with an offering price well below the rest of the market.
All we once again anticipate the overall PDP market will shrink and Twentytwenty, one a seniors increasingly choose Medicare advantage plans with prescription drug coverage.
We expect PDP to continue making meaningful contributions to the overall enterprise with high mail order pharmacy utilization and more PDP members converting to M- PD overtime.
Our premium plan will include the news seen your savings model demonstration.
Where members can get certain installations on a maximum monthly cost of $35.
In addition, all three PDP plans have expanded preferred network pharmacies to improve member access convenience and options to reduce their out of pocket costs. Despite.
Despite our enhance offerings, the very competitive price marketplace will be a headwind for the PDP membership again in 2021 as Brian will discuss in his remarks.
Turning to the importance of the day I would be remiss, if I didnt encouraged everyone. If they have not already done so to get out and exercise their civic duty to vote on this election day.
Regardless of the outcome of the election Humana is committed to public private partnerships that our solution oriented and drive results that will meaningfully benefit the health care system in the coming years.
With that ill turn the call over to Brian.
Thank you Bruce and good morning, everyone.
I would first like to begin by also thanking our associates several years ago. We made the Medicare stars program enterprise wide priority everyone across the organization rose to the challenge as result of these efforts for the third year ROE, we let our peers with 92% of our Medicare advantage members in four star or higher.
Plans this great accomplishment gives us the ability to invest and enhanced benefits for our members and offer compelling Medicare advantage products to drive continued membership growth.
Turning to our financial results today, we reported third quarter adjusted EPS of $3. An eight cents. These results were impacted by increasing utilization compared to last quarter, Cobot, 19 testing and treatment costs and the financial impact of the company's ongoing crisis relief efforts.
As I will discuss in a moment, we continue to expect our results for the second half of 2020, including an anticipated loss in the fourth quarter to entirely offset the significant outperformance experienced in the first half of the year that resulted from historically low medical utilization levels.
We continued to see non cobrand medical utilization trending slightly below normal all in.
Well above the trough levels experienced at the end of March in early April.
In September and October medical utilization was running at approximately 95% a pre cobot expectations with inpatient running a bit higher and outpatient physician running a bit lower.
The number of Koby cases again, increasing throughout the country. We continue to expect non coated Medicare medical utilization to remain modestly below pre cobot expectations through the end of 2020.
From a business line perspective, we have seen noncovered utilization recover a bit more quickly in our group and specialty segment as compared to a slower rebound for our senior and Medicaid members.
Regarding coping utilization, we've seen an increase relative to our previous expectations with per member treatment cost also higher than anticipated for both our Medicare and commercial products. As a result, we now expect kobin testing and treatment cost to approach $1 billion in 2020.
From a pharmacy standpoint script volume has largely leveled out and we continue to expect pharmacy pharmacy utilization to net out close to normal levels for the full year with early results seen in the first and second quarters, representing more of a pull forward within the year rather than a run rate change. However, we are.
More new starts and as I said last quarter. The increased number of members utilizing humana's mail order pharmacy is expected to persist persist as those members continue to use the service, which benefits not only health care services to higher EBITDA, but also the health plan as mail order generally results in better Medicaid.
Unit hearings.
As we've indicated since the beginning of a pandemic, we fully expect that any impact we experienced from lower medical utilization will be entirely offset by the support we provide for our members providers employer groups and the communities that we serve.
Given that the lower than previously expected utilization, we are experiencing is largely offset by higher covert testing and treatment costs. We expect our levels of support of approximately $2 billion to remain largely the same as previously communicated for the full year.
Accordingly in the fourth quarter, we expect to record a loss of approximately $2 or 40 cents on an adjusted EPS basis and are tightening our full year 2020, EPS guidance to a range of 18 50 aging step 75 still within our initial guidance expectations prior to Covance.
As I reminded investors last quarter historically, our fourth quarter EPS contribution is always the lowest and in 2020 as expected the fourth quarter will be impacted by the continued support for our constituents, which is more heavily weighted to the fourth quarter, along with the impact of increasing COVID-19 test.
Being in treatment costs and rebuilding utilization levels.
As a result, we expect our fourth quarter consolidated medical expense ratio to be at least 300 basis points higher than our third quarter 2020 ratio with the retail segment sequential increase modestly lower and the group and specialty segment sequential increase meaningfully higher than the consolidated increase.
This is the sequential increase in the group at specialty segment benefit ratio reflects both a seasonally adjusted higher MCR as well as a disproportionate investment in this segment in the fourth quarter relative to non coated utilization levels.
Moving to operating costs as I described last quarter, we are making significant investments in our Medicare distribution channels, including equipping and training brokers. So that they can interact with consumers telephonically in digitally as well as increasing the marketing dollars, we provide to our distribution partners for the Pete.
As you know these marketing costs are heavily weighted to the back half of the year, primarily the fourth quarter.
These costs along with our previously announced contribution to the Humana Foundation and other cobot related costs to support our associates to enable them to were virtually in response to the pandemic are now estimated to be higher than the estimate we provided last quarter. Consequently, we now expect the full year consolidated operating ratio.
To be approximately 120 basis points higher than our pre cobot expectations the.
The modest increase over last quarter is primarily due to an increase in the investments in our Medicare distribution channel.
Turning to membership we are increasing our full year expected individual Medicare advantage membership growth to approximately 375000 members from the previous range of 330 to 360000 members representing expected year over year growth of approximately 10% in.
In part, reflecting continued compelling DCIP sales as.
As of September Thirtyth, our Dishnet membership had grown to approximately 391000 members a net increase of approximately 103000 lives were 36% from December 30, Onest 2019.
Additionally, and May new sales and terms more broadly have returned to more normal levels as the rest progressed after being reduced by the pandemic.
Furthermore, today, we are modestly improving our Medicare Standalone PDP membership outlook for full year 2020, primarily due to the extension of the Grace period for nonpayment of premium.
We now expect to lose approximately 500000 members as opposed to our previous estimate of 550000 members. Accordingly previously expected membership losses in 2020 due to non payment will likely occur in 2021.
With respect to Medicaid September Thirtyth membership of approximately 730000 increased over 261000 members or 56% from December 30, Onest 2019, primarily reflecting the transition of the risk for the Kentucky contract from care source as of January Onest as well.
As additional enrollment, particularly in Florida, resulting from the current economic downturn driven by the COVID-19 pandemic.
In our group and specialty segment, where we're tracking the challenging economic environment, especially for small business. Although many medical membership declines on a kind of co bid have been less severe to date than we anticipated.
Lastly, in our healthcare services segment, adjusted EBITDA increased 27% year to date, primarily fueled by operational improvements in our can veeva assets and overall lower utilization at our provider businesses as a result of COVID-19 along.
Along with higher pharmacy earnings as a result of Medicare better Medicare advantage membership growth.
Partially offset by the anticipated PDP membership declines.
These improvements were partially offset by administrative costs related to kobin, including expenses associated with additional safety measures taken for our provider and clinical teams will continue to provide services throughout the pandemic along with additional cost to the company's pharmacy operations to ensure the timely delivery of prescriptions during the crime.
Yes.
Regarding kindred at home.
Recall, we mentioned on our first quarter earnings call that new home health admissions have been adversely impacted by Covance.
As the years progressed volumes have stabilized and early signs of a rebound in demand are beginning to materialize.
Further the company has been able to offset these initial challenges with strong clinical and overhead cost controls across the organization.
In our provider business. Our clinic expansion continues and we are on pace to double our partners and primary care footprint through our partnership with Welsh Carson over the next few years.
Despite the challenges of Cobiz in the last 45 days, we have opened five of eight plants clinics in Las Vegas with the remainder to be open later this year and early first quarter.
And further deepened our footprint in Houston opening five additional centers with two more expected to open by the end of 2020.
Including can veeva by the end of the first quarter next year, we will operate approximately 160 clinics under these two brands.
Turning to 2021 as Bruce described in his remarks, we're pleased to be able to offer stable or increasing benefits for most of our individual Medicare advantage members due in large part to the permanent removal of the health insurance industry fee.
Based on what we are seeing early in the ongoing annual election period, we expect to grow our individual membership by 350000 to 400000 members in 2021.
This represents growth of approximately 9% to 10%, which is at or a bit above our view of 2021 individual membership growth for the industry.
However, the number we are providing today could change materially depending on how sales development and were voluntary terminations ultimately come in.
As is typical we have very little membership termination data at this point in the cycle.
With respect to group Medicare advantage as we have previously stated growth can vary widely from year to year based on the pipeline of opportunities, particularly large accounts going out to bid.
We have experienced compelling group and make growth the last couple of years with particularly robust growth in 2020, including winning a large account from a competitor.
As we look ahead to 2021 large group accounts, particularly jumbo accounts continue to be competitive.
While we expect nice membership growth in the small and mid market group segments. We're seeing some membership pressure in the large group I may space for 2021.
Where we have both won and lost contracts.
Accordingly, net net we expect our group membership to decline by approximately 45000 members in 2021.
Regarding PDP as Bruce described in his remarks, the Walmart value plan will not be the low cost leader in 2021, but is priced in a similar range to other low premium plans with competitive benefits.
However, one plan sponsor is an outlier with an offering priced well below the rest of the market.
Based on what we've experienced in the annual election period to date, we expect a net decline in PDP membership of approximately 350000 members in 2021, which.
Which includes membership losses that were originally anticipated in 2020 that have been deferred to 2021 as I previously described.
However, we would caution that we are still early in the peak.
I will now briefly turn to our expected 2021 financial performance.
From an earnings perspective, we believe we have struck the appropriate balance between membership and earnings growth, while continuing to invest in our integrated model to create long term sustainability.
Given our balanced approach and taking into account the permanent removal of the health insurance industry fee, which was not deductible for tax purposes. We expect the midpoint of our initial guidance for 2021, adjusted EPS to be modestly above our long term EPS growth rate of 11% to 15%.
Off of a baseline of $18.50 the midpoint of our initial adjusted EPS Guide for 2020.
Given the pandemic, we're mindful of the uncertainty it has created and acknowledge there are multiple moving pieces that will impact our estimates, including our per member per month revenue, which is determined by our final 2020 risk scores as well as the impact from cobot treatment costs and non cobot utilization levels as we enter 2021.
Accordingly, our adjusted EPS estimate will evolve as visibility increases around the expected duration and severity of the pandemic.
We look forward to providing more specifics on our fourth quarter earnings call in early February.
With that we will open the lines up for your questions in fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.
Yes.
Operator.
Ladies and gentlemen, as a reminder, if he would like to ask a question. Please press star one on your Touchtone tell it found your first question comes from Robert Jones with Goldman Sachs. You May now ask your question.
Great. Thanks. Thanks for the question I guess, Brian maybe just to go back to the initial view on on 2021 very very helpful to have the starting point you mentioned the Hess you could you could you maybe share a little bit more on how you're thinking about.
Reinvesting versus just letting some of the hip drop through and then just any other major moving pieces that you would highlight as far as headwinds and Tailwinds I know, it's a tricky year with with Cove, it but any other major moving swing.
Swing factors that we should be considering as we think about that initial look at 2021.
Sure.
Good morning.
You know with respect to the hip as I said in my remarks, we really tried to take a balanced approach and just to frame it.
The hips work were to be in place for 2021 would be about $2.50. When you actually roll forward from 2020 to 2021, its about $2 just the way the math works and I would say of the $2. As you guys think about your roll forward from 20 to 21, we have given back a portion of that to shareholders and a portion.
To our members that I'd, rather not parse out exactly how much but I would just say of this of the two dollar roll forward from from 20 to 21, we've taken a balanced approach and in that respect and that's why as we said we would be modestly above at the midpoint modestly above.
11% to 15% range.
With respect to other headwinds and Tailwinds I think the material ones really relate to Cove. It we're still working through the impact on our revenue for Medicare risk adjustment as I think investors know our 2021 revenue is dependent on the risk in place we have for 2020 and so its predicated at least in part.
On our members seeing the doctor in entering the medical system to the extent that's below normal that could have an impact on on revenue as we've mentioned multiple times when we're doing a number of things to get to our members and ensure they have the right clinical needs taking care of as well as in that process ensure that we're collecting the appropriate documents.
Patient code. So we're working through that obviously cobot treatment cost is a wildcard.
As our cobot non utilization as we said in our remarks utilization noncovered related on the Medicare side remains remains a bit below normal and we'll see how that how that tracks forward, but I would say those are really the major headwinds and tailwinds that that we're focused on.
Appreciate that thank you.
Right.
Your next question comes from Kevin Fischbeck with Bank.
Because America can you know ask your question.
All right great. Thanks.
Looking at the the growth this year.
We were surprised by that the step growth just wanted to see if you felt like.
That was coming in.
Well I think it's hard to color coded because they might see outsized growth.
No wonder about how you feel about the underwriting of that business and then also what do you expect to see similar type growth going into 2021.
I think we feel pretty good about the beast of growth I mean, I think the the retail team has done a tremendous job really identifying this opportunity.
Developing a product design that really appeals to these members and then our sales team marketing team going out and really find these members and getting them to buy humana.
So we're very excited about the growth, we've achieved and I would say our footprint relative.
You know to so few of our competitors is actually smaller and so we've been seeing really great growth in our markets, particularly when you adjust for the fact that we're in fewer markets and so we're excited to continue to grow that product and expand the footprint, which will do we feel good about how we're positioned for additional growth in 2021, and we're going to continue to go after that product.
I would say from a financial perspective as we've always said. This is these members are writing our strike so because they allow us to manage their clinical conditions and we get paid because of its clinical conditions and higher per member per month revenue number and so it's a very true.
Attractive segment and it's one that we're going to continue to pursue this Kevin on that I think what we're experiencing a lot of the.
The plan itself as an important part of that the basic medical plan, but we're also finding the additional benefits we offer around that really support some of the social determinants on lifestyle issues are where were finding a really really strong demand for and as Brian indicated. This is short of our strike zone in and a lot of.
The work that we've done both on social determinants side, our pharmacy medication adherence and some of the owner over the counter.
Benefits we offer.
All right great. Thanks.
Your next question comes from Charles Free cash.
Calling you May now ask your question.
Yes, hey, thanks for taking question, maybe if I could follow up.
Brian Am I right to think that if you get a member that migrate maybe from one of your Medicaid plans into D. Snip plan, but there's also humana plan.
That number comes into higher margin, because you're already managing that patient across both programs and and so then and if that's correct I mean is there a.
Are you having success in getting members who might have been in one of your Medicaid programs to go go into one of your decent.
The plan.
Yeah, No. It's a fair question Charles Good morning.
Our biggest opportunities obviously, florida on that on that side of it and the team has done a really nice job identifying the decent members, where where we have some of the Medicaid plans in place and trying to convert them to a to a decent plan I would say, yes, I would say it's more on the margin at this point in terms of where the incremental benefit that we get.
Because of the fact that they're already in our Medicaid.
Our Medicaid member, but the opportunity as we continue to expand our Medicaid footprint, which we are committed to doing.
Identifying those these that members are decent opportunities from our Medicaid population and then try to get them to have a more which will coordinate experience through a dish that opportunity is something we're very focused on it. So we do we do consider that an opportunity and I think over time, you'll see us talk talk about that more.
And if I could just follow up real quick then if we think about the margin profile then for these new piece of members after it's becoming kind of de Novo.
Do they come in at a.
Higher cost initially in mid.
Maybe.
Profitable down the road that that's.
That's sort of a run rate, maybe just compare to maybe.
I may.
Thanks.
I would say that they are more profitable when they come in initially than the traditional Medicare members as you know in our managed that book typically members when they initially come in there more breakeven.
Hi, selling costs, they're not they're not in our clinical programs.
The extent, depending where they come from there not documented in the same way and so it takes several years to get them up to our margin I would say the D. Snip is on a steeper path there where they come in a little bit more profitable, but then really take off as they.
Get into our programs and due to the things that we do to drive performance and outcomes. So that's it like I said, it's a very attractive opportunity for us and draws the other thing that we experienced this upside is there their.
Revenue or cost of medical side as much as usually higher than a typical individual.
Remember and so as we think about the profitability, it's as much about them margin as it is about the contribution dollars.
Great. Thank you.
Your next question comes from Justin Lake with Wolfe Research you May ask your question.
Thanks, Good morning.
If I remember correctly you indicated they are probably going to 2020 that your individual Medicare advantage margin target coming.
Coming into the year with about 4%.
And given your reinvesting the hitchcock's right at that exit a business here for 2020 wide by my math your margin target might be closer to 3.5% production either individual Medicare advantage. So first of all just wanted to understand am I in the right ballpark without getting too specific and if so can you talk about the potential path investors should think about.
Getting back to your 45% target going forward. Thanks.
Good morning, Justin So on the margin side look without giving specifics I think broadly the way you're thinking about is right, which is to say where the dollar show up whether it's sort of pre tax or after tax because of the impact of the hip.
It could change the geography, a bit and so we are below our target we recognize that it's something that we intend to march back towards our target of the four and a half the five it's something that as an organization we're committed to.
Every year, we try to balance growth and margin and really EPS growth I would say as you've heard me say multiple times a margin is an input not an output, though it's an important input, but ultimately we want to achieve at 11% to 15% bottom line EPS growth, while also having a very attractive topline by growing membership and so we're going to continue to see.
Right that balance margin is a really important input not imagine over time, you will continue to bounce back to our targets, which we have in the past I mean, we've had a couple of years, where we've been above our target. So we just had a lot of.
Variability over the last several years with tax reform in the hip coming in and out is create a lot of distortions on that on that margin line as you know.
Right.
Your next question comes from Scott Fidel, but.
Stiffen seeming to ask a question.
Hi, Thanks, good morning.
[noise] interested if you can give us any early sense on how the mix of your individual NHL spy distribution channel will evolve in 2021 burst Twentytwenty went when thinking about traditional sort of physical agent sales first digital first telephonic, obviously, colgate, having a lot of impact.
But I know that you've also been implementing a variety of strategies to wide digital and telephonic side, so interested in and how that mix will look to shift for 2021.
Yes.
For a number of reasons all the way from Covidien, the impact of being able to get into to individuals homes and do community programs combined with just the growing use where we're seeing the telephonics continued to be a channel that is growing and I mean, an active part of that.
Both inside our organization dedicated telephonic program that we have with our agents come out with the external partners that we've created over the last number of years and we find that to be actually a great response to the Covance side, where you know if we didn't have those channels I think.
It would be in a much.
More difficult.
Circumstance. So to answer your question, we are seeing continued growth there and is that.
Expense of face to face and the internal.
Career channel.
But I think it's both timely and much more convenient for ours, we ourselves also saying, although a small part of our our channel and increasing use in the digital side and I think this year in preparation for Covance. The company invested significantly on making it easier from a from a member not only in the experience to sign up.
In addition to being able to analyze and understand what plans they want and it's really the opportunity for us to use but the digit on the phone as a complementary mechanisms to combat any kind of face to face that we can do today.
Okay got it thanks.
Your next question comes from Steven Tunnel.
SVP of Leerink, you May know ask your question.
Good morning, guys. Thanks for the question I just wanted to ask how you guys are thinking about the puts and takes in fact in the Fourq you outlook. So specifically wondering if you strike and sort of parse out the impact of the support we're providing for members sort of the director discretionary elements of the plan and on the LCR side, I guess more on a full year basis to 120.
The basis point increase versus starting point for the guide I think Thats worth about 900 million wondering if you could give us a sense for how much of that reflects that reinvestment in the business and how much of that maybe as.
The increase in marketing dollars for distribution partners are you guys called out.
Yeah without getting too specific into grand or overall, we're committed to the call $2 billion of support that that we've provided to you to our various constituents.
Put it in some of those numbers is some of the investment we are providing to our distribution partners, which is important there and.
And so I would say, we've been largely weighted towards our customers and towards our providers and.
But also focused on investing in our business to make sure that we're set up for a strong strong future and that would include given the challenges of the environment of the migration from face to face sales to telephonics sales, we wanted to ensure that our.
Our partners are fully equipped to face that and so we have invested in that channel.
We have seen an increase in koby treatment costs as I mentioned in my remarks, but we've also.
Really seen that and also the non cobot utilization persist below par typically for Medicare.
Longer than than than expectations, and so I would say broadly that's just that's really an offset to one another some of the trough spending is really more of a migration between MDR and operating cost ratios, there's not a lot of switch in the overall traunch betting is sort of the allocations that we that we've done and what we've seen as some of our programs up.
Developed so hopefully that gives you some color the puts and takes.
Yes, that's helpful. And then if I could just sneak one more in on the reinvestment and that's obviously, a big number $7 pretax dollars non tax deductibility going away sounds like Youve reinvested north of seven so I'm wondering is the part D. Senior savings model a part of that just that the funding for $35 cap on insulin we did notice premiums went up there but.
I wonder how that gets funded.
Thank you Brian.
Sure all the dollars go goes into the mix. So so implicitly yes, I mean as you know any time any any product that has hit payment on it there is a benefit for the if going away. So so implicitly yes, it's because just goes into the pot of our of our various expenditures and so we.
You have to give up.
Figure out a way to pay for the insulin benefit, which we thought was the right thing to do and so we rolled that out a number of our Medicare advantage programs as well as our enhanced second enhanced plan on the PDP side and so that's that's part of the mix.
Thank you.
Your next question comes from Matthew Borsch with BMO capital markets you May ask your question.
Hi, just try to pick up on that last question with skis.
So are you, saying that the magnitude of the change in out of pocket cost stack.
We may have calculated when the products were first duck tailed ahead of open enrollment here.
You know is about right. It had some communication I know gave me on that trying to figure out what's driving that.
All right, let me be.
Looks quite a bit more than we've seen in quite a bit more than hips would suggest and we always been yeah.
It's still a little bit puzzled there.
Yeah, No. It's a fair question so the way that.
On the on the web site that some of these benefits were portrayed I think it was a little confusing for folks I would just say that we have been we try to be very thoughtful in this crisis and recognize that our our members are going through a lot and the hip certainly help finance a a really nice increase in benefits for a number of folks.
And as Bruce said in his remarks, almost all of our members are either stable or up and so as is always the case there are some markets, where we invest mark invest more some markets, where we invest less but I would say that it was important.
Part of the financing of those benefits but.
Not not as extreme as what might have been.
Trade on on the on the web site, there, so but still I think a compelling benefit package alright, Thank you and Matt I'd, just reacting to emphasize as we as we look at.
Our calculations of total actuarial value. We are I think our changes are fairly similar to our competitors. Okay. On I think theres every year. There's some that are more aggressive and others that are less aggressive I would say that we're sort of in the mid mid tier there.
And not not.
No not not out there.
Yeah, no actually we didn't see any we didnt see was an outlier so but thats very helpful. Thank you.
Okay. Thanks, Yeah, I would just add that I believe plan finder is intended to be for members to use to compare plans and so they may change some years in the way they value benefit than do calculation and that's not really intended to be year over year and I think that's what some of the complexity comes down.
Thank you Sir.
Your next question comes from Josh Raskin with Nephron Research you May ask your question.
Hi, Thanks, good morning.
Can you speak more specifically to the benefits broadly of having these capitated physician groups and sort of what works best for Humana, and how you're trying to grow that in the context of your path to risk strategy.
Sure.
I'll start and you know Brian can add to it I think first just in general we find really really great outcomes with relationships with value based.
Relationships and I would I would sort of say, but we also see each local market different and one of the reasons. We see thing programs that come out of Medicare that are sort of standard that don't get the adoption as they're not being customized to the risk tolerance and to the to the needs of the provider and the local.
Market. So first I would say that our program is really oriented to the risk tolerance and the local dynamics there.
And so that gives us this path to risk concept, where you see this.
We'll have some upside participation with little downside all the way to some downside some upside to full full risk there and.
Provider can take you know.
The journey, along with US we do find that it's unlike the ninetys and.
At a time, where risk became sort of popular they just sort of in the contract and your walk away as much different now where there's a lot of support provided in our supporters technology wise. It's also providing from a human resource perspective, and then in addition, the ability to help manage including putting social workers I guess this quarter.
Nader's and they're in their offices.
Our hope that we continue to move more and more of our members to two risk providers you've seen it stayed in the mid sixtys, but has not because more members are going in there because every year, we grow and we got to read to get more in there. So as were stable. We're basically putting all the members that we're growing into the program which is.
Considerable.
Success or what you do see in this year that we're quite proud of is that people that are appropriate providers that are in that program are actually now it's profitable for 87% are in surplus so that means that they're making more money than they would in the fee for service side and and that's a that's a great opportunity for them and so.
We see the program continuing to demonstrate value we continue to see the program.
Being able to Devon noted from a from a member point of view demonstrate value from the provider point of view and.
And especially through the support we do continue to also want to grow the value based from US building our clinics in our home health side. So you see with.
The primary care their partners and primary care product and that can be even product along with some of our home solutions moving more and more to value based payment models that are really oriented to the ability to do it whether we do it internally with their providers or externally through our partnerships there.
And just to follow up on that the financial implications for Humana is it fair to say that you're seeing now what a differentiated financial result for that for the health plan side of things as well, yes, I would yes, very much so and I would I would say that that when we think about the value based.
Side.
No it's not only the value from a financial point of view, but its the stars outcomes that you see happening. It's the retention that you see with a member there that has the longer term lifetime value. So yes. The plan is seeing significant benefit from this.
We feel it's the best health care to be provided in the system today.
Thanks.
Your next question comes from Ralph Jacoby with.
You May ask your question.
Thanks. Good morning, just a quick clarification on the initial 21 21 commentary I think you said modestly above the high end of the 11 to 15 up modestly above the midpoint of the range just want to clarify that and then.
In the press release, you noted the the commercial segment utilization kind of return faster any reasons why wouldn't just be a lag.
Then what about acuity certainly sooner providers cited and then given your population base. How concerning is that acuity factor going into next year, and how can you sort of factor that in or or manager. Thanks.
All right Ralph mourning I will I will try to take these in order here.
As it relates to the guidance that we expect the midpoint of our guidance to be modestly above the 15%. So modestly above the 11, 50% so about modestly above the high end.
On the sort of commercial versus Medicare I think thats right. I think we would expect that seniors will be slower to return to the medical system than than the commercial membership for obvious reasons and so that that doesn't surprise us that we see a little bit about disparity there and we expect that to continue obviously wants a vaccine happens we'll see.
We'll see where that where that goes.
Our expectation at that point is that you'll see news will be more comfortable reentering the medical system and I would just say that we are very much encouraging our seniors to get to get the care that they need which is why we're doing all the reach out programs that we've that we've talked about with respect to acuity, we are seeing higher per member cost, particularly on.
On the Covance side, obviously, there's a 20% premium that gets paid on the Medicare side. So anytime there is a co bid.
A flag in a covert code theres, a 20% premium on the entire DRG and so that does result in higher acuity and so we're we're very mindful of that and that's something that we've obviously baked into our expectations, but we haven't seen which is something that we've been clearly very focused on is.
The health of our members deteriorating that's something that our team is monitored very closely we haven't seen a meaningful impact. There is yet obviously were hopeful that we can get back to normal to to make sure that our members to get the care that they need but that's why we've been so proactive in that outreach.
Okay. That's helpful. Thank you.
Your next question comes from aging advice with credit Suisse. You May ask your question.
Hi, everybody.
I appreciate the comments about the competitive landscape around the PDP and also your comments about the landscape files I guess I'm just thinking about as you're now the plans are all out there that you can assess them and it's hard sometimes to assess competitively.
What do you make land from another because there's a lot of subtlety to it.
You've got a lot of incremental variables for next year that I don't know whether you think these are huge are there more modest the potential of the vaccine the therapeutics the ongoing testing.
Further to barrels the potential for pent up demand can you give us a little flavor for how you approach those issues.
It said a year plan structures for next year and are you seeing any.
When you look at the competitive environment any outliers that you would highlight.
As you did on the PDP side that would make the market more disruptive and then maybe another twist on that is your hip comments about the tax benefit some of that being reinvested quote unquote is some of that just holding that in your back pocket because you've got more variability about how these things might shake out.
So that if you if that ends up it need not been this year and some of these factors.
You still delivering what you set out to deliver.
Good morning, A.J. as we always try to do we try to be prudent and thoughtful and balanced about how we set our financial targets I would say with respect to the benefits as Bruce said, we feel good about how we're positioned.
So do our competitors people clearly invested largely some some pullback.
But but but most people did invest which was our expectation so from that perspective, I think as reflected in our in our membership guidance. We feel good about how we're positioned there the financial side is clearly more tricky and there's no doubt about it. There are there always are a lot of variables as we try to predict various claims trends in revenue trends, but with Cowen.
On top of that that adds additional complexity I would just say again, we try to incorporate all the potential variables that exist on account of coated and on coated and try to blend that into our both our initial pricing.
In the bids back in June and then now as we roll forward as we gave a high level financial guidance today.
It reflects what we know.
We did point out and I would want to reemphasize. The fact that there's still a lot of uncertainty and variability as we go into next year and clearly we would update update you with any thoughts we have them on the fourth quarter call with respect to 2021 financial guidance.
Okay. Thanks.
Your next question comes from Ricky Goldwasser with Morgan Stanley can you ask your question.
Yes, hi, good morning, So first of all just following up on clearly Theres a lot of variability into next year, but just to clarify it.
Fewer early guidance as you think about utilization are you assuming that utilization is going to be.
To baseline or Bob.
And my second question is around PDP, you mentioned, a couple of times on the call.
Truly shift of PDP lives to the image products. So as you think about it longer term.
Fair point, where you think the few weeks.
For balance or do you expect ultimately that entire benefit to be great. Thank you.
On the utilization side.
I'd, rather not give specifics clearly there are countervailing forces so to speak so.
As.
A vaccine comes into play and our expectation around the vaccine for Medicare to will be will be covered abide by CMS. So that's not an expense that we're we're worried about but clearly to the extent of the vaccine gets implemented that would impact noncovered utilization, meaning that people will be more comfortable its re entering the system but.
Freeman cost would go down and so there are there is a natural push and pull there that we're focused on and without giving any specifics I would just tell you that weve and we always do run various scenarios and sort of.
Various things can happen with respect to the vaccine and otherwise how people re answer the medical system and I would just say we've incorporated those various scenarios into our into our financial plan and again I would just reemphasize. There's also the question around Medicare advantage revenue coming into into 2021, where do we end the year in 2020.
With respect to the documentation that that's so important.
On the on the on the PDP side to M&A I think as Bruce said in his remarks I do think.
We do think that there is a shift moving to M&A. We believe it provides a more comprehensive product.
Not only on the benefit side. So you get your generally most plans our army PD <unk> PD as part of him as part of M&A. Obviously, you get your drug benefit many many times for free because it's your premium but you also get a host of other benefits that Bruce walk through in his remarks, but importantly.
We also as organization provides significant care coordination and other support in the members journey beyond just the financial benefit that M- provides relative to PDP, if you're a standalone PDP member even if you have the med supp product to cover some of the financial Coke cost sharing you're still not.
You're not getting calls were not get Nielsen's your home you're not getting the clinical support that Humana provides due to our members and we think Thats also a differentiating element of the product and consequently, we think more more more people are going to migrate to Medicare advantage as we've seen.
With a Medicare advantage penetration just continuing to increase and the growth is greater than the demographic growth.
I mean, it's just a natural.
Aspect that you have a declining declining part D business.
As as Brian articulated the value proposition and M&A as a result of companies like Humana has really increased saying, whether whether you look at the value proposition in the dairy premium plans on where we are today to care coordination to the social determinants of health and is a great example of how we're taking.
And the inefficiencies of the health care system, and reinvesting them into programs that are continuing to and prove the outcome the health outcomes of.
Of the individual and also the system.
Thank you.
Your next question comes from Steven Valiquette.
With Barclays seem to go ask your question.
Great. Thanks, Good morning, Bruce and Brian Thanks for taking the question.
So the initial outlook for individual membership gains for 21, obviously, it looks pretty positive.
Just regarding that from the data we've analyzed it looks like the company has made a fairly balanced push forward on the number of plans with zero premium offerings on both the H a moment PEO side.
But it seems that some of your competitors that made it even bigger push on the PEO side for next year. Just curious if you can just give us a little more color on how you're thinking about the competitive landscape in individual I may be considering H.M. overseas PPR offerings, and then now you're expected membership gains skewed more heavily around that one way or the other for 2021.
[music].
I'll start and then just as right Brian.
Brian can add.
We have been out of all the plans I think our growth has been the most balanced between H. ammo and P.P.O., you've seen the organization, where there's geographic concentration to product concentration and continue to to be able to have that balance and we don't see next year being any.
We continue to really find the opportunity to have our our members attributed to a physician and be able to be in the h. ammo that allows them to get that dedicated care that we've highlighted in the value based side and at the same time, we have the care coordination capabilities that allow people to be in a broader platform.
Arm, where like Humana at home and our chronic care and all the technology that we are able to help find those interventions that are important and help people navigate through the health care system. So out of all the companies and obviously were biased, but we feel very very prepared and being able to serve the needs of arc, our member or whether they want to be in an agent.
Boeing at a much more effective benefits or they want the freedom and and variety of a care model within a PEO side and so we were able to do the offer that I would say that we are much as Brian has articulated much more balanced in the way we offer that in the marketplace. We know some of our competitors have morale and based on that.
Product much more of them we have we've over the last few years have have added but I would say that we will continue to.
That will be one product, but it is not going to be the primary product that we grow and you will see that it is one of many products and I would I would just continue to say that we look at the opportunity to serve the market base and a much more broader fashion than relying on one product to grow up right now I think it's a perfect answer I agree.
Okay I appreciate the color. Thanks.
Your next question comes from Gary Taylor with JP Morgan.
Your question.
Hi, Good morning My question.
Around capital deployment.
You have not been very active on share repurchases here I can't recall, if it was ever officially suspended or just sort of.
Held in check sort of pending the.
Lets certainties related to.
The pandemic, but cash at the parent its building you haven't repurchased much stock you are in the low thirtys.
Debt to cap, so maybe just a little bit of your outlook on capital deployment. The next two years and does the 21 guy rely upon share repurchase in any disproportionate way. Thanks.
Good morning, Gary we do have ample capital and flexibility, which we believe is important.
I would say that over the next few years, we expect to have a balanced capital deployment strategy. We're always on the hunt for M&A opportunities in the strategic priority areas that weve identified whether it's around the whole primary care pharmacy, we always look for opportunities in the in the in the play health plan space. So to the extent, there's a Medicaid plan and.
A particular state that's of interest we look at it closely there are fewer opportunities for us, but even if there were a Medicare plan in a state where we were able to two to complete a deal. There. We would look at that so I would just say that our capital deployment plans will rebalance on the M&A side and clearly share repurchase is an important part of our capital return strategy, we will continue to do.
That are 21 guidance does assume some capital deployment and were working through how will how we'll do that but but there is some capital deployment in that in that number.
Your next question comes from George Hill with Deutsche Bank.
Good question.
Good morning, and I think most of my questions have been answered I guess I'll just do one follow up on the PDP space.
It sounds like you guys wanted to have a highly competitive product there.
But you saw an unusual competitive environment and I guess given the growth in M&A. How important is PDP to the company going forward and have you guys historically seen as a fertile make conversions or if if people with a kind of a different set up in PDP hubs and have a different motivation.
I guess does it does it make sense to have more of a middling product there as opposed to a highly competitive product.
Yeah, well I think it's a product specific person remarked on initially which is to say it does contribute particularly to our pharmacy business. It's become much less of a contributor over the last few years.
The pharmacy business has had an extraordinary growth in EBITDA as you see in the numbers, it's really our EBITDA is being driven by pharmacy, and then really can diva driving its turnaround.
So pharmacies important part of our of our EBITDA growth element, there and PDP is part of that although Medicare advantage as well as candidly all the efforts that the pharmacy group as undertaken to increase the mail order penetration rate and have that continue to be an important part of.
The interaction with our members you've seen a nice increase year over year, particularly amazed side on the on the on the Mailer side and what you'll you'll continue to see that PDP as part of that.
As it relates to contribution to Medicare advantage growth over the last few years, we've really amped up our strategy to convert those members. We do think that overtime will continue to be an important a funnel strategy for us into M&A over the last few years I've seen nice growth will expect nice.
Cross sale this year as well that's our expectation for 2021 as we saw in 2020 and 2019 I think we'd all say, we have even more opportunity than the than what weve tapped so far and so it's definitely an important growth element of the company and our PDP teams in our Medicare teams and particularly the sales side and working closely together to figure out how we.
Can make that cross sell habit.
Thank you.
Your next question comes from Lance.
With Bernstein you May ask your question.
Great. Thanks, a lot.
Talk a little bit about Medicaid and if you could talk a little on the pipeline and then a little on what's the capital deployment priority of Medicaid, meaning is it really tuck ins are.
Are there particular types of capabilities you would also be looking for there.
Yes, I would say when we think about the next year or two I think is going to be a fairly active.
Our response to RFP is we see a number of states that are states that we want to participate in and we feel that we can add significant value as a result of.
What we said, we're saying that the desires of the state. So I would say first just on an organic basis, I think you're going to see the organization.
Oh pretty active in a number of responses there on the capability side, we feel really good about where we are from a from an ability to serve the member from all the way from a lifestyle point of view too to a need of the health side.
So our our programs have proven to be very successful.
And when you look at satisfaction scores to relationships with providers to clinical outcomes and so we're we feel really really good about about our programs I think the biggest challenge that we have right now is the procurement cycle and the procurement process and so as we think about acquisitions is more around the states we want to enter.
And from a strategic point of view and then what is the preferred procurement process there and as there are a lot of barriers to the procurement process and therefore does it make more sense right from an acquisition point of view, so when I say, all that you're probably going to see more specific state orientation and capital deployment and you're going to see.
More than one off deployment I mean by purchases as opposed to large.
Acquisitions.
Great. Thanks.
Your next question comes from Dave Windley with Jefferies. Please ask your question.
Hi, Thanks for taking my questions I know, we're getting along here I just wanted to ask a couple of clarification. So.
One on the on the 95% utilization is that all inclusive inclusive of co bid and across all books or is that core utilization.
That that is core utilization exclusive of co bid across all books.
Okay, and then Brian when I think you said per member costs are coming in a little higher than expectations and one answer you kind of referenced that some of that is covered driven maybe some not covered driven.
Wondering I mean in light of the the kind of commenting above expectations is it fair to assume that that is above what you would have captured in bids and is it possible I know, there's a lot of moving parts you've already highlighted for next year, but but is that is that a headwind specifically to how you're thinking about 21.
Yes, it's something that we have.
Fully bake in obviously part of that is the 20% premium on Cobi treatment remember, it's it's really where there is a cobot code attached and are now needs to be a positive identification of co bid to get that increased payment on on on that DRG related to two and a.
A covert positive test and so so the answer is yes, I mean, we factor in all those things we got to see what happens to that whether that you are that the premium et cetera, how it continues.
But.
But I would say on the scheme of things that particular issue is relatively modest for 2021, but we are seeing it. Okay. If I can come back to the first one just real quickly for clarification on fourth quarter. If you layer. The covidien does that I'm just wondering the magnitude of that does that get you above 100, as you exit the third quarter and is.
That kind of helped to shed light on why.
The fourth quarter will swing to the negative so dramatically.
Well I would I would say is that on the Medicare side.
I'll just comment on today the Medicare side. If you include co. We were still below the baseline were worst commercial is a bit above the baseline and so you.
We'll see what happens on for the fourth quarter, but largely our expectation is that any increase koby treatment cost will be offset by lower utilization as we sort of roll forward our guidance from third quarter to fourth quarter, which is why it's largely unchanged will largely be offsetting impacts from what we expected three months.
Got it thank you very much.
Your next question comes from Steve Willoughby Rich.
Great Great excellent research you May ask your question.
Hi, Good morning, Thanks for squeezing me in here just one thing for you it sounds.
Like you're you're reinvesting more dollars into marketing.
Payments for AHGP this year.
Just wondering when we roll forward a year.
No that they increased dollars you're spending this year and provide aid to partners is that something that you'll probably need to cheap at that similar level in the future. Because obviously you sound like you're benefiting your spending more money this year because of the hit from a baby utilization running lower than expected this year.
That's a fair question I would say that we cut pretty transparent conversations with our partners about the dollars available this year and particularly as the some of our partners.
Partners in the field to how to convert to a more of a telephonic.
Way of selling I think some of the dollars of help them do that although we have some very important call center partners that we wanted to support this year and we'll be very thoughtful about how we do that next year, but I would just say, we we've been very transparent about some of the the dollars that we're investing in the channel. This year that may or may not persist going forward, but we.
We have been very committed to our partner channels will continue to do that and and every year is a different circumstance and we sort of judge where wherewithal financially that we have as we as we go into AGP, the competitive landscape, where things where things stand what we expect some of our competitors to be doing on the distribution channel and so we try to.
Calibrate our investment.
Given those various variables as it relates to reemphasize that I would say that this year is no different than previous years, and and how we approach it and we approach it from a sort of what do we think about needed but what is also the proper investment considering our financial goals and you see that combination happen at all.
Every year and this year I would say there is no difference I would not like it this year as a as a as a statement for next year.
Thank you.
Your next question comes from Steve Halper with Canaccord. He would ask your question.
Hi, Good morning, just a housekeeping question for the fourth quarter last year EPS loss of 240, what's the tax rate assumption in that.
And that estimate and that guidance.
Yeah, I would say we are sort of.
Well I don't know if we have we Amy I'm not sure what we disclose but it's you know it's sort of given the hit that sort of in the you know call. It low thirtys range, probably yes, we haven't disclosed that tax rate guide, but.
But.
Presumably you'll be yield for the quarter right, you're going to report a tax benefit because of a pre tax loss correct.
Sure, but it's all as on an annual basis, it's all going to it's all going to net out you get effectively a 30% benefit for the loss.
Got it.
Understood that it's a net.
Thats out for the full year as you know, but I'm just was just worried about the not worried but just focused on the on the quarter and what what's implied there in that in the 240, but I got it. Thank you okay.
Your next question comes from Frank Morgan with RBC Capital markets you May ask your question.
Yes, most of my have been answered, but real quickly what are your expectations around plant switching during this.
Yes.
How much of that we see an OE piece for the first quarter of next year and then you mentioned digital investments I'm. Just curious are you actually having.
Have expectations really any online enrollment in may this year. Thanks.
I'm on the plant switching side, we'll have to see yet as we mentioned.
Sure sort of during the height of the Cobi crisis, we saw a decline in switchers in terms going down those have largely normalized I think overall, we expect more of a normal switching season I would just say, though that given the significant growth. We've had in 19 and 20 on top of the fact that a lot of our new.
Sales have come from a telephonic channel both of those sources are you sort of new members as well as the telephonic channel tend to have higher term rates or more switching so we would have baked that into.
Baked that into our growth.
But so what we'll see we'll see where that comes out that the amount of termination data. We have at this point is very very small and so that's one of the biggest variables. We have at this time of year. I mean, we're we still got plenty of time left in ATP and so it's it's always hard to forecast that but but probably that's that's how we're thinking about it.
We have invested in the digital channel.
We think it's going to be more and more going forward, what we find is that.
Members sort of start online they can provide other information they can shop and ultimately the sale is consummated through a lot of conversation with a broker we expect that to continue but we've actually invested in digital channels our own proprietary digital.
Capability that allows members to really understand their benefits if they can put their various conditions the drugs, they use and understand which plan is right for them and so that's an important investment of ours to make the digital experience more more more conducive to some members really understanding their options, but again, it's the digital channels.
Still the.
Single digit percentage in terms of overall.
Sales frankly.
I think what we are saying is as we invest in the digital channel for the for the member.
We do use that same technology for the brokers themselves. So it's a it's a two first so to speak that these these tools of being able to find the best plan for our members based on their historical met.
Medical history has not only used by the member but it also is used by the broker to help help with that so I'd say, that's a way that we are able to really leverage the investments we make.
Thank you.
Your next question comes from Sarah James with Piper Sanfer human to ask your question.
Hi, Thank you.
Got to the moving pieces.
Anyone Medicare margins, how much of a headwind does that kind of going on yes, 30, and I guess that question is that scale and margin profile implications for that yes, R&D duck and can you update us on the big pieces under your control for preparing to manage margins on that book like hitting unit price goes in the network build out.
The other big pieces needed to manage and merchant targets. Thanks.
Morningstar.
I would say from a margin percentage perspective, it would be it would be a headwind I think broadly we feel good about how we've mitigated the overall.
Contribution margin on.
On those members through all the efforts that that we've gone through we've announced important partnerships with presenting US is that's been.
Very public and so we're excited about that we've also.
A number of partnerships with other players to help us manage CKD to slow the disease progression and make sure people are really crashing as SRT and ending up in the yard were a lot of the cost.
Happen, we're excited about the experimentation and innovation that CMS has introduced into the us or D program that allows us to ultimately build out a more non traditional networks use or use of dialysis machines at home and having idolizing at home again, it really allows players to enough.
Okay, clinically, which is something that we love to do and over time, we think it will be a really effective and so we are being I think thoughtful about how we approach the market with the our certainty in 2021, and obviously taking care very well the members we get but also thinking longer term about how we create.
Partnerships and relationships with our with our providers not only on the financial side. So that we're sharing risk and sharing a sort of benefits me that our clinical programs, we put into place, but also really encouraging innovation and we think these these regulations are going to encourage that and so we're we're excited about that.
Thank you.
Your next question comes from Whit Mayo that Guy.
Ask your question.
Hey, Thanks, I hope I'm the last one.
Wasn't clear what you guys were thinking around cost sharing for it for members next year wasn't I think called out specifically and I'm. Just wondering how long do you guys can continue to wave co pays and be responsive to your members and what are the signposts that you're looking to perhaps revise your posture.
Around this.
Yes, that's a good question, that's something that we're going to have to see how the fourth quarter evolves and how the pandemic evolves mean.
And what we do around cautionary mean currently our cost sharing.
Savings or a lack of cost sharing of our members ends at the end of 2020. That's that's that's currently our perspective and so we're just have to see how how things evolve as we as we move into 2021, but that but that's something that's obviously top of mind as the pandemic continues here.
Thanks.
Yes.
Right. There are no further questions at this time I'll hand, the call back over to Bruce Broussard.
Any closing remarks, yes, well thanks for for everyone's staying on the extended time that we've had this is probably a record for us so.
We appreciate the interest in the company as a result of that.
And obviously, we always are appreciative of our shareholder support but as importantly, our our associates support for really allowing us to be able to deliver these results on a daily basis, both for our members, but as importantly for our shareholders. So thank you and everyone have a great election day.
Thank you embark concludes humana's third quarter 2020 earnings Conference call you may now disconnect.
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