Q4 2021 Anthem Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to anthems fourth 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.

Wish to ask a question. Please press Star then one on your telephone keypad, you'll hear a prompt that you have in queue. 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 fourth quarter 2021 earnings call. This is Steve de Maio, Vice President of Investor Relations and with US. This morning on the earnings call are Gail Boudreaux, President and CEO , John Gallina, our CFO , Peter <unk> President of our diversified business group and Genie Rx Felicia Norwood.

President of our government business Division and Morgan Kendrick President of our commercial business Gail.

Gail will begin the call with a brief discussion of the quarter recent progress against our strategic initiatives and close on <unk> commitment to its mission.

John will then discuss our financial results and outlook in greater detail. After our prepared remarks, the team will be available for Q&A during.

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 website anthem make dot com. We will also be making some forward looking statements on this call listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond.

The control 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.

Thanks, Steve and good morning, everyone.

Today, we're pleased to share anthem once again delivered solid operating results in the fourth quarter.

Capping off another year of outstanding growth as we transform with focus and discipline from a health benefits company to a lifetime trusted partner in health.

I'll start by sharing performance highlights for the quarter in the year and follow with some key actions and investments that drove our growth and laid the groundwork for what we expect will be another year of strong operating performance in 2022.

In the fourth quarter anthem delivered GAAP earnings per share of $4 63.

And adjusted earnings per share of $5 14.

Ahead of expectations and against the backdrop of COVID-19.

For the full year.

<unk> reported GAAP earnings per share of $24 73.

And adjusted earnings per share of $25 98.

Reflecting a 16% increase year over year.

During 2021, our investments in enhancing the customer experience <unk>.

Delivering innovative customized whole health solutions and deepening digital engagement.

Helped to deliver strong growth across our health benefits businesses.

All while rapidly scaling our diversified health services solutions.

We ended the year with $45 4 million members up $2 4 million or 6% year over year.

With approximately three quarters of those gains coming from organic growth.

In our commercial business improved selling strategies and innovative customized product offerings sustained our momentum and lead to the best ever selling season for our national accounts team in.

In addition traction is accelerating as we address clients' unique needs and targeted sub segments, such as balanced funding for mid sized employers and customized plans and digital tools for college students.

The flexible architecture of our Sydney Health mobile App enables seamless integration into clients' ecosystems, while helping deepen digital engagement with members in this fast growing market.

As a result, we anticipate delivering another year of growth in our group and individual businesses in 2022.

For many employers are focus on affordability and integrated whole health solutions is prompting consolidation with anthem.

Eliminating other medical carriers and integrating pharmacy management.

Consequently in <unk> saw significant growth in net new sales to start 2020 to keep.

Keeping us on track with our goal of narrowing the profitability gap are risk based and fee based commercial customers.

Moving to Medicare advantage are continuing work to strengthen anthems value proposition helped drive another strong annual election period.

Customers want their benefits to meet their needs today and in the future and packages like our everyday extras that offer holistic services such as transportation.

Personal home health and healthy pre prepared meal delivery are resonating because they provide the flexibility to choose what matters most to each individual.

Offering flexible and personalized benefits will remain a key part of our approach in individual Ma.

And we expect ongoing enhancements to power another year of double digit growth in 2022.

We also expect a substantial membership increase in group Medicare advantage when our contract serving the retirees of the city of New York begins on April one.

This timing is consistent with the recent court ruling that upheld our contract and extended the open enrollment period for an additional three months.

In Medicaid our team did an outstanding job in 2021, demonstrating the differentiated value we offer states built on our deep understanding of the needs of their communities, our rich legacy of investing in community health uniquely positions us to address helped to spare.

Cities with solutions that extend beyond clinical care to improve health outcomes.

Our 100% RFP win rate included renewals of our statewide contracts in Tennessee, and Indiana, and a new statewide contract in Ohio, which will help further deepen our roots in that state.

Given our leading market share positions in commercial and Medicare advantage.

Then as we begin serving Ohio ends in July our pending acquisition of Paramount advantages, Ohio, Medicaid contract will amplify our Medicaid footprint.

This investment follows our pending acquisition of Integra, New York managed long term care plan that will strengthen our presence and capabilities in the greater New York City area.

These examples demonstrate our commitment to strategic and programmatic M&A.

And we've become more agile and proactive as we target health plans that deepen our existing benefits business and acquisitions, which diversify and expand our addressable markets.

A good example is our main Nexus acquisition, which enables members to live healthier lives in their homes. My Nexus has performed well to date driven partly by its expanding scope within anthem.

In addition, we expect the ongoing aging of the population and consumer preference for at home care to propel growth for years to come.

Over the last year, we significantly advanced our care provider strategy with investments and risk bearing primary care providers and aggregators.

Enhancing value based arrangements across our network.

Arrangements accounted for more than 60% of our medical expense last year.

We expect this strategy to accelerate membership growth increased star ratings, and improve health outcomes and cost of care.

Investing in providers and Aggregators securities joint governance to maintain alignment of shared interest with our partners, giving anthem value from sharing risk and elevating the customer and provider experience.

Importantly, this strategy ensures anthem is not overly reliant on one care model as value based care matures.

Our diversified business group will increasingly benefit from these arrangements by opportunities to service anthems providers with enablement programs and other diversified services.

Many of which target the needs of complex and chronic patient populations, where we see significant opportunities to improve outcomes access and total cost of care.

We expect to remain flexible and thoughtful in our provider strategy.

Partnering in most markets and investing in care delivery and others, where it makes sense.

We also made meaningful headway in our digital transformation during the quarter with accelerating investments to deepen digital engagement and meet the increasing need for convenience and personalized care.

During our peak on boarding period early this month digital registrations rose 150%.

And visits to Sydney Health grew 142%.

Capabilities and investments in artificial intelligence, which power our personalization engine are helping optimize the customer experience and reduce low value administrative tasks for example.

Our virtual primary care platform.

<unk> real world learnings on commercial members usage patterns and preferences to anticipate customer needs and offer customized experiences.

Automating the onboarding process delivers better experiences by saving time, and improving the accuracy of critical data and the quality of virtual visits.

To illustrate.

More than a thousand emergency room visits were avoided last month by predicting and addressing adverse health events through our virtual care options.

Results like this are encouraging and we're excited to accelerate the pace.

Anthem enters 2022 with strong growth momentum across all of our businesses.

This gives us confidence in our ability to deliver growth in adjusted earnings per share consistent with our long term target range of 12% to 15%.

As John will discuss more in a moment.

Looking ahead, you can expect us to continue investing in profitable growth.

Innovating for consumers and advancing our digital platform for health as we work to achieve our purpose of improving the health of humanity.

As part of our community health and sustainability commitments I'm pleased to share with.

We recently met our 100% renewable electricity goal four years ahead of schedule and are now producing enough clean energy.

Via Offsite purchase agreements to power all of the anthems offices data centers and clinics.

It's gratifying to see our efforts around anthem a place on the 2021, Dow Jones sustainability index for the fourth consecutive year and on just capital 2022 rankings of America's most just companies.

We're also in the early stages of leveraging insights derived from a dynamic model tracking the health of our communities across local social and clinical drivers.

We call it our whole health index.

We believe it will help us more closely assess our progress towards helping people live healthier lives.

In its simplest form the index will help us identify the most promising opportunities to improve the health of our members and their communities.

To date, we've leveraged the index to design and launch programs to manage obesity in five of our Medicaid States.

This health issue is especially severe.

We're currently learning from field test and are excited about the possibilities ahead.

Notably and diabetes prevention and customized wellness campaigns for employers based on the needs of their employees.

As part of our ongoing work to support our customers' health.

We also began offering risk based commercial members free at home Covid tests through our Sydney App starting last November .

Delivered within one to two business days, the kids club members to test safely without leaving the comfort of their homes.

This program has positioned us well to comply with the administration's recent requirement to provide home testing at no cost.

In closing I will leave you with these three takeaways.

Anthem fiscal year 2021 performance demonstrates our strategy to become a lifetime trusted partner in health.

Is helping unlock anthems full potential.

With our plans and continued investments for fiscal year 2022.

We are excited about our ability to sustain this momentum and deliver growth in the years ahead.

And our strategic approach to innovation and digital transformation enables us to move even faster and with greater agility as we accelerate our digital platform for health and offer new ways to attract engage and retain more customers, while streamlining our business and.

<unk> the consumer experience.

Now I'd like to welcome John to add his view on the quarter and our outlook for 2022 John .

Thank you Gail and good morning to everyone on the line as Gail stated we are pleased to have delivered solid fourth quarter financial results closing out another year of strong growth driven by the continued execution of our long term strategy all while navigating the ongoing uncertainties.

Associated with the pandemic.

Fourth quarter earnings per share of $5.14 was ahead of our expectations and drove full year adjusted earnings per share to $25 98.

Reflecting growth of approximately 16% year over year above our long term, 12% to 15% annual earnings per share growth target.

Total operating revenue for the fourth quarter was $36 billion, an increase of more than 14% over the prior year quarter, reflecting solid growth in our benefits business, coupled with continued momentum in our services businesses.

We closed the year with 45 4 million members growth of nearly 6% or $2 4 million members in the year, including 303000 lives added just during the fourth quarter with growth in both our government and commercial businesses.

This was the 14th consecutive quarter in which we grew total medical membership underscoring the strength and resilience of our core benefits businesses through periods of economic strength in periods of economic uncertainty.

In 2021, we grew our government membership over 17% driven by organic growth in Medicaid.

Another year of double digit organic growth in Medicare advantage and the acquisition of Mmm.

Commercial enrollment grew modestly as solid growth in our risk based areas were partially offset by in group attrition in our fee based business due to broader labor market dynamics that occurred during the year.

Our fourth quarter benefit expense ratio was 89, 5% an increase of 60 basis points over the prior year quarter, driven by the repeal of the health insurance tax in 2021.

As expected total medical cost in the quarter were above normal or baseline levels, but still compared favorably to our expectations driven by lower utilization of non COVID-19 care.

Largely offset by higher than expected COVID-19 related cost notably in December .

And from SG&A ratio in the fourth quarter was 11, 7% on a GAAP basis, a decrease of 200 basis points over the prior year quarter.

Excluding the adjustment items noted in our press release, our adjusted SG&A ratio would've been 11, 1% down approximately 250 basis points year over year.

The decrease was driven by the repeal of the health insurer tax and the expense leverage associated with strong growth in operating revenue, partially offset by increased investments to support our growth and digital transformation effort afforded by outperformance in our investment income.

Fourth quarter operating cash flow was $1 $7 billion, bringing full year 2021, operating cash flow to $8 4 billion or one four times net income.

Our fourth quarter and full year cash generation beat our expectations, reflecting strong operating performance this year as well as a shift in the timing of the planned payment of our share of the Bluecross Blueshield Association litigation settlement.

We now expect to make this payment of approximately $500 million in 2022, which is included in the guidance. We provided this morning for operating cash flow of greater than $6.9 billion.

Yes.

We ended 2021 with a debt to capital ratio of 38, 9% in line with our expectations and well within our targeted range.

Consistent with our approach throughout the pandemic, we maintained a prudent posture with respect to reserves.

Days and claims payable ended the year at 45.2 days, an increase of one eight days year over year with medical claims payable up 19% year over year compared to the premium revenue increasing by 13%.

During the quarter, we repurchased one 3 million shares of our stock at a weighted average price of $417 92.

For the year, we repurchased five 1 million shares for $1 $9 billion ahead of our original guidance of $1 $6 billion.

We were opportunistic in the year capitalizing on periods of market volatility.

Notably during the fourth quarter.

Turning to our outlook for 2022, we are pleased to provide initial guidance, including adjusted earnings per share of greater than $28 25, which reflects.

<unk> growth of at least 12% from the normalized adjusted earnings per share baseline of $25 in 2000 and.

In 2021.

As a reminder, we benefited from significant investment income outperformance during the year, including amounts that we believe to be nonrecurring.

We offset a portion of the upside in the fourth quarter by accelerating investments in our business.

In total for the year, we believe nearly <unk> of our adjusted earnings per share to be outside of our run rate accordingly.

We continue to view $25 and 20 <unk>.

Is the appropriate starting point for our growth in 2022.

We expect to end 2022 with total medical membership in the range of 45.6 to $46 2 million members.

This outlook includes the expectation of generating double digit organic growth in our individual Medicare advantage business.

And the launch of our group Medicare advantage contract, serving the retirees of the city of New York in April .

I'll add at least 200000 group Medicare advantage lives.

While shifting a like number of members out of our commercial fee based enrollment given that we currently serve the city's retirees are they self insured basis.

And all Medicare advantage membership is expected to grow in the mid teens percentage range.

Our outlook also reflects strong growth in our commercial risk and fee based businesses, including a strong starting point due to a record selling season for national accounts.

We expect commercial fee based membership to grow by 2% to 3% or 530000 to 730000 members net after covering the transition of our more than 200000 existing fee based members in New York into our New group Medicare advantage.

<unk> contract and low single digit growth in our commercial risk based members.

With respect to Medicaid our guidance assumes a public health emergency will end in mid April as is currently planned with Medicaid eligibility redetermination resuming around the middle of the year.

Correspondingly, we expect to capture our commensurate share of growth in commercial fee and risk based markets as consumers, losing Medicaid benefits migrate to employer sponsored coverage and individual plans.

As you might expect our membership outlook for our commercial and Medicaid business is highly dependent on the timing and pace of Medicaid eligibility redetermination.

The launch of our new statewide Medicaid contract serving Ohio. In July is also contemplated in our guidance range, while membership associated with pending acquisitions is not.

We expect continued momentum in our diversified business group and in junior Rx segments with revenue growth on a combined basis in the low to mid teens.

Altogether the momentum we are seeing across all of our businesses will drive operating revenue up 11% year over year to approximately $152 billion.

This includes approximately $130 billion of premium revenue also up 11% over 2021, representing an increase of nearly $13 billion.

The consolidated benefit expense ratio is expected to be 88% plus or minus 50 basis points in 2022, consistent with our initial outlook for 2021.

At the midpoint.

This reflects a 50 basis point increase year over year, driven primarily by the launch of our New York Group Medicare advantage contract.

With respect to the impacts of Covid on our overall cost structure, we anticipate another year in which the overall cost of care will track above normalized levels driven by COVID-19 related treatment.

<unk> nation and testing costs.

We expect the SG&A expense ratio to be 10, 8% plus or minus 50 basis points in 2022.

Reflecting a reduction of 60 basis points at the midpoint of the range relative to our adjusted SG&A ratio in 2021.

The reduction was primarily driven by operating expense leverage due to strong growth in revenue. In addition to the benefits of our ongoing modernization efforts, including workflow automation and Digitization.

This was partially offset by continued investment in our initiatives that will drive future growth and the operating efficiencies, including digital engagement and system migrations.

We expect our operating gain for the year to be greater than eight $4 billion, reflecting growth of at least 8% year over year over adjusted operating earnings in 2021.

Below the line investment income is expected to be approximately $1 $1 billion in interest expense is expected to be approximately $840 million.

Our effective income tax rate for the year is expected to be in the range of 22% to 24% consistent with 2021.

Full year operating cash flow is expected to be greater than $6 9 billion, which includes the anticipated payment of our share of the BC BSA litigation settlement, which as I noted earlier is approximately $500 million.

From a capital deployment perspective, our long term targets remain unchanged and we will continue to pursue programmatic M&A in an effort to enhance the organic growth of our existing operations and diversify and extend our capabilities.

Moving us closer to our goal of becoming a lifetime trusted partner in health.

While our guidance does not include any benefit from future of pending M&A. It does contemplate a 4% to 5% contribution to growth and adjusted earnings per share associated with capital deployment.

Including M&A completed in 2021, notably Mmm and mine access.

And anticipated share repurchases of at least one $5 billion in 2022 that we expect will drive our weighted average share count into the range of 243 to 244 million shares outstanding for the full year.

With respect to seasonality, we are projecting profitability patterns closed our historical ranges and expect to earn approximately 55% of our income in the first half of the year, Although earnings in the first and second quarter will be split roughly evenly.

Our guidance assumes that our benefit expense ratio will approximate the midpoint of our full year range in the first quarter, which we believe will be a prudent assumption in light of the uncertainties associated with the COVID-19 pandemic.

I am also pleased to announce that our board recently authorized an increase in our quarterly dividend of more than 13% to $1 28 per share continuing our track record of increasing our dividend every year since we began paying dividends.

2011.

Our new dividend annualized is the $5 12 per share.

There are approximately one 2% based on our current share price.

In closing we are pleased to have delivered another year of strong growth despite significant challenges related to the COVID-19 pandemic.

While much of the backdrop remains uncertain, we are committed to managing the uncertainty thoughtfully and prudently.

We look forward to making further progress against our strategy and delivering on our financial commitments once again in 2022.

Operator, we will now open it up 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 cute you may withdraw your question at any time by pressing Star then Q, if youre using a speakerphone. Please pick up the handset before pressing the numbers once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each.

Participant that may wish to participate in this portion of the call for our first question will go to the line of Steve <unk> from Barclays. Please go ahead.

Great. Thanks, good morning, everybody.

Regarding Medicare advantage, there's obviously been a lot of industry discussion related to the.

External telephonic sales channel just curious if you can give us an update on how important you think that channel is in relation to your growth outlook in individual MA can you also remind us again, where you stand on your internal sales and distribution capabilities for.

Individual MA this up a major content with as far as the sizing right. Now are you looking to expand that further.

Thanks for the question, Steve I'm going to ask Felicia Norwood, who leads our government business to respond.

Good morning, Steve and thank you for that question.

First and foremost let me say that we are very pleased with our overall performance. During this past AEP and we're on track for another year of double digit growth in our individual Medicare advantage business.

When we think about distribution we.

Meet our members where they want to be met from a sales perspective and that means providing them with a range of distribution options.

Ammo channel represents an important and valuable distribution partner for US we saw an acceleration in the channel prior to the pandemic and we've long recognized the value that they bring in educating consumers about Medicare options and equally important the differentiated value that anthem provides.

You know this AEP for us wasn't meaningfully different in terms of our distribution mix and we're going to continue to provide a distribution mix that represents being able to meet or our consumers.

At the pull in of the spectrum.

We believe in the strong value of MAA, it's a very solid business and we really provide a strong value proposition for our consumers. So we continue to evaluate all the time our mix, but we feel good about where we're positioned today with our distribution mix.

Thanks for the question, Steve and I'll, just sort of summarize what Felicia said I mean, I think we felt we had a very strong AEP with expecting double digit growth in <unk>.

Very consistent from our perspective around the competitive market as well as the distribution channels. So thanks for the question and next question. Please.

Next we will go to the line of Justin Lake from Wolfe Research. Please go ahead.

Okay. So first I wanted to just follow up on Steve's question there in terms of.

Specific around the third party marketing the focus has been on churn.

Would be curious what you've seen on churn and then I know theres. Some more compliant that CMS is looking for there.

Think that affects the market or the effectiveness of that market and then my question was just around commercial Fred can you talk about testing cost in 2022, and what you're thinking there and then just overall I know you said you had.

John you said that there'll be some consistency in terms of an expectation of trend above normal.

Any differences in 'twenty two versus 'twenty, one by segment given that commercial seems to be running hotter than the government what went into the year.

Well. Thank you Justin there were a number of questions. There. So we'll try to address let me let me first take the first one around Medicare advantage.

Overall, I think very consistent competitive environment. When you talk about churn specifically, we're not seeing anything significantly different than we've seen in the past it's been a competitive.

Market it remains a competitive market as I shared we feel that our supplemental benefits and the things that we do to help support Medicare beneficiaries has been very positive and also we spent a lot of time on ensuring that.

Through our marketing and other things that our members understand the components of our benefits and have a good welcome experience with us, but again, we see that as pretty consistent I'm going to ask John to address the questions that you had more specifically around trend.

Thank you Justin for the questions in terms of trends by lines of business.

As I had stated in the prepared comments.

Overall total COVID-19 was higher than anticipated, but non COVID-19 more than offset it and so our total cost structure, while above baseline was better than our expectations.

Commercial had the highest cost compared to baseline.

You look at what happened in the fourth quarter children are eligible for vaccines for the first time you had the AMA crime surge et cetera. Medicare was next in line with overall cost structure of adding COVID-19 and non COVID-19 combine to be slightly above baseline and <unk>.

Medicaid overall actually ended the quarter slightly below baseline, but all in the totals are what I said as you look to 2022.

Theres consistent themes and were not going to go into specific trends by line of businesses.

But overall, we expect commercial to have the highest amount of cost compared the baseline of the three lines of business for the year and Medicare to be second and Medicaid to be third so very consistent 2022 expectations versus fourth quarter actuals. So thank you for.

The question. Thank you next question please.

Next we'll go to the line of Nathan Rich from Goldman Sachs. Please go ahead.

Hi, Good morning. Thanks for the question, maybe just following up John on the comments on the MLR I think you said the first quarter MLR would be kind of consistent with the annual range.

Thats, a fair bit higher than I think of how it typically trends. So could you maybe just go into some more detail on what youre expecting to play out in the first quarter.

And what's driving that step up thank you.

Yes, good morning, Nathan and thank you for the question and maybe I'll address earning seasonality in MLR seasonality somewhat consistently because they obviously drive each other when you look at the seasonality of earnings patterns that we've had historically as a company. We've had 50, 560% closer to 60% of our money yes.

We make in the first six months of the year pre pandemic that obviously has shifted the last couple of years.

What you're really not.

Best benchmarks to use now for analysis purposes.

And now we look at what we expect this year, we expect closer to 55% of our maybe earned in the first half and then we expect the first and second quarter it would be relatively consistent with each other.

First quarter MLR as you pointed out will be a bit higher than historical patterns.

A few key reasons for that we ended 2021 going into 2022 with an omicron surge that was impacting our commercial business, maybe a bit more than than other lines consistent with how I just answered Justin's question.

There is a spike in hospitalizations that we're going through.

We do expect non COVID-19 , the drop but the quarterly timing maybe isn't quite as clear one other comment just to make to help clarify maybe a change in the seasonality pattern is within the public health emergency right now and the public health emergency has many many provision.

<unk> associated with it one of those is that any COVID-19 diagnostic testing or cost structure.

We need the waived co pays and deductibles.

And so if you think about our historic seasonality patterns in the historic fact that at the beginning of year that Copays and deductibles are a significant part of the.

Of the leverage between quarters.

You don't have that to quite the same level during a public health emergency.

And while those Copays and deductibles are still in effect for the full year. They do not apply to COVID-19 type cost structures and so we have a shift of costs between quarters.

And then in the second quarter, we do expect COVID-19 to be a little bit less severe than it is in the first quarter.

And so that will impact our MLR positively, but we also launched the city of New York Group Retiree business.

Excellent.

Contract that we won and so that will put upward pressure on the MLR in the second quarter. So all in we think we're.

We're in pretty good shape, and we want to be very prudent in terms of how we're assessing the.

The Covid pandemic and our guidance. Thank you.

Thanks for the question, John and I, just I would reiterate as John said, there are a number of moving parts to this but we feel that we've taken those into consideration and wanted to share our thoughts on certainly the first half of the year, but feel confident in the way we've managed through it in 'twenty, one and heading into 2022 next question. Please.

Next we will go to the line of a J rice from credit Suisse. Please go ahead.

Hi, everybody.

Yes.

He took over.

Our diversified business group operation in October and I wondered if I could get.

Either Gail or Pete.

Pete to talk a little bit about where the near to intermediate term opportunity. I know you mentioned a lot of things that touch on <unk> in your prepared remarks, but what are what are the two or three or four big opportunities for D. Dbg looking over the next year or two.

Well thanks for the question, a J and I will turn this over to Pete I tie in to share his perspective, but I think theres a few things going back to my remarks, one clearly a huge opportunity for us and in Jennie O Rx as well and we shared how well that business is performing and the opportunity that we have to continue to embed the <unk> as part of our whole health.

<unk> into particularly mid market accounts that we've done a nice job there and then in terms of the diversified business group again, serving our complex and chronic patients has been an area of focus for a number of years and we're seeing acceleration in that so I'll ask Pete to give some specific points about where he sees that growth coming from.

Thanks, Gail and thanks, AJ I appreciate it.

I continue to be really energized about the opportunity as Gail said.

Serving the complex and the chronically ill really aligns well with our core business and where we're seeing the trends go in our core business.

I would say.

Amount of importance is the opportunity to penetrate and some more as it relates to our core existing offerings.

A tremendous opportunity to expand our product portfolio and offer new products for these complex populations.

I'd say, we're very focused on an at least I am and the team is in the short term on how a lot of these solutions stitch together and extend to create further value. For example, if you think about my Nexus, which as Gail said Eric.

Comments is performing really well its connection to the home. It allows us to consider a lot of extension product opportunities. So when you think about that more specifically the post acute care opportunity and we're actually going to be launching some new post acute care product offerings. This upcoming year. When you think about managing durable medical equipment and the opportunity there.

And then importantly, as we've talked about for the last several quarters the importance of social drivers of health and how much is occurring in the home. So that's one area that we are we are very interested in and then again how you. We've engineered <unk> into this also plays a critical role in terms of specialty pharmacy, and potentially home infusion et cetera, and I think the other really important.

One point as we as we put these product offerings together and stitch them together it creates tremendous proof points as it relates to our opportunities externally with the blues and our Blue partners. We currently have 26 blue clients I think there is tremendous opportunity to improve that and then importantly, with those blue clients, we have 10.

With multiple solutions, so I look forward to the opportunity to create value and anthem and then extend that externally as well, yes. Thank you Pete and I think you heard from Pete is really two huge opportunities for us for accelerating growth one.

Deeper penetration inside of anthem, and we're beginning to bring all of these products together in a much more integrated way and to the opportunity through our provider strategy, our aggregator strategy to use our diversified business assets to participate in the profit pools in that area. So those are two we think growth opportunities for us in the future and again.

It's early days, but we're seeing some really nice progress in these early days. Thanks for the question next one please.

Next we'll go to the line of Stephen Baxter from Wells Fargo. Please go ahead.

Alright. Thanks for the question I don't think I heard you talk too much about the outlook for the individual commercial business. During prepared remarks, I was hoping you could give us a sense of where membership there is expected to be for 2022 in that business and then how youre thinking about profitability in 2022 in light of your expectations around Covid and anything you want to touch on the competitive dynamics there. Thank you.

Thank you I'm going to ask Morgan Kendrick, who leads that business to provide some commentary.

Hey, there Steven Thank you for the question first of all I would say we are expecting growth in our individual business. This cycle.

Ask about our margin trajectory on that and how we felt about it clearly we are expecting to reprice the business accurately we price it based on our forward view of trend Covid.

<unk> certainly is a big piece of that and when we think about it we've adjusted pricing as necessary, but we see we're seeing and we're still in open enrollment for <unk>. Some of them are extended through the end of the month and right now things are looking quite good you would imagine there are some states there are puts and takes across the country, but nonetheless, we feel good about it and we're expecting growth in the first quarter. Thank.

Thank you for the question.

Question. Please.

Next we'll go to the line of Lisa Gill from Jpmorgan. Please go ahead.

Good morning, and thanks for taking my question.

Just wanted to go back to thinking about medical cost and and John you talked about overall cost the Caribbean above and you talked a lot about COVID-19 , but how do we think about any elective procedures that have been pushed off due to COVID-19 would be my first question and then secondly, as you looked at Delta versus Ami Chron.

It appears at least from the seat I sit in that it was a much less severe a lot more people had testing and other types of costs, but how do we think about it. If there is that next variant now that will have a treatment in the marketplace. Obviously a lot more testing how do we think about how that cost progressed and what that means to Cushing.

Incremental elective procedures to have those costs offset so how do I think about that in total.

Sure. Thank you Lisa for the questions I'll see if I can unpack them all with the with this answer but in terms of access to the health care system over the past year, we really have not seen any one that has been denied access to needed necessary care.

And so while there may have been some puts and takes and some pent up demand in the past.

We think our the vast vast majority of that is all past and while that does happen on a temporary basis. During some of the surge as the system is able to accommodate so.

And the other thing I think is very clear that we've seen is that whenever there is a COVID-19 surge that there has historically now been a non COVID-19 drop that as a natural hedge against it.

In terms of the.

Just the cost trend in general and other variance I certainly don't want to predict what the next variant is going to look like or even what letter the Greek alphabet, it's gonna be named after but on the other hand as we look at Omicron Omicron is clearly less severe on a per member basis, but far more contagious.

So you look at really the.

The number of people who are infected by it is more of a applicative were higher than the number of people that were infected by delta or the original Covid and then the hospitalization rates are then a fraction, but you look at it sort of on a year over year basis.

Hospitalization rates are relatively consistent in total.

Even up a little bit from a crime. So it's really hard to say exactly what the next variant is going to look like.

We model. These things, we tried to be very thoughtful and even prudent and conservative in the way that we've modeled it and I think you can see our 2021 performance has shown that we are a bit conservative in the way that we assess these things.

And we're going to continue that same thought process for 2022. So thank you for the question next.

Next question please.

Next we'll go to the line of Rob Cottrell from Cleveland. Please go ahead.

Hi, Good morning, Thanks for taking my question I wanted to focus on the commercial fee growth and the outlook for 2% to 3% membership growth. Just curious are those members coming in with higher specialty attachment rates that keep you on track for the three to one margin targets or is that something that potentially pushing that target out given the straw.

<unk> growth.

Thanks for the question just to clarify a little bit when we talk about the profitability between fully insured and our.

Self insured business or risk versus fee, we're really talking about growth.

Adding more services to the fee based business. So I wasn't sure if I understood. Your question correctly, but we are making great progress on that.

<unk> predicted that we would end the year around four to one which we did and were seeing as I mentioned in my opening comments the opportunity to add in Genie Rx plus clinical services advocacy, so theres a whole number of areas.

That have begun to gain traction in that so we feel very much on target and feel good about it.

If you think about just our fee based revenue in the fourth quarter increased 12% compared to a year ago.

When revenue increased over and for the year increased over 7%. So this growth came despite somewhat flattish membership growth.

That really punctuates the impact of the various buyout programs that we've had so again.

<unk> feel like we're making really good progress on that your question about the 2% plus ROA.

Risk based membership growth, we feel that that's a prudent pre.

Projection going into the year, we had very strong growth in 2020.

But feel good about where we are positioned.

There was a previous question about our individual membership again, we have taken I think a very steady and consistent approach to the individual market did that again. This year. So we don't look for outsized growth in any one of those markets, but consistent growth across our risk base and in the 2014 States, where we do business. So again feel good about it making progress.

All of those.

And again, we are making progress on that profit target ability. Thank you next question.

Next we will go to the line of Lance Wilkes from Bernstein. Please go ahead.

Yeah. Good morning wanted to ask you a little bit about your value based care delivery strategy and was interested in the stakes you've taken in some companies recently and how you how you look at.

How are you kind of parcel out the country with respect to those one.

Also.

Has your appetite for owning care delivery change and then last as Youre thinking about.

Partnering with other blues is this a capability that you could provide to other blues and some sort of way.

Well. Thanks. Thank you very much for the series of questions and let me try to kind of go through each of them and give you a bit of a perspective as I shared in my opening remarks, I think we've been very consistent actually in our care provider in our value based strategy over the years specifically.

Specifically at your question comes to what it relates to primary care I think we've always taken a very thoughtful approach to how we leverage our scale in the market because we do believe that's one of the critical criteria for success.

Recently, we shared and have updated everyone on some of the partnerships are modeled primarily has been a partnership model. So our investments for example in Privee and alidade are the two that I think you're referring to but there've been others that we've also shared.

When you talk about taking an ownership position again, that's something we have done in the past so it's not I know.

Often we get the question of why we don't do it we have done it actually and it where it makes sense in our local markets and based on the depth and the dynamics and good examples very early on with <unk>, but also health SUNS simply and most recently last year, we bought mmm. So we're not against owning care delivery, but we do think and areas, where we want to own it.

B, where we can accelerate our membership growth and predominantly in areas where complex and chronic patients.

We can improve the impact we have there obviously increase our star ratings and improve the health outcomes.

And by partnering is one of the important parts in our aggravate or I want to I want to take a minute on the aggregator strategy and why we're investing in some of these because they also allow us to stand up joint governance structures and prior my prior answer we talked a little bit about making sure that we remain aligned with our care provider partners so that.

As a great way for us to participate in the governance structure and be aligned with our care providers and be very direct about our partnership preference, where we can do it.

So as you think about these partnerships. They also benefit our diversified business group.

Going back to my last answer we see an opportunity to wrap around different provider enablement programs also some of the acquisitions. We've done recently are good examples of where we can do pull through.

And we can participate in the profit pool in a broader way so very consistent with that they're very capital efficient for us.

And again.

Our focus is very much on complex and chronic and we see significant opportunities. So I guess I would conclude.

Our strategy is different than others, and we see that as a unique is unique because of the set of assets that we have are very unique and we want to leverage that depth and again that partnership that we built it also allows us to drive value from sharing risk and ensuring that we're not reliant on any single model.

As we know this value based space continues to evolve and mature we don't think that one model is going to work in every market. We fundamentally believe that care is delivered locally and that's a core to who we are and sort of how we've grown up as a company and so we see each model is unique but we do think that there's an opportunity for scale and to wrap around particularly our D.

<unk> assets and to drive differentiated outcome in terms of your last question. We do share a lot of these models with our partner Blues, particularly in states, where we have jv's already so yes, we do think there's opportunities for us to take a leadership role there and work closely other blues have great ideas and we also learned from them. So we think this and opt.

Any where the market is going to change quite a bit and we're going to keep optionality and be very capital efficient, but also drive through I think a differentiated cost structure and that's kind of where we start today. So thank you very much for the question and next question. Please.

Next we'll go to the line of Gary Taylor from Cowen. Please go ahead.

Hey, good morning, I, just had a quick follow up on the 22.

<unk> guidance of that 88% mid point up about 50 basis points, how do we think about mix impacting that.

Obviously.

That group it may account would push it higher but the Medicaid redetermination. So we would think about bringing consolidated MLR down and I just wanted to think about the mix impact versus your comment that.

Overall, our cost of care will still run above baseline in 'twenty. Two it just are you are you implying that there.

Certain lines of business, where the MLR.

Because of that underlying trend isn't is it price for R 22.

Gary. Thank you for the question and really do appreciate the opportunity to provide clarity because it's actually a excellent question that you've asked.

The increase in MLR is essentially entirely driven by mix.

So we have the <unk>.

State of New York or I'm, sorry, the city of New York Medicare advantage contract. It goes live as can be in excess of 200000 members launching April one that will increase the overall MLR of the company.

Have a just general growth in various other areas. We acquired Mmm mid year 2021, we will have a full year of M. M. M. In 2022. The overall aspect of that is that the weighted average MLR for the entire company goes up.

Go live with the Ohio mid.

Mid year, as well and our new Medicaid win.

So when you are Medicare advantage on an individual basis is growing by double digits really outpacing every other line of business. We have in the company and the average MLR associated with those new members increases the MLR of the company. So the core underlying MLR.

<unk> associated with each of our lines of business the forward pricing aspects of including Covid, we feel very good about and feel very solid about but the analysis of the 50 basis point increase.

Entirely mix. So thank you for the opportunity to provide that clarification.

Thank you next question please.

Next we will go to the line of Matt Borsch from BMO capital markets. Please go ahead.

Yes.

I had a.

Regional question, which is you talked about the New York market. It seems like you're making progress in a number of fronts. There can you just talk about the small market as I recall, you pulled out of the small group market I want to say, maybe eight years ago.

And it's kind of a as I understand it kind of gets functional.

The way, it's structured and you've got a lot of small groups that are going into.

Sort of private employer.

<unk> as a result, I'm just wondering I realize its kind of region specific but if you'd be willing to address that.

Yeah, Matt. Thanks for the question as you can appreciate we won't go into details on specific markets.

And it really won't comment on one area in particular overall, our small group market, we feel really good about particularly the alternative and sub market strategy that we've launched over the last several years and continue to make gains in it.

So our products are resonating there quite well.

Edit a virtual only product this year, that's having gaining a lot of traction.

But again, we will speak to specific markets. So thanks for the question next question.

Next we'll go to the line of Ricky Goldwasser from Morgan Stanley . Please go ahead.

Yes, hi, good morning.

So just as a follow up on the cost of care in 2022, that's coming in above normal trend just for context, how does it compare to the $600 million in COVID-19 costs. They were in 2021 to headwinds and then with the blues settlement now finalized.

How big is the opportunity when you think about market expansion into new states.

Yeah.

Thank you Ricky I'll I'll answer your first question on the cost of care and then.

Yeah, maybe I think al wants to make couple of comments on the on the Blue settlement.

But associated with the cost of care I did not say that we would be above normal trend.

I said that the cost structure would be above baseline.

So I just wanted to make sure that the nuance of those words is very clear to everyone on the line.

In terms of how that compares to the COVID-19 headwind in the $600 million. Just so you know COVID-19 headwinds, there's many different things associated with them.

One of his treatment cost vaccine administration, and testing and I'll go through cost of care or Covid headwinds, though encompassed everything associated with Covid that might include things like the impact on risk adjustment revenue not necessarily a cost of care, but clearly are an item thats going to impact revenue and impacts the bottom line and then off.

It will include drop in non Covid utilization pricing actions and various other aspects and those are just examples of a very very long.

Long list and so in 2021, we did estimate at about $600 million of net headwinds and while each bucket maybe didn't come out exactly how we had predicted.

The overall estimate was reasonable and so you look into 'twenty two our net headwind is smaller for us.

<unk> risk adjustment revenue should be improved compared to 2021.

As you look at the.

The amount of utilization that occurred in the in the Medicare advantage in 'twenty versus 'twenty, one we should have better risk scores.

But additionally, we continued.

Continued our pricing discipline so.

Anyway. So thank you for the question I just wanted to make sure that we're clear on exactly what the headwind.

<unk> two and the size of it go yeah. Thanks. Thanks for the second question Ricky in terms of the BCBS a litigation just to clarify as you know the final approval hearing was held in October of 'twenty, one and that court took the matter under advisement, which is typical for cases of this.

As Scott size and scale and so.

Some of the account members have submitted objections, which they're working through right now and Thats not unusual so it's pretty typical for cases of size. So in terms of projecting what this all means et cetera, as John said, we expect to to.

To pay the settlement.

In 2022 versus what we had previously projected in 'twenty, one we fully accrued for that.

In terms of the overall market I think it's early too early to say I mean, we've always worked inside of the blue system with our peer plans.

We have a number of seeds and so really don't have a comment on that until we get through the overall process, but again I feel that that will get resolved in 2022. Thank you next question.

Next we'll go to the line of Kevin Fischbeck from Bank of America. Please go ahead.

Great. Thanks.

You guys I guess I don't remember you go again, specifically quantifying the impact of having to cover in home testing can you just talk a little bit about how you guys thought about that.

Is that not an issue because you already assume COVID-19 cost is an issue because theres offsets on the PCR front any color there about how to size or think about how you came to your net impact.

Yeah. Thanks, Thanks for the question Kevin in terms of the film testing I think is a good opportunity to provide a little clarity on just how we're thinking about it.

First of all let me point out and I know everyone is quite aware of this that we're already paying for a significant volume of testing mostly inside of medical facilities and generally these tend to be eight to 10 times the price of the at home Test. In addition add on the office fee. So while it's difficult to know the exact degree to which the home testing.

Our testing will go up as a result of the role we do expect some substitution with lower costs home tests displacing some of those tests that are currently done in the medical facilities.

It's also as you heard in my opening remarks, we proactively began offering free home Covid tests to our risk based commercial members through Sydney Health in November and those tests right now are delivered to our members homes within one to two business days and our early experience indicates that individuals are ordering these based on their <unk>.

Need and theres been appropriate usage.

Respect our guidance, we did consider the effect of the substitution the availability of the four free tests per household that the federal government supplying current short term supply constraints and the likelihood of spikes in demand in the year that would drive potential surges in the Covid case rates. So those tended to coincide as you know what.

The lower non COVID-19 utilization, so that should be a natural offset as John has shared earlier in the call. So bottom line theres, a pretty wide range or are there is a wide range of outcomes around the rule, but we believe that our guidance provided this morning captures the most likely net impact in our financial results and Thats. One reason why our cost structure is expected to be at or.

Baseline in the fourth and the four quarters of 2022. So so overall, we feel we've captured it we've used our analytics to do our best assessment and again, we do have some experience with the test through our Sydney App. So thanks, very much for allowing us to clarify how we're thinking about that next question. Please.

Next we'll go to the line of Dave Windley from Jefferies. Please go ahead.

Hi, Thanks for taking my question and thanks for squeezing me in I believe you've you've talked about.

60% of your medical costs, I believe specifically, an MAA or running through value based care I'm wondering how much of that is full risk capitation, how important that is to your strategy, there and maybe relatedly how important.

Our duals in your MA strategy and moving them into more value based care. Thanks, Yeah. Thanks for the question, Dave just to clarify it's actually 6% across all lines of business. So that's across commercial Medicaid and Medicare advantage. So just to clarify that answer in terms of duo.

<unk>.

Tools are an important part of our MA growth strategy, we have a very significant impact in duals. It aligns both with the government business, but also what <unk> does and the diversified business group and a lot of the investments that we've made so in my Nexus homecare and aspire palliative care.

Part of what <unk> does is quite extensive and the dual market. So very important part of US part of what we do we think value based care is critically important to this space and some.

Some of the investments we've made with Aggregators will help support our strategy there in terms of full risk as we shared at our Investor day, It's an area that right now we're looking to significantly grow and impact over the next several years so of that 60%.

Hum.

Mid teens, I'd say across our book of business in total continues to grow in terms of full upside downside risks of not just competition, but other arrangements that were also looking to expand so overall, it's a growing area for us, including with our high performance network providers, but.

But we think.

Across the board that this is a core to how we get in to trend at a CPI plus in our commercial business and to continue to deliver value and our government based business.

Thank you very much for the question next question. Please.

Next we will go to the line of Scott Fidel from Stephens. Please go ahead.

Hi, Thanks, good morning.

I was hoping to get a little more.

Insight into your expectations on Medicaid enrollment for 2022.

Maybe if you could talk about some of the offset in terms of how much the <unk>.

<unk> from membership you're assuming just from the <unk>.

Resumption of re verifications in any sequencing on the timing of that.

And then as a positive offset if you have any estimate on the amount.

The amount of members youre going to add from the new Ohio contract in Medicaid that will be helpful too. Thanks.

Yeah. Thanks, Scott appreciate the question and hopefully I can give you some detail to help clarify.

<unk>.

The timing of the public health emergency.

Clearly as the most significant assumption by that needs to be evaluated as part of all this and right now the public health emergency is.

Slated to expire April 16th and as a result, we would expect re verifications to begin in the middle of the year.

So obviously, a public health emergency changes and everything else I'm, saying right now needs to be updated simultaneously.

But at that point in time, we do expect to see the re verifications, we expect <unk> to occur over a 12 month period of time.

Through the end of 'twenty two in the first half of 'twenty three.

We are not expecting a cliff event associated with with membership dropping off at the same time.

We expect to.

Capture our fair share of those commercial members and part of our commercial risk membership growth is predicated on the Medicaid waiver applications occurring by its stayed it and so there's certainly a natural hedge or an offset associated with those are the one thing I do want to make sure that everyone's clear about.

Is that there are two states out of our portfolio of Medicaid States that expanded the number of M. Ceos in their geographies for 2022 and those are states that we have.

Retained our business, however, with additional members or Im sorry, additional payers in those that the states are going to redistribute many of the members and so there is somewhere between one and 200000 members that we will lose within those states that we have retained and thats.

Part of the reconciling item that maybe you don't have associated with this and then.

As we look at our membership in total we gave all the components.

Fee based up very nicely individual M a double digit growth.

Group M. A nice growth with the city of New York.

Commercial risk up a couple percent and then the balance is the loss of members through the Medicaid re verification. So hopefully all that clarifies your membership questions. Thank you.

Next question please.

Next we'll go to the line of George Hill from Deutsche Bank. Please go ahead.

Hey, good morning, guys and thanks for sneaking me into my question is on in Jennie O and Rx volumes and we talk a lot about medical utilization, but could you guys talk about if you feel like prescription drug utilization has kind of rebounded off of how I would think about a normalized growth trend line, maybe from an unaffected 2019.

Can you talk a little bit about the puts and takes if we see a rebound in prescription drug utilization both in the risk book and then the.

Fee based book in engineered thank you.

So thank you George for the question, Yeah, really reflecting on what happened in 2020, maybe as a starting point, we have about half of our scripts are maintenance type scripts and so certainly when the pandemic first occurred we didn't see any impact really notable impact on that level of script volume.

And then.

If you recall, we did relax the 90 day rules back then and saw a little bit of a of a blip in script count, but overall script volume of the remainder of the Scripps was down and that really corresponded directly to the non COVID-19 utilization being down as well.

So now as we fast forward through 'twenty.

Through 'twenty one into 'twenty two scrip levels are relatively consistent with where we would have thought certainly as I said half of the scripts or maintenance scripts those haven't been impacted at all and then the other half very much are related to the non COVID-19 and non COVID-19 utilization.

Was approaching baseline levels near the end of the year before this last <unk>. So the script volume really correspond to that so hopefully that.

Clarifies the.

The issues on that.

Thank you next question please.

Next we'll go to the line of Josh Raskin from Nephron Research. Please go ahead.

Thanks.

Just wanted to take one layer deeper on the strategy around working with value based providers and I'm curious what model seems to be working best and I think maybe you could delineate commercial versus Medicare because it sounds like it's across both books of business and then lastly, I'm not sure I understand what you mean by Aggregators are those the sort of tech enabler.

And should we read into your comments and investments in Peruvian alidade as as a preference there I didn't hear care Max or any of the center based investment that you've made.

Well. Thanks, Thanks for the question Josh in terms of value based I mean, the deepest penetration has historically been in the Medicare advantage space given the nature of the product design that we've had it's been more around very specific.

Civic networks and the depth. So no I think the industry has a lot more depth and experience in Medicare advantage, but we're seeing significant growth in our commercial business across not just anthem, but our partnership with our other non anthem blue So our high performing network part of the success that you saw on the significant growth in our national.

Business was the just the significant.

Any difference in our value proposition driven by high performing networks and again, we've got double digit improvement in costs versus our competitors. There that has been validated by by outside consulting firms. So again, that's one of the reasons, we consolidated where we were one of a multi.

Carrier in those accounts in this year, particularly with our largest probably most discerning accounts, where they could see year over year performance, we were able to consolidate to a single carrier.

So I would use those as some proof points around the traction happening in high performing markets, our high performing providers and again those are particularly mostly contracting relationships.

I referenced that you aggregator models. Those are examples we clearly are working with others, but I thought that that would give you a sense of of two of the models that we're working with.

We're learning a lot I guess I'd say, it's still early days and many of these relationships we began them over the last really 12 to 18 months.

We think that what's important there is an alignment of the goals.

The depth of our market share and the opportunity for us to work hand in hand in that local market to really respond to the unique needs of that marketplace.

Predominantly started in Medicare advantage, but as you saw from some recent announcements were also doing quite a bit of work in commercial because we see the real opportunity. There and then you look at some of our markets, where Ohio is a great example, we have leading market share in Medicare and commercial and we will soon add Medicaid to that so again, you think across all businesses.

And supporting those many of the early.

Value based providers, we're focused on Medicare advantage, we see that expanding much more broadly to all markets and the skill sets. There. So again I wouldn't read in just the two names that we shared with you.

Our preference is to really work with the best in breed in the markets and be able to leverage our scale and deliver something very differentiated because of that unique market and we're going to continue to evolve that marketplace and we do believe that the diversified business group can wrap around it services and that's the way for us to participate in the profit pool, but also bring our services to our member.

<unk> and keep a very consistent consumer experience.

Hopefully that answers your question and thanks very much for the ability to clarify that.

Next question please.

Next we'll go to the line.

Your line of Ben Hendrix from RBC capital markets. Please go ahead.

Hey, Thanks, guys for squeezing me in just one going back to your value based evolution here.

Competitor, United had talked about achieving 8% to 10% margin across the.

Overall across the various cohorts of their capitate membership as they've been scaling rapidly and I know you guys are taking a very much more capital efficient partnership approach. So how should we think about margins kind of as you scale and value based in capitation arrangements, maybe as you grow and then also on a run rate basis.

Yeah. Thank you for the question and we do provide some target margins at a line of business level, but we really don't think its appropriate to go through and talk about target margins.

At a more granular level than that the one thing I will say, though associated with margin expansion is that our diversified business group is going to provide us a great opportunity for for margin expansion.

As Pete.

Talk about serving anthem members.

Moralistic lean more deeply.

Dan.

The commercial and the government.

Business units will pay diversified business group fair market value.

The value that our diversified is providing and then and then Pete will continue to make a margin on his services.

Certainly the transaction will eliminate intercompany revenue.

Yes, we'll still have a target margins on commercial and government and then we will have the margins within pizza area. So we do expect margin expansion over the next five years and really driven by that.

Thank you next question please.

And for our final question will go to the line of Whit Mayo from SVP Leerink. Please go ahead.

Alright, Thanks, I'll be quick just looking at the individual exchange enrollment numbers. They look pretty good at least at the national level was there anything that you've learned as you study. These new members any underlying characteristics of where theyre coming from northeast commercial with a Medicaid just what youre thinking is this.

As it relates to the risk pool.

Morgan Kendrick will address that thank you. Thanks, It's Morgan here. Thanks for the question regarding unique characteristics. One thing we've noticed I mean, we like this business as you've said, we see it behave and evolved differently by geography, one of the things is that there is a stickiness to it there wasn't there originally and Thats something thats been notable of late.

As far as where it's coming from we're typically seeing it come from other exchange.

Exchange members in the market there are targeted areas, we've made real discerning efforts to get after deep areas that we're underpenetrated in certain geographies that we have and they're paying dividends for us. So.

Again, one of the things that at the beginning of the ACA. It wasn't a sticky market. There was lots of churn every year, we're seeing that very differently now and we believe the assets we have and.

The assets were bringing to the market will indeed pay dividends for us. So we like the market and look forward to continued work there.

Thank you Morgan now I'd like to close by saying. Thank you it's been a strong year for anthem and we greatly appreciate the interest you've shown in our company along the way I.

I hope today provided some more insight into how we're managing the short term while building for the long term.

Our results show, we're on the front on our front foot and we're optimistic about the future.

We're clear on our commitment to make whole health of reality and as we go forward you can expect our focus on being a lifetime trusted partner in health to be consistent.

Our work is a privilege and a responsibility of all 98000 of us in anthem and we take it personally everyday and we will keep executing with excellence and discipline to make a valuable difference for all of those who we are so privileged to serve thank you everyone have a great week.

Ladies and gentlemen, a recording of this conference will be available for replay. After 11 am today through February 25, 2022, you may access the replay system at anytime by dialing 805, 708, 796 and international participants can dial 203369.

3293. This concludes our conference for today. Thank you for your participation and for using Verizon Conferencing you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to anthems fourth quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session, where participants are encouraged to present a single question. If you wish to ask a question. Please press Star then one on your telephone keypad will hear prompt that you have thank you.

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 fourth quarter 2021 earnings call. This is Steve to now Vice President of Investor Relations and with US. This morning on the earnings call, our Gal Boudreaux, President and CEO , John Gallina, Our CFO , Peter Hi, Italian President of our diversified business group and in Genie Rx Felicia Norwood.

President of our government business Division and Morgan Kendrick President of our commercial business Gail will begin the call with a brief discussion of the quarter recent progress against our strategic initiatives and close on <unk> commitment to its mission.

John will then discuss our financial results and outlook in greater detail. After our prepared remarks, the team will be available for Q&A.

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 website at <unk> Dot Com. We will also be making some forward looking statements on this call listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond.

The control 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.

Thanks, Steve and good morning, everyone.

Today, we're pleased to share anthem once again delivered solid operating results in the fourth quarter.

Capping off another year of outstanding growth as we transform with focus and discipline from a health benefits company to a lifetime trusted partner in health.

I'll start by sharing performance highlights for the quarter in the year and follow with some key actions and investments that drove our growth and laid the groundwork for what we expect will be another year of strong operating performance in 2022.

In the fourth quarter anthem delivered GAAP earnings per share of $4 63.

And adjusted earnings per share of $5 14.

Ahead of expectations and against the backdrop of COVID-19.

For the full year.

Reported GAAP earnings per share of $24 73.

And adjusted earnings per share of $25 98.

Reflecting a 16% increase year over year.

During 2021, our investments in enhancing the customer experience.

Delivering innovative customized whole health solutions and deepening digital engagement.

Helped to deliver strong growth across our health benefits businesses.

All while rapidly scaling our diversified health services solutions.

We ended the year with $45 4 million members up $2 4 million or 6% year over year.

With approximately three quarters of those gains coming from organic growth.

In our commercial business improved selling strategies and innovative customized product offerings sustained our momentum.

Led to the best ever selling season for our national accounts team in.

In addition to.

Traction is accelerating as we address clients' unique needs and targeted sub segments, such as balanced funding for mid sized employers and customized plans and digital tools for college students.

The flexible architecture of our Sydney Health mobile App enables seamless integration into clients' ecosystems, while helping deepen digital engagement with members in this fast growing market.

As a result, we anticipate delivering another year of growth in our group and individual businesses in 2022.

For many employers are focus on affordability and integrated whole health solutions is prompting consolidation with anthem eliminating.

Eliminating other medical carriers and integrating pharmacy management.

Consequently, <unk> saw significant growth in net new sales to start 2022, keeping.

Keeping us on track with our goal of narrowing the profitability gap are risk based and fee based commercial customers.

Moving to Medicare advantage are continuing work to strengthen anthem value proposition helped drive another strong annual election period.

Customers want their benefits to meet their needs today and in the future and packages like our everyday extras that offer holistic services such as transportation.

Arsenal home health and healthy pre prepared meal delivery are resonating because they provide the flexibility to choose what matters most to each individual.

Offering flexible and personalized benefits will remain a key part of our approach in individual Ma.

And we expect ongoing enhancements to power another year of double digit growth in 2022.

We also expect a substantial membership increase in group Medicare advantage when our contract serving the retirees of the city of New York begins on April one.

This timing is consistent with the recent court ruling that upheld our contract and extended the open enrollment period for an additional three months.

In Medicaid our team did an outstanding job in 2021, demonstrating the differentiated value we offer states built on our deep understanding of the needs of their communities, our rich legacy of investing in community health uniquely positions us to address helped to spare.

<unk> with solutions that extend beyond clinical care to improve health outcomes.

Our 100% RFP win rate included renewals of our statewide contracts in Tennessee, and Indiana, and a new statewide contract in Ohio, which will help further deepen our roots in that state.

Given our leading market share positions in commercial and Medicare advantage.

Then as we begin serving ohioans in July our pending acquisition of Paramount advantages, Ohio, Medicaid contract will amplify our Medicaid footprint.

This investment follows our pending acquisition of Integra, New York managed long term care plan that will strengthen our presence and capabilities in the greater New York City area.

These examples demonstrate our commitment to strategic and programmatic M&A.

And we've become more agile and proactive as we target health plans that deepen our existing benefits business and acquisitions, which diversify and expand our addressable markets.

A good example is our main Nexus acquisition, which enables members to live healthier lives in their homes. My Nexus has performed well to date.

Given partly by its expanding scope within anthem.

In addition, we expect the ongoing aging of the population and consumer preference for at home care to propel growth for years to come.

Over the last year, we significantly advanced our care provider strategy with investments and risk bearing primary care providers and aggregators.

Enhancing value based arrangements across our network.

These arrangements accounted for more than 60% of our medical expense last year.

We expect this strategy to accelerate membership growth increased star ratings, and improve health outcomes and cost of care.

Investing in providers and Aggregators securities joint governance to maintain alignment of shared interest with our partners, giving anthem value from sharing risk and elevating the customer and provider experience.

Importantly, this strategy ensures anthem is not overly reliant on one care model as value based care matures.

Our diversified business group will increasingly benefit from these arrangements by opportunities to service anthem providers with enablement programs and other diversified services.

Many of which target the needs of complex and chronic patient populations, where we see significant opportunities to improve outcomes access and total cost of care.

We expect to remain flexible and thoughtful in our provider strategy.

Partnering in most markets and investing in care delivery and others, where it makes sense.

We also made meaningful headway in our digital transformation during the quarter with accelerating investments to deepen digital engagement and meet the increasing need for convenience and personalized care.

During our peak on boarding period early this month digital registrations rose 150%.

And visits the Sydney Health grew 142%.

Capabilities and investments in artificial intelligence, which power our personalization engine are helping optimize the customer experience and reduce low value administrative tasks for example.

Our virtual primary care platform.

<unk> real world learnings on commercial members usage patterns and preferences to anticipate customer needs and offer customized experiences.

Automating the onboarding process delivers better experiences by saving time, and improving the accuracy of critical data and the quality of virtual visits.

To illustrate more than a thousand emergency room visits were avoided last month by predicting and addressing adverse health events through our virtual care options.

Results like this are encouraging and we're excited to accelerate the pace.

Anthem enters 2022 with strong growth momentum across all of our businesses.

This gives us confidence in our ability to deliver growth in adjusted earnings per share consistent with our long term target range of 12% to 15%.

As John will discuss more in a moment.

Looking ahead, you can expect us to continue investing in profitable growth.

Innovating for consumers and advancing our digital platform for health as we work to achieve our purpose of improving the health of humanity.

As part of our community health and sustainability commitments I'm pleased to share.

We recently met our 100% renewable electricity goal four years ahead of schedule and are now producing enough clean energy.

Via Offsite purchase agreements to power all of the anthems offices data centers and clinics.

It's gratifying to see our efforts or an anthem are placed on the 2021, Dow Jones sustainability index for the fourth consecutive year and on just capital 2022 rankings of America's most just companies.

We're also in the early stages of leveraging insights derived from a dynamic model tracking the health of our communities across local social and clinical drivers.

We call it our whole health index.

We believe it will help us more closely assess our progress towards helping people live healthier lives.

In its simplest form the index will help us identify the most promising opportunities to improve the health of our members and their communities.

To date, we've leveraged the index to design and launch programs to manage obesity in five of our Medicaid States.

Health issue is especially severe.

We're currently learning from field test and are excited about the possibilities ahead.

Notably and diabetes prevention and customized wellness campaigns for employers based on the needs of their employees.

As part of our ongoing work to support our customers' health.

We also began offering risk based commercial members free at home Covid tests through our Sydney App starting last November .

Delivered within one to two business days to Kip Hello members to test safely without leaving the comfort of their homes.

This program has positioned us well to comply with the administration's recent requirement to provide home testing at no cost.

In closing I'll leave you with these three takeaways.

Anthem fiscal year 2021 performance demonstrates our strategy to become a lifetime trusted partner in health.

Is helping unlock anthem full potential.

With our plans and continued investments for fiscal year 2022.

We are excited about our ability to sustain this momentum and deliver growth in the years ahead.

And our strategic approach to innovation and digital transformation enables us to move even faster and with greater agility as we accelerate our digital platform for health and offer new ways to attract engage and retain more customers, while streamlining our business and <unk>.

<unk> the consumer experience.

Now I'd like to welcome John to add his view on the quarter and our outlook for 2022 John .

Thank you Gail and good morning to everyone on the line as Gail stated we are pleased to have delivered solid fourth quarter financial results closing out another year of strong growth driven by the continued execution of our long term strategy all while navigating the ongoing uncertainties.

Associated with the pandemic.

Fourth quarter earnings per share of $5 14 was ahead of our expectations and drove full year adjusted earnings per share to $25 98.

Reflecting growth of approximately 16% year over year above our long term, 12% to 15% annual earnings per share growth target.

Total operating revenue for the fourth quarter was $36 billion, an increase of more than 14% over the prior year quarter, reflecting solid growth in our benefits business, coupled with continued momentum in our services businesses.

We closed the year with 45 4 million members growth of nearly 6% or $2 4 million members in the year, including 303000 lives added just during the fourth quarter with growth in both our government and commercial businesses.

This was the 14th consecutive quarter in which we grew total medical membership underscoring the strength and resilience of our core benefits businesses through periods of economic strength in periods of economic uncertainty.

In 2021, we grew our government membership over 17% driven by organic growth in Medicaid.

Another year of double digit organic growth in Medicare advantage and the acquisition of Mmm.

Commercial enrollment grew modestly as solid growth in our risk based areas were partially offset by in group attrition in our fee based business due to broader labor market dynamics that occurred during the year.

Our fourth quarter benefit expense ratio was 89, 5% an increase of 60 basis points over the prior year quarter, driven by the repeal of the health insurance tax in 2021.

As expected total medical cost in the quarter were above normal or baseline levels, but still compared favorably to our expectations driven by lower utilization of non COVID-19 care.

Largely offset by higher than expected COVID-19 related cost notably in December .

And from SG&A ratio in the fourth quarter was 11, 7% on a GAAP basis, a decrease of 200 basis points over the prior year quarter.

Excluding the adjustment items noted in our press release, our adjusted SG&A ratio would have been 11, 1% down approximately 250 basis points year over year.

The decrease was driven by the repeal of the health insurer tax and the expense leverage associated with strong growth in operating revenue, partially offset by increased investments to support our growth and digital transformation efforts afforded by outperformance in our investment income.

Fourth quarter operating cash flow was $1 $7 billion, bringing full year 2021, operating cash flow to $8 4 billion or one four times net income.

Our fourth quarter and full year cash generation beat our expectations, reflecting strong operating performance this year as well as a shift in the timing of the planned payment of our share of the Blue Cross and Blue Shield Association litigation settlement.

We now expect to make this payment of approximately $500 million in 2022, which is included in the guidance. We provided this morning for operating cash flow of greater than $6.9 billion.

We ended 2021 with a debt to capital ratio of 38, 9% in line with our expectations and well within our targeted range.

Consistent with our approach throughout the pandemic, we maintained a prudent posture with respect to reserves.

Days and claims payable ended the year at 45, two days an increase of one eight days year over year with medical claims payable up 19% year over year compared to the premium revenue increasing by 13%.

During the quarter, we repurchased one 3 million shares of our stock at a weighted average price of $417 92.

For the year, we repurchased five 1 million shares for $1 $9 billion ahead of our original guidance of $1 $6 billion.

We were opportunistic in the year capitalizing on periods of market volatility.

Notably during the fourth quarter.

Turning to our outlook for 2022, we are pleased to provide initial guidance, including adjusted earnings per share of greater than $28 25.

Which reflects growth of at least 12% from the normalized adjusted earnings per share baseline of $25 in 2000.

In 2021.

As a reminder, we benefited from significant investment income outperformance during the year, including amounts that we believe to be nonrecurring.

We offset a portion of the upside in the fourth quarter by accelerating investments in our business.

In total for the year, we believe nearly <unk> of our adjusted earnings per share to be outside of our run rate. Accordingly, we continue to view $25 20.

Is the appropriate starting point for our growth in 2022.

We expect to end 2022 with total medical membership in the range of 45.6 to 46.2 million members.

This outlook includes the expectation of generating double digit organic growth in our individual Medicare advantage business.

And the launch of our group Medicare advantage contract, serving the retirees of the city of New York in April .

I'll add at least 200000 group Medicare advantage lives.

Shifting a like number of members out of our commercial fee based enrollment given that we currently serve the city's retirees are they self insured basis.

And all Medicare advantage membership is expected to grow in the mid teens percentage range.

Outlook also reflects strong growth in our commercial risk and fee based businesses, including a strong starting point due to a record selling season for national accounts.

We expect commercial fee based membership to grow by 2% to 3% or 530000 to 730000 members net after covering the transition of our more than 200000 existing fee based members in New York into our New group Medicare advantage.

Vantage contract and low single digit growth in our commercial risk based members.

With respect to Medicaid our guidance assumes a public health emergency will end in mid April as is currently planned with Medicaid eligibility redetermination resuming around the middle of the year.

Correspondingly, we expect to capture our commensurate share of growth in commercial fee and risk based markets as consumers, losing Medicaid benefits migrate to employer sponsored coverage and individual plans.

As you might expect our membership outlook for our commercial and Medicaid business is highly dependent on the timing and pace of Medicaid eligibility re determinations.

The launch of our new statewide Medicaid contract serving Ohio. In July is also contemplated in our guidance range, while membership associated with pending acquisitions is not.

We expect continued momentum in our diversified business group and in junior Rx segments with revenue growth on a combined basis in the low to mid teens.

Altogether the momentum we are seeing across all of our businesses will drive operating revenue up 11% year over year to approximately $152 billion.

This includes approximately $130 billion of premium revenue also up 11% over 2021, representing an increase of nearly $13 billion.

The consolidated benefit expense ratio is expected to be 88% plus or minus 50 basis points in 2022, consistent with our initial outlook for 2021.

At the midpoint.

This reflects a 50 basis point increase year over year, driven primarily by the launch of our New York Group Medicare advantage contract.

With respect to the impacts of Covid on our overall cost structure, we anticipate another year in which the overall cost of care will track above normalized levels drill.

Driven by Covid related treatment vaccination and testing costs.

We expect the SG&A expense ratio to be 10, 8% plus or minus 50 basis points in 2020 to.

Reflecting a reduction of 60 basis points at the midpoint of the range relative to our adjusted SG&A ratio in 2021.

The reduction was primarily driven by operating expense leverage due to strong growth in revenue. In addition to the benefits of our ongoing modernization efforts, including workflow automation and Digitization.

This was partially offset by continued investment in our initiatives that will drive future growth and the operating efficiencies, including digital engagement and system migrations.

We expect our operating gain for the year to be greater than eight $4 billion, reflecting growth of at least 8% year over year over adjusted operating earnings in 2021.

Below the line investment income is expected to be approximately $1 $1 billion in interest expense is expected to be approximately $840 million.

Our effective income tax rate for the year is expected to be in the range of 22% to 24% consistent with 2021.

Full year operating cash flow is expected to be greater than $6 9 billion, which includes the anticipated payment of our share of the BC BSA litigation settlement, which as I noted earlier is approximately $500 million.

From a capital deployment perspective, our long term targets remain unchanged and we will continue to pursue programmatic M&A in an effort to enhance the organic growth of our existing operations and diversify and extend our capabilities moving.

US closer to our goal of becoming a lifetime trusted partner in health.

While our guidance does not include any benefit from future pending M&A. It does contemplate a 4% to 5% contribution to growth and adjusted earnings per share associated with capital deployment.

Including M&A completed in 2021, notably Mmm and mine access.

And anticipated share repurchases of at least one $5 billion in 2022 that we expect will drive our weighted average share count into the range of 243 to 244 million shares outstanding for the full year.

With respect to seasonality, we are projecting profitability patterns closed our historical ranges and expect to earn approximately 55% of our income in the first half of the year, Although earnings in the first and second quarter will be split roughly evenly.

Our guidance assumes that our benefit expense ratio will approximate the midpoint of our full year range in the first quarter, which we believe will be a prudent assumption in light of the uncertainties associated with the COVID-19 pandemic.

I am also pleased to announce that our board recently authorized an increase in our quarterly dividend of more than 13% to $1 28 per share continuing our track record of increasing our dividend every year since we began paying dividends in.

2011.

Our new dividend annualized is the $5 12 per share yield of approximately one 2% based on our current share price.

In closing we are pleased to have delivered another year of strong growth despite significant challenges related to the COVID-19 pandemic.

While much of the backdrop remains uncertain, we are committed to managing the uncertainty thoughtfully and prudently.

We look forward to making further progress against our strategy and delivering on our financial commitments once again in 2022.

Operator, we will now open it up for questions.

Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your telephone keypad Youll hear prompt that you had been cute you may withdraw your question at any time by pressing Star then two if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each.

<unk> that may wish to participate in this portion of the call for our first question will go to the line of Steve <unk> from Barclays. Please go ahead.

Great. Thanks, good morning, everybody.

So regarding Medicare advantage, there's obviously been a lot of industry discussion related to the.

External telephonic sales channel just curious if you can give us an update on how important you think that channel is in relation to your growth outlook in individual MA can you also remind us again, where you stand on your internal sales and distribution capabilities for.

Individual MA is that something that you are contending with as far as the sizing right. Now are you looking to expand that further.

Thanks for the question, Steve I'm going to ask Felicia Norwood, who leads our government business to respond.

Good morning, Stephen Thank you for that question.

First and foremost let me say that we are very pleased with our overall performance. During this past AEP and we're on track for another year of double digit growth in our individual Medicare advantage business.

When we think about distribution we.

Meet our members where they want to be met from a sales perspective and that means providing them with a range of distribution options.

Ammo channel represents an important and valuable distribution partner for US we saw an acceleration in the channel prior to the pandemic and we've long recognized the value that they bring in educating consumers about Medicare options and equally important the differentiated value that anthem provides.

This AEP for us wasn't meaningfully different in terms of our distribution mix and we're going to continue to provide a distribution mix that represents being able to meet our consumers.

At the pull in of the spectrum.

We believe in the strong value of MAA, it's a very solid business and we really provide a strong value proposition for our consumers. So we continue to evaluate all the time our mix, but we feel good about where we're positioned today with our distribution mix.

Thanks for the question, Steve and I'll, just sort of summarize what Felicia said I mean, I think we felt we had a very strong AEP with expecting double digit growth in very consistent from our perspective around the competitive market as well as the distribution channels. So thanks for the question and next question. Please.

Next we will go to the line of Justin Lake from Wolfe Research. Please go ahead.

Thanks first I wanted to just follow up on Steve's question there in terms of.

Pacific around the third party marketing the focus has been on churn.

Be curious what you're seeing on churn and then I know that.

More compliant that CMS is looking for there.

Think that affects the market or the effectiveness of that market and then my question was just around commercial Fred can you talk about testing cost in 2022, and what you're thinking there and then just overall I know you said you had John you said that there'll be some consistency in terms of an expectation of trend above normal.

Any differences in 'twenty two versus 'twenty, one by segment given that commercial seems to be running hotter than the government going into the year.

Well. Thank you Justin there were a number of questions. There. So we'll try to address let me let me first take the first one around Medicare advantage.

<unk> I think very consistent competitive environment. When you talk about churn specifically, we're not seeing anything significantly different than we've seen in the past it's been a competitive market. It remains a competitive market as I've shared we feel that our supplemental benefits and the things that we do to help support Medicare beneficiaries has had been.

Very positive.

Also we spent a lot of time on ensuring that.

Through our marketing and other things that our members understand the components of our benefits and have a good welcome experience with us, but again, we see that as pretty consistent I'm going to ask John to address the questions that you had more specifically around trend. Yes. Thank you Justin for the questions in terms of trends by lines of business.

I had stated in the prepared comments overall total COVID-19 was higher than anticipated, but non COVID-19 more than offset it and so our total cost structure, while above baseline was.

Better than our expectations.

Commercial had the highest cost compared to baseline.

You look at what happened in the fourth quarter children are eligible for vaccines for the first time you had the omicron surge et cetera. Medicare was next in line with overall cost structure of adding in COVID-19 non COVID-19 combine to be slightly above baseline.

Medicaid overall actually ended the quarter slightly below baseline, but all in the totals are what I said as you look to 2022.

Consistent themes and were not going to go into specific trends by line of businesses, but overall, we expect commercial to have the highest amount of cost compared the baseline of the three lines of business for the year.

Medicare to be second and Medicaid to be third so very consistent 2022 expectations versus fourth quarter actuals. So thank you for the question.

Next question please.

Next we'll go to the line of Nathan Rich from Goldman Sachs. Please go ahead.

Hi, Good morning. Thanks for the question, maybe just following up John on the comments on the MLR I think you said that first quarter MLR would be kind of consistent with the annual range.

Sure.

That's a fair bit higher than I think of how it typically trends. So could you maybe just go into some more detail on what youre expecting to play out in the first quarter and what's driving that step up thank you.

Yes, good morning, Nathan and thank you for the question and maybe I'll address earning seasonality in MLR seasonality.

Somewhat consistently because they obviously drive each other.

Look at the seasonality of earnings patterns that we've had historically as a company we've had 50, 560% closer to 60% of our money.

And the first six months of the year.

Pre pandemic that obviously has shifted in the last couple of years.

And what you are really not the best benchmark to use now for analysis purposes.

And.

And now we look at what we expect this year, where we expect closer to 55% of our maybe earned in the first half and then we expect the first and second quarter to be relatively consistent with each other.

First quarter MLR as you pointed out will be a bit higher than historical patterns.

A few key reasons for that we ended 2021 going into 2022 with an omicron surge that was impacting our commercial business, maybe a bit more than than other lines consistent with how I just answered Justin's question.

There is a spike in hospitalizations that we're going through.

Do expect non COVID-19 the drop.

Quarterly timing, maybe isn't quite as clear.

One other comment just to make to help clarify maybe a change in <unk>.

Seasonality patterns is within the public health emergency right now.

The public health emergency has many many provisions associated with it one of those is that any COVID-19 diagnostic testing or cost structure.

We need the waived co pays and deductibles.

And so if you think about our historic seasonality patterns in the historic fact that at the beginning of year that Copays and deductibles are a significant part of the.

Of the leverage between quarters, you don't have that to quite the same level during a public health emergency.

And while those Copays and deductibles are still in effect for the full year. They do not apply to COVID-19 type cost structures and so we have a shift of costs between quarters.

And then and then in the second quarter, we do expect COVID-19 to be a little bit less severe than it is in the first quarter.

And so that will impact our MLR positively, but we also launched the city of New York Group Retiree business and excellent contract that we won and so that will put upward pressure on the MLR in the second quarter. So all in we think.

We're in pretty good shape, and we want to be very prudent in terms of how we're assessing the.

Covid pandemic and our guidance. Thank you.

Thanks for the question, John and I guess I would reiterate as John said, there are a number of moving parts to this but we feel that we've taken those into consideration and wanted to share our thoughts on certainly the first half of the year, but feel confident in the way we've managed through it in 'twenty, one and heading into 2022 next question. Please.

We will go to the line of a J rice from credit Suisse. Please go ahead.

Hi, everybody.

No.

It took over.

Our diversified business group operation in October and I wondered if I could get.

Either Gail or <unk>.

Pete to talk a little bit about where the near to intermediate term opportunity. I know you mentioned a lot of things that touch on <unk> in your prepared remarks, but what are what are the two or three or four.

Big opportunities for D. Dbg looking over the next year or two.

Well thanks for the question, a J and I will turn this over to Pete I tie in to share his perspective, but I think theres a few things going back to my remarks, one clearly a huge opportunity for us and in Jennie O Rx as well and we shared how well that business is performing and the opportunity that we have to continue to embed <unk> as part of our whole health solutions.

Into particularly mid market accounts that we've done a nice job there and then in terms of the diversified business group again, serving our complex and chronic patients has been an area of focus for a number of years and we're seeing acceleration in that so I'll ask Pete to give some specific points about where he sees that growth coming from.

Thanks, Gail and thanks, a J I appreciate it.

I continue to be really energized about the opportunity as Gail said, serving the complex and the chronically ill.

Really aligns well with our core business and where we're seeing the trends go in our core business.

I'd say.

<unk> importance is the opportunity to penetrate anthem more as it relates to our core existing offerings.

A tremendous opportunity to expand our product portfolio and offer new products for these complex populations.

I'd say, we're very focused on an at least I am and the team is in the short term on how a lot of these solutions stitch together and extend to create further value. For example, if you think about my Nexus, which as Gil said com.

Comments is performing really well its connection to the home. It allows us to consider a lot of extension product opportunities. So when you think about that more specifically the post acute care opportunity and we're actually going to be launching some new post acute care product offerings. This upcoming year. When you think about managing durable medical equipment and the opportunity there.

And importantly, as we've talked about for the last several quarters the importance of social drivers of health and how much is occurring in the home. So that's one area that we are we are very interested in and then again how you. We've engineered <unk> into this also plays a critical role in terms of specialty pharmacy, and potentially home infusion et cetera, and I think the other really important.

As we as we put these product offerings together and stitch them together it creates tremendous proof points as it relates to our opportunities externally with the blues and our Blue partners. We currently have 26 blue clients I think there is tremendous opportunity to improve that and then importantly, with those blue clients, we have 10 with.

Multiple solutions, so I look forward to the opportunity to create value and anthem and then extend that externally as well, yes. Thank you Pete and I think you heard from Pete as it relates to huge opportunities for us for accelerating growth one <unk>.

For penetration inside of anthem, and we're beginning to bring all of these products together in a much more integrated way and to the opportunity through our provider strategy, our aggregator strategy to use our diversified business assets to participate in the profit pools in that area. So those are two we think growth opportunities for us in the future and again it's.

Early days, but we're seeing some really nice progress in these early days. Thanks for the question next one please.

Next we'll go to the line of Stephen Baxter from Wells Fargo. Please go ahead.

Alright. Thanks for the question I don't think I heard you talk too much about the outlook for the individual commercial business. During prepared remarks, I was hoping you could give us a sense of where membership there is expected to be for 2022 in that business and then how youre thinking about profitability in 2022 in light of your expectations around Covid and anything you want to touch on the competitive dynamics there. Thank you.

Thank you I'm going to ask Morgan Kendrick, who leads that business to provide some commentary.

Hey, there Steven Thank you for the question first of all I'd say, we are expecting growth in our individual business. This cycle you ask about our margin trajectory on that and how we felt about it.

Clearly, we're expecting to reprice the business accurately we price it based on our forward view of trend.

<unk> certainly is a big piece of that and when we think about it we've adjusted pricing as necessary, but we see we're seeing and we're still in open enrollment for <unk>. Some of them are extended through the end of the month and right now things are looking quite good you would imagine there are some states there are puts and takes across the country, but nonetheless, we feel good about it and we're expecting growth in the first quarter. Thank.

Thank you for the question.

Question. Please.

Next we'll go to the line of Lisa Gill from Jpmorgan. Please go ahead.

Good morning, and thanks for taking my question.

Just wanted to go back to thinking about medical cost and and John you talked about overall cost of Caribbean above and you talked a lot about COVID-19 , but how do we think about any elective procedures that have been pushed off due to COVID-19 would be my first question and then secondly, as you looked at Delta versus Ami Chron.

Appears at least from the seat I sit in that it was a much less severe a lot more people had testing and other types of costs, but how do we think about if there is that next variant now that will have a treatment in the marketplace. Obviously a lot more testing how do we think about how that cost progressed and what that means to Cushing.

Incremental elective procedures to have those costs offset so how do I think about that in total.

Sure. Thank you Lisa for the question. So I'll see if I can unpack them all with the.

With this answer.

In terms of access to the health care system over the past year, we really have not seen any one that has been denied access to needed necessary care and so while there may have been some puts and takes and some pent up demand in the past we think.

The vast vast majority of that is all past and while that does happen on a temporary basis. During some of these surges.

The system is able to accommodate so.

And the other thing I think is very clear that we've seen is that whenever there is a COVID-19 surge that there has historically now been a non COVID-19 drop that as a natural hedge against it.

In terms of the.

Just the cost trend in general and other variance I certainly don't want to predict what the next variant is going to look like even with letter of the Greek alphabet, it's going to be named after but on the other hand as we look at Omicron Omicron is clearly less severe on a per member basis, but far more contagious.

If you look at really the.

The number of people who are infected by it this multiplicative were higher than the number of people that were infected by delta or the original Covid and then the hospitalization rates are then a fraction, but you look at it sort of on a year over year basis.

Hospitalization rates are relatively consistent in total and maybe even up a little bit for omicron. So it's really hard to say exactly what the next variant is going to look like but we model. These things we tried to be very thoughtful and even prudent and conservative in the way that we've modeled it and I think you can see our 2021.

<unk> has shown that we are a bit conservative in the way that we assess these things.

And we're going to continue that same thought process for 2022. So thank you for the question next.

Next question please.

Next we'll go to the line of Rob Cottrell from Cleveland. Please go ahead.

Hi, Good morning, Thanks for taking my question I wanted to focus on the commercial fee growth and the outlook for 2% to 3% membership growth. Just curious are those members coming in with higher specialty attachment rates that keep you on track for the three to one margin targets or is that something that potentially pushing that target out given the straw.

Longer growth.

Thanks for the question just to clarify a little bit when we talk about the profitability between fully insured and our.

Self insured business, our risk versus fee, we're really talking about growth.

Adding more services to the fee based business. So I wasn't sure if I understood. Your question correctly, but we are making great progress on that.

<unk> predicted that we would end the year around four to one which we did and were seeing as I mentioned in my opening comments the opportunity to add in <unk> plus clinical services advocacy. So there's a whole number of areas.

That have begun to gain traction in that so we feel very much on target and feel good about it.

If you think about just our fee based revenue in the fourth quarter increased 12% compared to a year ago.

When revenue increased over and for the year increased over 7%. So this growth came despite somewhat flattish membership growth.

That really punctuates the impact of the various buyout programs that we've had so again.

<unk> feel like we're making really good progress on that your question about the 2% plus ROA.

Risk based membership growth, we feel that that's a prudent.

<unk> going into the year, we had very strong growth in 2020.

But feel good about where we are positioned.

There was a previous question about our individual membership again, we've taken I think a very steady and consistent approach to the individual market did that again. This year. So we don't look for outsized growth in any one of those markets, but consistent growth across our risk base and in 2014 States, where we do business. So again feel good about it making progress.

Around all of those.

Again, we are making progress on that profit target ability. Thank you next question.

Next we will go to the line of Lance Wilkes from Bernstein. Please go ahead.

Yeah. Good morning wanted to ask you a little bit about your value based care delivery strategy and was interested in the stakes you've taken in some companies recently and how you how you look at.

How are you kind of parcel out the country with respect to those one.

Also.

Has your appetite for owning care delivery change and then last as Youre thinking about.

Partnering with other blues is this a capability that you could provide to other blues and some sort of way. Thanks.

Well. Thanks. Thank you very much for the series of questions and let me try to kind of go through each of them and give you a bit of a perspective.

As I shared in my opening remarks, I think we've been very consistent actually in our care provider in our value based strategy over the years spin.

Specifically at your question comes to what it relates to primary care I think we've always taken a very thoughtful approach to how we leverage our scale in the market because we do believe that's one of the critical criteria for success.

Recently, we shared and have updated everyone on some of the partnerships are modeled primarily has been a partnership model. So our investments for example in Peruvian Alidade are the two that I think youre, referring to but there've been others that we've also shared.

When you talk about taking an ownership position again, that's something we have done in the past so it's not I know.

Often we get the question of why we don't do it we have done it actually and it where it makes sense in our local markets and based on the depth and the dynamics and good examples very early on with <unk>, but also health funds simply and most recently last year. When we bought mmm. So we're not against owning care delivery, but we do think.

In areas, where we want to own it would be where we can accelerate our membership growth and predominantly in areas where complex and chronic patients. We can improve the impact we have there obviously increase our star ratings and improve the health outcomes.

And by partnering is one of the important parts in our aggravate or I want to I want to take a minute on the aggregator strategy and why we're investing in some of these because they also allow us to stand up joint governance structures and prior my prior answer we talked a little bit about making sure that we remain aligned with our care provider partners so that.

As a great way for us to participate in the governance structure and be aligned with our care providers and be very direct about our partnership preference, where we can do it.

So as you think about these partnerships. They also benefit our diversified business group.

Going back to my last answer we see an opportunity to wrap around different provider enablement programs also some of the acquisitions. We've done recently are good examples of where we can do pull through.

And we can participate in the profit pool in a broader way so very consistent with that they're very capital efficient for us.

And again.

Our focus is very much on complex and chronic and we see significant opportunities. So I guess I would conclude.

Our strategy is different than others, and we see that as a unique is unique because of the set of assets that we have are very unique and we want to leverage that depth and again that partnership that we've built it also allows us to drive value from sharing risk and ensuring that we're not reliant on any single model.

As we know this value based space continues to evolve and mature.

I don't think that one model is going to work in every market. We fundamentally believe that care is delivered locally and thats a core to who we are and sort of how we've grown up as a company and so we see each model is unique but we do think that there's an opportunity for scale and to wrap around particularly our dbg assets and to drive differentiated outcome in terms of your last question.

<unk>, we do share a lot of these models with our partner Blues, particularly in states, where we have jv's already so yes, we do think there's opportunities for us to take a leadership role there and work closely other blues have great ideas and we also learned from them. So we think this is an opportunity where the market is going to change quite a bit and we're going to keep optionality.

<unk> and be very capital efficient, but also drive through I think a differentiated cost structure and thats kind of where we start today. So thank you very much for the question and next question. Please.

Next we will go to the line of Gary Taylor from Cowen. Please go ahead.

Hey, good morning, I, just had a quick follow up on the 22.

MLR guidance that 88% mid point up about 50 basis points, how do we think about mix impacting that.

Obviously.

That group it may account would push it higher but the Medicaid redetermination. So we would think about bringing consolidated MLR down I just wanted to think about the mix impact versus your comment that.

Overall, our cost of care will still run above baseline in 'twenty two and just are you are you implying that there.

Certain lines of business, where the MLR.

Moves up because of that underlying trend isn't is it price for 'twenty two.

Gary. Thank you for the question and really do appreciate the opportunity to provide clarity because it's actually a excellent question that you've asked.

The increase in MLR is essentially entirely driven by mix.

So we have the <unk>.

State of New York or I'm, sorry, the city of New York Medicare advantage contract that goes live as can be in excess of 200000 members.

Anqing April one that will increase the overall MLR of the company.

We have.

Just general growth.

In various other areas, we acquired Mmm mid year 2021, we will have a full year of M. M. M. In 2022. The overall aspect of that is that the weighted average MLR for the entire company goes up we go live with the Ohio midyear.

<unk> as well.

<unk>, new Medicaid wins.

So when you are Medicare advantage on an individual basis is growing by double digits really outpacing every other line of business. We have in the company and the average MLR associated with those new members increases the MLR of the company. So the core underlying MLR.

Associated with each of the lines of business the forward pricing aspects of including Covid, we feel very good about and feel very solid about but the analysis of the 50 basis point increase.

Entirely mix. So thank you for the opportunity to provide that clarification.

Thank you next question please.

Next we will go to the line of Matt Borsch from BMO capital markets. Please go ahead.

Yes.

Regional question, which is you talked about the New York market. It seems like you're making progress in a number of fronts. There can you just talk about the small market as I recall, you pulled out of the small group market I want to say, maybe eight years ago.

And it's kind of as I understand it kind of gets functional.

The way, it's structured and you've got a lot of small groups that are going into.

Sort of private employer.

Pools as a result, I'm just wondering I really just kind of region specific but if you'd be willing to address that.

Yeah, Matt. Thanks for the question as you can appreciate we won't go into details on specific markets.

And it really won't comment on one area in particular overall, our small group market, we feel really good about particularly the alternative and sub market strategy that we've launched over the last several years and have continued to make gains in it.

So our products are resonating there quite well we had added a virtual only product this year, that's having gaining a lot of traction.

But again, we'll speak to specific markets. So thanks for the question next question.

Next we'll go to the line of Ricky Goldwasser from Morgan Stanley . Please go ahead.

Yes, hi, good morning.

So just as a follow up on the cost of care in 2022, that's coming in above normal trend just for context, how does it compare to the $600 million in COVID-19 costs that were in 2021 to headwinds and then with the blues settlement now finalized.

How big is the opportunity when you think about market expansion into new states.

Okay.

Thank you Ricky I'll answer your first question on the cost of care and then.

Yes, maybe I think al wants to make couple of comments on the on the Blue settlement.

But associated with the cost of care I did not say that we would be above normal trend.

I said that the cost structure would be above baseline.

So I just wanted to make sure that the nuance of those words is very clear to everyone on the line.

In terms of how that compares to the COVID-19 headwind in the $600 million I'll, just say COVID-19 headwinds, there's many different things associated with them.

This treatment cost vaccine administration and testing that I'll go through cost of care or COVID-19 headwinds, though encompassed everything associated with Covid that might include things like the impact on risk adjustment revenue not necessarily cost of care, but clearly are an item thats going to impact revenue and impacts the bottom line and then off.

It will include drop in non Covid utilization pricing actions and various other aspects and those are just examples of a very very long.

Long list and so in 2021, we did estimate at about $600 million of net headwinds and while each bucket maybe didn't come out exactly how we had predicted.

The overall estimate was reasonable and so you look into 'twenty, two our net headwind smaller <unk>.

For instance, risk adjustment revenue should be improved compared to 2021.

You look at the.

The amount of utilization that occurred in the in the Medicare advantage in 'twenty versus 'twenty, one we should have better risk scores.

But additionally, we continued our pricing discipline so.

Anyway. So thank you for the question I just wanted to make sure that we're clear on exactly what the headwind related to and the size of it.

Yes. Thanks, Thanks for the second question Ricky in terms of the <unk>.

BCBS a litigation just to clarify as you know the final approval hearing was held in October of 'twenty, one and that court took the matter under advisement, which is typical for cases of this.

Got size and scale and so.

Some of the account members have submitted objections, which they're working through right now and Thats not unusual so it's pretty typical for a case of the size. So in terms of.

Projecting what this all means et cetera, as John said, we expect two.

To pay the settlement.

In 2022 versus what we had previously projected in 'twenty, one we fully accrued for that.

In terms of the overall market I think it's early too early to say I mean, we've always worked inside of the blue system with our peer plans.

We have a number of seeds and so really don't have a comment on that until we get through the overall process, but again I feel that that will get resolved in 2022. Thank you next question.

Next we will go to the line of Kevin Fischbeck from Bank of America. Please go ahead.

Great. Thanks.

You guys I guess I don't remember you go again, specifically quantifying the impact of having to cover in home testing can you just talk a little bit about how you guys thought about that.

Is that not an issue because you already assume COVID-19 cost is an issue because there is offsets on the PCR front any color there about how to size or think about how you came to your net impact.

Yes. Thanks, Thanks for the question Kevin in terms of home testing I think is a good opportunity to provide a little clarity on just how we're thinking about it.

First of all let me point out and I know everyone is quite aware of this that we're already paying for a significant volume of testing mostly inside of medical facilities and generally these tend to be 8% to 10 times the price of the at home Test. In addition add on the office fee. So while it's difficult to know the exact degree to which the home testing.

Our testing will go up as a result of the role we do expect some substitution with lower cost home test displacing some of those tests that are currently done in the medical facilities.

It's also as you heard in my opening remarks, we proactively began offering free home Covid tests to our risk based commercial members through Sydney Health in November and those tests right now are delivered to our members homes within one to two business days and our early experience indicates that individuals are ordering these based on their <unk>.

Need and theres been appropriate usage.

Respect our guidance, we did consider the effect of the substitution the availability of the four free tests per household that the federal government's supplying current short term supply constraints and the likelihood of spikes in demand in the year that would drive potential surges in the kind of a case rate. So those tended to coincide as you know.

The lower non COVID-19 utilization, so that should be a natural offset as John has shared earlier in the call. So bottom line theres, a pretty wide range or there is a wide range of outcomes around the rule, but we believe that our guidance provided this morning captures the most likely net impact in our financial results and Thats. One reason why our cost structure is expected to be at or.

Baseline in the fourth and the fourth quarters of 2022. So so overall, we feel we've captured it we've used our analytics to do our best assessment and again, we do have some experience with the test through our Sydney App. So thanks, very much for allowing us to clarify how we're thinking about that next question. Please.

Next we'll go to the line of Dave Windley from Jefferies. Please go ahead.

Hi, Thanks for taking my question. Thanks for squeezing me in I believe you've you've talked about 60% of your medical costs I believe specifically, an MAA or running through value based care I'm wondering how much of that is full risk capitation, how important that is to your strategy, there and maybe relatedly how.

Our duals in your MA strategy and moving them into more value based care. Thanks, Yeah. Thanks for the question, Dave just to clarify it's actually 6% across all lines of business. So that's across commercial Medicaid and Medicare advantage. So just to clarify that answer.

In terms of duals tools.

Tools are an important part of our MA growth strategy, we have a very significant impact in duals. It aligns both with the government business, but also what Pete does in the diversified business group and a lot of the investments that we've made so in my Nexus homecare and aspire palliative care.

Part of what <unk> does is quite extensive in the dual market. So very important part of US part of what we do we think value based care is critically important to this space and.

Some of the investments we've made with Aggregators will help support our strategy there in terms of full risk as we shared at our Investor day, It's an area that right now we're looking to significantly grow and impact over the next several years so of that 60%.

Yes.

Mid teens I would say across our book of business in total continues to grow in terms of full upside downside risks of not just competition, but other arrangements that were also looking to expand so overall, it's a growing area for us, including with our high performance network providers.

But we think.

Across the board that this is a core to how we get in to trend at CPI plus in our commercial business and to continue to deliver value and our government based business.

Thank you very much for the question next question. Please.

Next we'll go to the line of Scott Fidel from Stephens. Please go ahead.

Hi, Thanks, Good morning, just.

I was hoping to get a little more.

Insight into your expectations on Medicaid enrollment for 2022.

Maybe if you could talk about some of the offset in terms of how much.

<unk> from membership you're assuming just from the <unk>.

Resumption of re verifications in any sequencing on the timing of that.

And then as a positive offset if you have an estimate on the.

Amount of members, who are going to add from the new Ohio contract in Medicaid that will be helpful too. Thanks.

Yeah. Thanks, Scott appreciate the question and hopefully I can give you some detail to help clarify.

The timing of the public health emergency.

Clearly as the most significant assumption by that needs to be evaluated as part of all this and right now the public health emergency as a <unk>.

Slated to expire April 16th and as a result, we would expect re verifications to begin in the middle of the year.

So obviously, a public health emergency changes and everything else I'm, saying right now needs to be updated simultaneously.

But at that point in time, we do expect to see the re verifications, we expect to re verifications to occur over a 12 month period of time.

Through the end of 'twenty two in the first half of 'twenty three.

We are not expecting a cliff event associated with with membership dropping off at the same time.

We expect to.

Capture our fair share of those commercial members.

Part of our commercial risk membership growth is predicated on the Medicaid waiver applications occurring by its stayed it and so there's certainly a natural hedge or an offset associated with those are the one thing I do want to make sure that everyone's clear about is that there are two states out of our portfolio.

Palio, a Medicaid states that expanded the number of <unk> in their geographies for 2022 and those are states that we have.

Retained our business, however, with additional members or I'm, sorry, additional payers in those that the states are going to redistribute many of the members and so there is somewhere between one and 200000 members that we will lose within those states that we have retained and that's <unk>.

Part of the reconciling item that maybe you don't have associated with this and then.

As we look at our membership in total we gave all the components.

Fee based up very nicely individually EMEA double digit growth.

Group M. A nice growth with the city of New York.

Commercial risk up a couple percent and then the balance is the loss of members through the Medicaid we verification. So hopefully all that clarifies your membership questions. Thank you.

Next question please.

Next we'll go to the line of George Hill from Deutsche Bank. Please go ahead.

Hey, good morning, guys and thanks for sneaking me in and my question is on in Jennie O and Rx volumes can we talk a lot about medical utilization, but could you guys talk about if you feel like prescription drug utilization has kind of rebounded off of how I would think about a normalized growth trend line, maybe from an unaffected 2019.

What can you talk a little bit about the puts and takes if we see a rebound in prescription drug utilization both in the risk book enemy.

Fee based book and engineered thank you.

Yes. So thank you George for the question really reflecting on what happened in 2020, maybe as a starting point, we have about half of our scripts are maintenance type scripts and so certainly when the pandemic first occurred we didn't see any impact really notable impact on that level of script volume.

And then.

If you recall, we did relax the 90 day rules back then and saw a little bit of a blip in script count, but overall script volume of the remainder of the Scripps was down and that really corresponded directly to the non COVID-19 utilization being down as well.

And so now as we fast forward through 'twenty.

Through 'twenty one into 'twenty two scrip levels are relatively consistent with where we would have thought certainly as I said half. The scripts are maintenance scripts those haven't been impacted at all and then the other half very much are related to the non COVID-19 and non COVID-19 utilization.

Was approaching baseline levels near the end of the year before this last <unk>. So the script volume really corresponded with that so hopefully that clarifies the.

The issues on that.

Thank you next question please.

Next we'll go to the line of Josh Raskin from Nephron Research. Please go ahead.

Thanks.

I think one layer deeper on the strategy around working with value based providers and I'm curious what model seems to be working best and I think maybe you could delineate commercial versus Medicare because it sounds like it's across both books of business and then lastly, I'm not sure I understand what you mean by Aggregators are those the sort.

Check enablers and should we read into your comments and investments in Caribbean Alidade as as a preference there I didn't hear care Max or any of the center based investments that you've made.

Well. Thanks, Thanks for the question Josh in terms of value based I mean, the deepest penetration has historically been in the Medicare advantage space.

Given the nature of the product design that we've had it's been more around.

Very specific networks and the depth. So I think the industry has a lot more depth and experience in Medicare advantage, but we're seeing significant growth in our commercial business across not just anthem, but our partnership with our other non anthem blue So our high performing network part of the success that you saw in the significant growth in our <unk>.

Account business was the just the significant difference in our value proposition driven by high performing networks and again, we've got double digit improvement in costs versus our competitors. There that has been validated by by outside consulting firms. So again, that's one of the reasons, we consolidated where we were one of a multi.

Carrier in those accounts in this year, particularly with our largest probably most discerning accounts, where they could see year over year performance, we were able to consolidate to a single carrier.

I would use those as some proof points around the traction happening in high performing markets.

Performing providers and again, those are particularly mostly contracting relationships.

When I referenced the two aggregator models. Those are examples we clearly are working with others, but I thought that that would give you a sense of of two of the models that we're working with.

We're learning a lot I guess I'd say, it's still early days and many of these relationships we began them over the last really 12 to 18 months.

We think that what's important there is an alignment of the goals.

The depth of our market share and the opportunity for us to work hand in hand in that local market to really respond to the unique needs of that marketplace.

Predominantly started in Medicare advantage, but as you saw from some recent announcements were also doing quite a bit of work in commercial because we see the real opportunity. There and then you look at some of our markets, where Ohio is a great example, we have leading market share in Medicare and commercial and will soon.

Medicaid to that so again, you think across all businesses and supporting those many of the early.

Value based providers, we're focused on Medicare advantage, we see that expanding much more broadly to all markets and the skill sets. There. So again I wouldn't read in just the two names that we shared with you.

Our preference is to really work with the best in breed in the markets and be able to leverage our scale and deliver something very differentiated because of that unique market and we're going to continue to evolve that marketplace and we do believe that the diversified business group can wrap around it services and that's the way for us to participate in the profit pool, but also bring our services to our member.

<unk> and keep a very consistent consumer experience.

Hopefully that answers your question and thanks very much for the ability to clarify that.

Next question please.

Next we'll go to the.

Your line of Ben Hendrix from RBC capital markets. Please go ahead.

Hey, Thanks, guys for squeezing me in just one going back to your value based evolution here your competitor United had talked about achieving 8% to 10% margin across the.

Overall across the various cohorts of their capitate, our membership as they have been scaling rapidly and I know you guys are taking a very much more capital efficient partnership approach.

So how should we think about margins kind of as you scale and value based and capitate arrangements, maybe as you grow and then also on a run rate basis.

Yes. Thank you for the question.

We do provide some target margins at a line of business level, but we really don't think it's appropriate to go through and talk about target margins.

At a more granular level than that the one thing I will say, though associated with margin expansion is that our diversified business group is going to provide us a great opportunity for for margin expansion.

As Pete talked about serving anthem members.

<unk> more deeply and.

The commercial and the government.

Business units will pay diversified business group fair market value for the value that our diversified is providing and then and then Pete will continue to make a margin on his services.

Certainly the transaction will eliminate intercompany revenue yet.

Yet we will still have target margins on commercial and government and then we'll have the margins within pizza area. So we do expect margin expansion over the next five years and really driven by that.

Thank you next question please.

And for our final question will go to the line of Whit Mayo from SVP Leerink. Please go ahead.

Alright, Thanks, I'll be quick just looking at the individual exchange enrollment numbers. They look pretty good at least at the national level was there anything that you've learned as you study. These new members any underlying characteristics of where theyre coming from where these commercial with a Medicaid.

Just what your thinking is as it relates to the risk pool.

Morgan Kendrick will address that thank you. Thanks, It's Morgan here. Thanks for the question regarding unique characteristics. One thing we've noticed I mean, we like this business as you've said, we see it behave and evolved differently by geography, one of the things is there is a stickiness to it there wasn't there originally and Thats something thats been notable of late.

As far as where it's coming from we're typically seeing it come from other exchange.

Exchange members in the market there are targeted areas, we've made real discerning efforts to get after deep areas that we're underpenetrated in certain geographies that we have and they're paying dividends for us. So.

Again, one of the things that at the beginning of the ACA. It wasn't a sticky market. There was lots of churn every year, we're seeing that very differently now and we believe the assets we have in the in the.

The assets were bringing to the market will indeed pay dividends for us. So we like the market and look forward to continued work there.

Thank you Morgan now I'd like to close by saying. Thank you it's been a strong year for anthem and we greatly appreciate the interest you've shown in our company along the way I.

I hope today provided some more insight into how we're managing the short term while building for the long term.

Our results show, we're on the front on our front foot and we're optimistic about the future.

We're clear on our commitments you make whole health of reality and as we go forward you can expect our focus on being a lifetime trusted partner in health to be consistent.

Our work is a privilege and a responsibility of all 98000 of US an anthem, we take it personally everyday and we will keep executing with excellence and discipline to make a valuable difference for all of those who we are so privileged to serve thank you everyone have a great week.

Ladies and gentlemen, a recording of this conference will be available for replay. After 11 am today through February 25, 2022, you may access the replay system at anytime by dialing 805, 708, 796 and international participants can dial Tuesday Euro 3369.

3293. This concludes our conference for today. Thank you for your participation and for using Verizon Conferencing you may now disconnect.