Q4 2021 Humana Inc Earnings Call

Good day, and thank you for standing by and welcome to the Humana fourth quarter earnings call. At this time all participants are in listen only mode. After the speaker's presentation, there will be a question and answer session.

To ask a question. During this session you will need to press Star then one on your telephone.

Please be advised today's conference maybe recorded.

You require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Lisa Stoner Vice President of Investor Relations. Please go ahead.

Thank you and good morning in a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Susan Diamond Chief Financial Officer will discuss our fourth quarter 2021 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the lines for a question and answer session with <unk>.

Industry analyst Jove insurer, our chief legal officer will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks, and the related Q&A with analysts. This call is being recorded for replay purposes that replay will be available on the <unk>.

Relations page of Humana's website Humana Dot com later today before we begin our discussion I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially investors are advised to read.

Read the detailed risk factors discussed in our latest Form 10-K , our other filings with the Securities and Exchange Commission and our fourth quarter 2021 earnings press release as they relate to forward looking statements and to note in particular that these forward looking statements could be impacted by risks related to the spread of and response to the COVID-19 .

<unk> pandemic are forward looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward looking statements in future filings or communications regarding our business result today.

Press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site.

Call participants participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP.

Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that ill turn the call over to Bruce Broussard.

Thank you Lisa good morning, and thank you for joining us.

Today Humana reported financial results for the fourth quarter of 2021, reflecting the strength of our core operations, which continue to perform well throughout 2021.

Despite the challenges the industry faced as a result of the pandemic.

With that in mind and as we enter our new fiscal year I want to take a moment and speak not only to our 2021 results and our outlook for the current year, but more broadly about our strategy and the steps we're taking.

<unk> Humana for success.

Susan will discuss our results and outlook in more detail in a moment, but at a high level, our 'twenty to 'twenty one results and our 2020 outlook are largely in line with recently provided guidance.

Adjusted earnings per share for the full year were $20 64.

Which was above our previous estimate of approximately $20 50.

This represents growth of 11, 6% off of our 2020 baseline of $18 50.

All covering a $1 unmitigated net COVID-19 headwinds.

Looking forward, we provided full year adjusted earnings per share guidance of at least $24. This represents 11, 6% growth over our 2021 baseline of $21 50.

And 16, 3% growth over our actual adjusted EPS of $20 64. This guidance includes an embedded COVID-19 headwind of $1 before.

Before I highlight some of the actions were taken to delivered improved individual Medicare advantage membership and how we're applying learnings from our most recent annual enrollment season I want to emphasize that we are operating from a position of strength.

I'm incredibly proud that Humana is the second largest Medicare advantage plan provider supporting over 5 million beneficiaries with high quality coverage.

The quality of our product offering is the highest among our public peers with over 97% of Medicare advantage members in plan with a four star rating are higher <unk>.

Also increased the number of contracts that received a five star rating from one contract in 2021 to four contracts in 2022.

Which is the most in our history.

Finally, we saw an improvement of 930 basis points and our net promoter score this past year, reflecting our ongoing efforts to enhance the customer experience.

We continue to advance our customer segmentation efforts developing plans that are tailored to the unique needs of our specific member population.

This allows us to provide benefits that enhance and complement and individuals' existing coverage through programs like Medicaid or entities, such as veterans Affairs.

We're seeing great success through our initial segmentation efforts growing D SNP membership greater than 40% in both 'twenty to 2020 to 'twenty one.

In addition, our human manner honor plan designed for veterans that is also available to all Medicare eligible grew membership 80% last year.

We have a strong brand and our expertise caring for people as they age is highly recognized by consumers.

As a result, we have increased market share over time, achieving annualized enrollment growth of 11% since 2017, which is well above market growth.

Moreover, we have a proven track record of balancing membership and margin growth with our long term earnings growth target range of 11% to 15% continuing to be the ultimate goal.

With that in mind, a key element of our plans to return to industry, leading membership growth without negatively impacting earnings growth.

We will achieve this by leaning into our successful history of reducing costs and improving operational efficiencies.

We are committed to delivering sustainable cost reductions in order to create the needed capacity to improve our competitive positioning.

We are committing to drive a $1 billion of additional value for the enterprise through cost savings productivity initiatives and value acceleration from previous investments.

This will create the capacity to fund growth and investments in our Medicare advantage business and further expansion of our health care service capabilities.

These efforts spanned several areas first we have already begun a critical review of our ongoing strategic initiatives across the company. We intend to further focus our investments on those priorities, where we have the greatest conviction of significant value potential we will slow or pause further investment in some.

Areas in order to focus on accelerating value creation from investments we've already made.

Next we will drive further organizational efficiencies by optimizing our workforce in order to speed. These increased the speed agility and pace, we must work out as a large integrated health care organization, we see the opportunity to streamline our operating structure standardized work and simplified search.

Processes to eliminate low value work.

Third we will reduce and optimize third party spend in some areas of our business. This will translate to decrease in vendor.

While in others, we will outsource work to best in class suppliers.

In addition, with the ongoing reality of Covid and the way it has changed the way everyone works, we will be we will be significantly rationalizing our real estate portfolio.

And finally, we are driving greater operational efficiencies across the organization by modernizing streamlining and improving our processes through automation and digital advancement. This includes the use of technology to replace manual efforts in our core operations and to increase productivity of our workforce.

Beyond creating capacity to invest in our Medicare advantage products. We're also focused on optimizing our marketing spend and sales channels to maximize growth.

As we've discussed previously we have undertaken significant work each year to determine the optimal level of marketing investment and how these dollars are put to work.

Applying our learnings from the most recent selling season, we expect to further optimize our investment in marketing to ensure our messages are heard by more prospective customers.

We also plan to accelerate digital capabilities to increase our effectiveness and efficiency of member acquisition and.

And focus on experience of our existing members to improve retention.

We will continue to focus on ensuring we have a clear differentiated omni present brand with a strong call to action that supports industry, leading customer acquisition and.

And as we improve the value proposition of our plans. We believe we will see even greater returns from our marketing spend.

Regarding our sales channel, we will look to optimize the use of our internal channels as well as external partners or 'twenty 400 employed sales agents work to create long term relationships with our members ensuring they are educated on their planned choices and the benefits and additional support.

Services. Each plan offers this leads to better engagement greater plan satisfaction, and ultimately better health outcomes and longer tenure with Humana.

We do not expect significant shifts in channel mix. This year, we will continue our efforts to improve retention of our members broadly. This will include a particular focus on those enrolled in third party call centers, where we've seen term rates of approximately 400 basis points higher than our into.

Call sales channel.

We will be working with our call center partners to more closely replicate the experience delivered by our employed agents through enhanced training and service level agreements and we will also look for opportunities to create greater retention and quality incentives for sales partners.

As I mentioned, a few moments ago Humana offers superior quality to its members has a strong brand and a long history of expertise in caring for people as they age. Additionally.

Additionally, our clinical focus and suite of healthcare service capabilities allow us to take a holistic approach to supporting members, ensuring they receive high quality proactive and comprehensive care, which improves health outcomes, we will leverage the strength of these core fundamentals as we.

With our internal and external partners to improve retention.

As we look ahead and focus on our core operations. We are committed to continuing the track record of being capital efficient as we consider strategic advancement and return of capital to shareholders to that end, we are committed to advancing our plans to divest a majority interest in our hospital.

This business as we are confident we can deliver the desired experiences and outcomes for patients transitioning for restorative care to hospice through partnership models.

We have continued to explore various alternatives for the long term ownership structure of the business and have initiated steps to reorganize the hospice business for Standalone operations, while also making investments to improve clinician recruiting and retention to position the business for further growth.

We're not able to share details today on a specific transaction structure or timing, we expect that we will be in a position to provide a meaningful update by our first quarter call.

Our ability to drive innovation and improve clinical outcomes is enabled by our strong integrated care delivery platform.

And in recent years, we've made significant has significantly expanded our healthcare service capabilities in order to better serve our members and strengthen our payer agnostic care offerings.

Our healthcare service businesses are an important component of our strategy and will contribute considerably to humana's long term growth.

Combining our leading Medicare advantage platform and growing pharmacy primary care and home services increases our total addressable market and creates the opportunity for improved clinical outcomes lower cost of care and increased enterprise margin.

From our health plan members.

Our <unk>, which is the fourth largest in the country process $515 million 30 day equivalent scripts in 2021, an 8% increase year over year.

In addition, our pharmacy dispensing business continues to deliver industry, leading mail order penetration and we have successfully implemented tools to enhance our e-commerce experience, while expanding our mail order footprint as we get closer to the customer.

Our success is not only expanding volume, but improving health outcomes evidenced by our four star level performance in medication adherence metrics, which are three times weighted.

And our primary care business, we are in the early stages of growth and continue to expand our geographic presence. We are committed to funding the organic growth of our primary care organization in 2023 and beyond through a combination of on and off balance sheet such that we.

We expect no dilution to earnings growth from the organic growth expansion.

To provide more insight into our primary care organization. We ended last year with 206 centers, representing a 32% increase over the prior year.

We are accelerating the build out of our platform through a combination of de novo expansion and organic growth.

We completed nine acquisitions last year, bringing 40 newly wholly owned centers to our portfolio.

We also opened 15, new de Novo centers and consolidated five clinics into other locations.

We plan to continue prioritizing tuck in acquisitions focused on the markets, where we have established presence to provide more access and high quality care to patients.

In addition, we recently announced our intent to build an additional 26 centers this year under our existing joint venture with Welsh Carson.

When combined with planned acquisitions. This is expected to increase our center count by approximately 20% and bringing our total center count to approximately 250 centers by the end of this year.

As we look to 2023 and beyond we plan to build and acquire an additional 30 to 50 centers per year.

<unk> financed in a way that is not expected to be dilutive to earnings.

I would remind you that each mature center is projected to drive annual EBITDA of $2 million to $4 million.

Highlighting the meaningful opportunity increased contribution to enterprise enterprise earnings going forward.

Turning to the home, we recently announced the appointment of our new home leader Dr. Andy argument.

Andy comes to Humana from the University of Connecticut, where he served as interim University President.

And as CEO of the Uconn health system.

He will join Humana and serve as a member of our management team. Starting later this month.

He has been responsible for many home health organizations as part of an integrated health systems.

He has extensive operational experience for with for profit and nonprofit organization and as a doctor he understands the value of care in the home why seniors want more of it and our vision at Humana for making it easier for people to get the care they need at home.

Kindred at home is a strong fee for service business that we are committed to continuing to grow.

In addition, as I shared last quarter, we have made substantial progress towards our goal of scaling and maturing our risk bearing value based model that manages the provision of home health durable medical equipment and home infusion services. We believe the model has significant value creation potential both with.

In the Humana as well as payer agnostic way.

We have a goal of covering nearly 50% of Humana Medicare advantage members under this model within the next five years. The home model is active in South, Florida, and Texas today will begin and today, we will begin the rollout of additional markets in Virginia, and North Carolina in the second quarter.

With such.

Subsequent rollout to additional geographies this year and early next year.

After completing these first two phases of expansion or value based home health model will provide coverage to approximately 15% of Humana Medicare advantage members.

In addition.

And to the expansion of the full value based model, we have the opportunity to accelerate our return on investment by introducing select components of the full base home health model, such as Standalone, DMA or utilization management services and less dense markets, we believe approximately 60% to 70% of <unk>.

Members will be served by the comprehensive value based model over time, although remaining will be supported by select components based on the needs of the market.

Before I turn it over to Susan I want to once again emphasize that humana's core operations are strong and we continue to create significant value by driving growth in our top tier Medicare advantage business, expanding our Medicaid footprint and increasing contribution from our healthcare service businesses and delivering.

Ongoing cost efficiencies and productivity improvements across the company.

Indeed, we have great confidence both in the fundamentals of the Medicare advantage industry in the long term growth prospects for Humana.

And as we look ahead, our improved membership growth combined with further penetration in our growing and maturing healthcare service businesses position Humana favorably to deliver on our long term earnings target in 2023 and beyond.

We have a proven track record of not only balancing membership and margin to deliver our long term, 11% to 15% earnings growth target, but also improving health outcomes and lowering the total cost of care for our members and optimizing our operations through productivity and efficiency initiatives and we are.

Look forward to delivering on our latest targets.

With that I'll turn the call over to Susan.

Thank you Bruce and good morning, everyone. Today, we reported full year 2021 adjusted earnings per share of $20 64 slice.

Slightly ahead of our expectations of approximately $20 50.

As Bruce mentioned, despite the challenges we faced in 2021 due to the pandemic our fundamentals remained strong with the underlying core business delivering solid results for the full year.

Including the impact I mean, unmitigated net COVID-19 headwind of one dollar our adjusted EPS grew 11, 6% off of our 2020 baseline of $18 50.

And our individual Medicare advantage membership grew 11% outpacing the industry.

I will now take a few moments to discuss our fourth quarter results and underlying trends before turning to our expectations for 2022.

We reported fourth quarter adjusted EPS of $1 24.

Slightly above internal expectations and consensus consensus estimates.

Fourth quarter results for the retail segment were largely in line with expectations.

Total medical costs in our Medicare advantage business ran approximately 1% below baseline during the fourth quarter in line with the forecast we shared in early November .

While COVID-19 utilization ran higher than initially expected due to the omicron varying surge we continue to see a corresponding reduction in non COVID-19 utilization through the end of 2021 and this trend has continued into early 2022.

Although a smaller percentage of individuals that are infected with the omicron variant require hospitalization as compared to previous searches COVID-19 admissions in recent weeks have been consistent with levels experienced in January 2021, due to the significantly higher rate of Transmissibility of the omicron variant.

With respect to the flu trends remained favorable to expectations in the fourth quarter and has continued this pattern in the first few weeks of 2022.

In our group and specialty segment, our results were slightly better than previous expectations for both our group medical and our specialty businesses.

All in utilization in our fully insured medical business continued to run a bit above baseline, but slightly better than our previous expectations.

Our specialty business results also outperformed as utilization, particularly for dental services continue to run lower than anticipated.

Finally, each of our healthcare services businesses performed consistent with expectations in the fourth quarter.

The integration of Kindred at home operations remains on track and results post acquisition have emerged as anticipated.

Fourth quarter 2021 home health admissions were up slightly while hospice experienced a low single digit decline as compared to the fourth quarter of 2020.

From a full year perspective, we have seen home health admissions up low single digits with hospice admissions down low single digits year over year.

It is important to note the hospice volumes have been impacted by the higher mortality rates driven by Covid as well as lower post acute facility volumes as.

As I shared last quarter, we are closely monitoring admission in clinical staffing trends and are making targeted investments to sustainably improve the recruitment and retention of nurses to position the businesses for further growth as trends begin to normalize.

We improved home health and hospice nurse retention by double digits in 2021 positively growing net nurse head count in the second half of the year.

We also reduced the number of nurses, who would shrink in the first 90 days of employment in the second half of 2021 for the first time since the pandemic began.

While we are pleased with this progress we acknowledged in the labor market remains challenging and there is more work to be done to further improve satisfaction and retention.

And our primary care organization patient growth and our de Novo centers exceeded expectations in 2021, increasing 68% year over year with these centers now serving over 20000 patients. We expect this growth to continue into 2022.

Finally, our pharmacy operations remained strong with industry, leading mail order penetration.

Amongst our individual Medicare advantage members, 38% of scripts prescribed in 2021 were dispensed by Humana pharmacies Mail order business, which continues to increase year over year.

In addition, and more mature center well clinics, we've seen mail order penetration rates for Humana members approached 50% and when combined with prescriptions dispensed by co located Humana retail pharmacies total humana pharmacy market share can approach 60%.

Our strong mail order volumes continue to highlight that members value the convenience and cost savings mail order delivery provides which also leads to better medication adherence and health outcomes benefiting our members and health plan.

Before turning to our 2022 outlook I would like to add to Bruce's earlier comments regarding our commitment to taking significant actions to create capacity for investments in our Medicare products, which will allow us to significantly improve membership growth in 2023 without impacting earnings growth.

We have already begun taking action to deliver on this commitment, including engaging external consultants to benchmark humana's operating structure and initiating a deep dive into processes across the organization to ensure that we identify a comprehensive set of opportunities.

We are on a continuous journey of improvement and are confident in our ability to remain a leader in the Medicare advantage industry and deliver on our long term earnings growth target in 2022 and beyond.

Now turning to our 2022 expectations and related assumptions today.

Today, we are providing adjusted EPS guidance for 2022 of at least $24 representing growth of 11, 6% over our 2021 baseline of $21 50.

16, 3% of our actual 2021, adjusted EPS of $20 64 consistent.

Consistent with our previous commentary.

This guidance contemplates an explicit COVID-19 related headwind of $1 in adjusted EPS.

In addition, as previously shared we are assuming medical cost returned to baseline levels and the costs related to Covid continue to be offset by the depressed non COVID-19 utilization in our Medicare advantage business.

Judy extent, the $1 explicit COVID-19 headwind is not ultimately realized we will be conservative regarding the timing and pace with which we adjust our full year earnings guidance to ensure we do not get ahead of any potential emerging trends.

Our 2022 outlook reflects topline growth above 10% with consolidated revenues projected to be north of $92 million at the midpoint.

Driven by continued growth in our Medicare advantage business and expansion of our payer agnostic healthcare services businesses, partially offset by expected declines in our commercial group medical Medicaid and Medicare Standalone part D. Our PDP membership.

2022, EPS also reflects the impact of a reduced share count as a result of the $1 billion accelerated share repurchase program entered into in January .

With respect to the forecasting quarterly EPS, we acknowledge it will continue to be challenging predicting the timing of additional COVID-19 surges and the related rise in COVID-19 costs and offsetting reductions in non COVID-19 utilization, which generally occurs on a lag.

At this time, we expect the percentage of first quarter earnings to be in the high <unk>, we will provide.

Updated color on our expected quarterly patterns throughout the year I would encourage investors to focus on our full year results given these COVID-19 related timing dynamics.

I will now provide additional color on the 2022 outlook for each of our business segments, starting with retail.

As recently shared we now anticipate individual Medicare advantage membership growth of 150000.

To 200000 members in 2022.

We added approximately 138000 members during the annual election period, including approximately 48000 decent members.

Touching on group MA we continue to expect membership to be generally flat for 2022 as we do not anticipate any large accounts will be gained or lost as we continue to maintain pricing discipline in a highly competitive market.

From a PDP perspective, we expect a membership decline of approximately 125000 members for the full year.

As previously shared the overall PDP market continues to decline as more consumers enroll in Medicare advantage and we remain focused on creating enterprise value from our PDP plans by driving mail order penetration and conversions to Medicare advantage.

We are projecting approximately 80000 of our PDP members to convert to a humana Medicare advantage plan in 2022.

Finally, we anticipate that our Medicaid membership will decline 50.

To 100000 members in 2022. This change reflects membership losses, resulting from the start of Redetermination, which we expect to begin following the end of the public health emergency in April .

These losses will be partially offset by membership additions expected as part of the Ohio contract Award, which will go live in July .

The addition of the Ohio contract award expands our Medicaid presence to six states, which as we have shared before has been largely accomplished through organic growth.

The retail segment revenue is expected to be in a range of 81, two to $82 2 billion, reflecting a 10% increase year over year at the midpoint.

The year over year change includes the impact of the normalization of Medicare risk adjustment revenue in 2022, the phase out of the sequestration relief beginning in the second quarter as well as the impact of changing member mix.

The benefit ratio guidance of $86 six to 87, 6% is 80 basis points lower than the 2021 benefit ratio of 87, 9% at the midpoint driven in part by the normalization of Medicare advantage revenue in 2021, partially offset by the expected return to baseline medical cost trends.

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In summary, we are guiding to retail segment pre tax income in the range of $2 35 billion to $2 55 billion for 2022, an increase of 26% over 2021 at the midpoint of the range, which includes the impact of an approximate 50 basis points increase in individual Ma margin.

Year over year.

Moving to our group and specialty segment, we are expecting total commercial medical membership, including both fully insured and ASO products to decline by 125000 to 165000 members.

This decline primarily reflects lower small group quoting activity and sales attributable to the COVID-19 pandemic, specifically as it relates to continued actions by our competitors to retain membership as well as the loss of a large group ASO account.

These impacts are expected to be partially offset by strong retention of our existing members.

From a profitability perspective, we expect this segment to show nice pre tax growth driven by improved profitability in the group medical business, resulting from the rating actions taken to account for the expected impact of Covid in 2022.

This improvement was partially offset by a reduction in expected earnings from our specialty business year over year as we do not expect the COVID-19 driven outperformance seen in 2021 to continue.

All in we are guiding to a pre tax range of 185 million to $285 million for the segment.

For our healthcare services segment, we expect adjusted EBITDA in the range of $1 $6 75 billion to $1 85 billion for 2020 to the.

The 2020 outlook reflects a full year contribution of kindred at home and continued growth in our pharmacy and primary care businesses.

These items are partially offset by investments to enhance our clinical capabilities and expand our value based home care model as well as investments to support the continued expansion of our primary care organization.

And our kindred at home business home health admissions are expected to be up mid single digits with hospice admissions up low single digits year over year.

As I mentioned previously kindred at home anticipates ongoing staffing challenges in 2022, driven by the labor shortage. The industry is currently facing.

We are focused on mitigation efforts through targeted investments to improve recruitment and retention of nurses. We expect these investments to continue our second half of 2021 trend of improved retention and net nurse head count growth, providing additional capacity to support top line growth.

And our primary care business as Bruce shared we intend to build an additional 26 centers in 2022 under our existing joint venture with Welsh Carson, which when combined with planned acquisitions is expected to increase our center count by approximately 20% in 2022 and bring our total center count to approximately.

<unk> 250 centers by the end of the year pace.

Patient growth in our de Novo centers is expected to exceed 10000 in 2022, reaching approximately 30000 by year end at 57% increase year over year.

From an operating cost ratio perspective, we are guiding to a consolidated adjusted operating cost ratio in the range of $13. Two to 14, 2% for 2022, an increase of 160 basis points at the midpoint from the adjusted ratio of 12, 1% in 2020.

This increase.

<unk> reflects the full year impact of kindred at home, which has a significantly higher operating cost ratio than the Companys historical consolidated operating cost ratio. The incrementals seven five months impact of kindred at home operations are contributing approximately 150 basis points to the expected year over year increase.

I would like to now briefly discuss capital deployment for 2022.

We will continue to prioritize investments in our core business to drive organic growth.

Strategic tuck in M&A remains part of our overall framework and we will be prudent and opportunistic as we focus on organic growth in the near term and.

And finally, we recognize the importance of returning capital to shareholders and we expect to maintain our strong track record of repurchases as demonstrated by the $1 billion accelerated repurchase program that we entered into in January .

While our debt to cap ratio is temporarily impacted by the acquisition of kindred at home. We believe we have sufficient capacity to execute on high priority investments initiatives, such as primary care growth, while continuing to deliver strong shareholder returns.

In closing I would like to reinforce our commitment to drive $1 billion of additional value for the enterprise through cost savings productivity initiatives and value acceleration from previous investments in order to create capacity to fund growth and investment in our Medicare advantage business and further expansion of our health care services case.

Abilities.

As reflected in our initial guidance for 2022, we have entered the year targeting the low end of our long term earnings growth range of 11% to 15%, which includes an embedded COVID-19 headwind to the extent. This COVID-19 headwind is not ultimately realized we will be conservative regarding the timing and pace with which we adjust our full year guidance, we believe entering a.

Year with this headwind incorporated into our guidance is prudent in our current environment and we are proactively taking steps to position the company to continue to deliver on our long term targets in 2023 and beyond.

With that we will open the lines up for your questions in fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.

Our first question comes from Matthew Borsch with BMO capital markets.

Thank you.

Maybe if you could talk about how.

The likelihood of earnings upside for this year, just given the way you position.

I don't know Barry, but a conservative.

For 2022.

Don't you think that would make margin upside more likely as you move through the year. Thank you.

Sure Hey, Matt Thank you.

So certainly as we've said repeatedly we definitely are approaching our 2020 guidance with conservatism, which we think is a prudent thing to do we've disclosed the explicit $1 COVID-19 headwind, which is embedded in our guide.

While we do consider that conservatism, we do just want to reinforce that there remains to be a lot to learn about COVID-19 . There are certain dynamics that continue to emerge things like weather.

Medicare will cover over the counter testing, we continue to watch the trends in terms of hospitalizations due to Covid as I mentioned, while the omicron variance seems to be less severe it is much more transmissible, leading to many more COVID-19 hospitalizations, some of which are not frankly directly related to COVID-19 in terms of the admitting condition.

But rather they are being admitted and happen to test positive for Covid and that results in that extra 20% payment that's provided for under the public health emergency. So those are just two examples of the things that we'll continue to watch which may prove to be one dollar COVID-19 headwind becomes necessary, but as we've said clearly if it proves that.

We have seen historically that all of the COVID-19 costs continue to be offset and that proves to be conservatism. Then you will see that release over the course of the year through additional earnings and if the entirety of that dollar was not needed. Then we would ended up above the high end of our long term targeted range, but just again encourage everyone to not get ahead of us on that is there is still a lot.

To be learned and monitor as it respects COVID-19 trends over the coming year.

Thank you.

Our next question comes from Justin Lake with Wolfe Research.

Thanks, Good morning, a couple of numbers related questions here first on the billion dollars can you talk about how much of that billion will be cost cutting which is all those value creation with the timing of the benefit here in 'twenty two 'twenty.

'twenty three and beyond.

And whether any of this benefit is assumed in 2020 to EPS, but then quickly just in your release you reiterated your 11% to 15% earnings growth target for 2023 and beyond.

Got to indicate that you expect to grow 15% next year despite the headwinds.

Your membership growth from Israel.

Sure I can take that Justin so for your first question about the $1 billion cost cutting how much is cost cutting Bruce laid out for sort of high level categories that we expect to contribute to that overall goal of $1 billion in value creation. We would estimate currently that each of those will probably proportionately.

Tribute to that goal evenly over those four categories, there's still a lot to be done to finalize discrete initiatives and the timing of those but that is our initial thinking and we'll certainly keep everyone apprised of our progress towards that goal as we go through the year and finalize some of our 2023 pricing and bids.

As it respects to the timing of that as I said, we continue to work on the detailed assessment of opportunities that will lead to a variety of implementations over the course of the year we.

We are highly motivated to create a path to that so we have a run rate going into 2023. So we can count on that and pricing and we would certainly expect some benefit from these actions in 2022, although the benefit would be meaningfully smaller than our overall 2023 target expecting that most of these initiatives would be implemented late in the year and so contribute less.

Obviously, the 2022 guidance.

Yes.

As we discussed recently with the reduction of our 2022 individual MA membership growth expectations that that all other things being equal would have some negative impact of 2022, certainly any acceleration we can get from the $1 billion value creation activities can certainly help as one of the puts and takes that we always consider as we finalize our full year forecast so.

Again, while we might have some impact from these initiatives and acceleration that would be contemplated in our guide and as just one of many things that we've considered as we go out with our initial guidance.

With respect to 2023 and beyond in our commentary, we do remain committed to delivering against our long term earnings growth target. We believe that the actions we'll be taking this year to position us to return to leading growth will help us do that without negatively impacting our expected long term EPS target. So that's our current expectation and certainly we will continue.

To keep you apprised as we go through the year.

And just to maybe create some clarity on when we talk about the initiatives that we're focused on slowing down.

Want to re emphasize to the shareholders that we are very oriented to grow in the primary care in the home area and so those initiatives really would continue to say the planned investments in those areas. There's other areas that we will see.

A lot of the growth or.

Pause pause as a result of the $1 billion goal.

Great. Thanks for the color.

Our next question comes from Kevin Fischbeck with Bank of America.

Okay, great. Thanks, I guess, maybe just to go into this billion dollar value comment a little bit more I mean some of these.

Mike.

But as an enterprise you would be doing.

To some degree every year anyway, I mean, how should we think about this billion dollar number or is that incremental to what you would normally be assuming or is it.

And you only get $300 million and now you're doing $1 billion.

It sounds like I, just want to confirm that this is separate and distinct from vendors.

Just wasn't sure of that.

Part of this $1 billion.

Yes, I'll take it as it is in addition to what we've normally have seen over the years as you know we have.

Continue to focus on our productivity, we do believe a number of investments that we've made over the last few years are our right to really help with the productivity side of our organization and in addition, I think there are some a number of them that will also provide some clinical and additional clinical benefits for us. So this isn't it.

Addition to our normal as you referred to the trend vendors are clinical outcomes. There. So why do we think about the investments there but to be Frank with you. We are pushing the organization to be more efficient.

A much more larger effort for us as an organization, we feel that we have significant opportunity to do it we believe that focusing on investing in our customer is a top priority for us and continuing to expand the health care services side. So that just takes continued refinement of where we spend our money in.

<unk> focus on continuing to be more efficient.

Great. Thanks.

Our next question comes from Stephen Baxter with Wells Fargo.

Hi, Thanks wanted to ask another one about a $1 billion.

Any rough sense, you can give us on how much of that will be allocated to Medicare advantage for us health care services and then within Medicare advantage, how should we think about the balance between benefit improvement. When you are talking about doing in the marketing side and I guess the continuation of that question would be should we think about the entirety of that benefit is accruing to 2023 or is there going to be in.

Will benefit from some of these efforts as we move into 2024, just trying to think about how the growth acceleration could be sustained as we move past 'twenty 'twenty through thanks.

Sure Stephen I'll take that.

No.

The value creation will span all segments different segments, though will probably contribute a little bit differently, certainly in our MA business and the scale, which we operate as Bruce mentioned, we might expect more efficiency opportunities in that business versus within healthcare services, where we're still looking to grow particularly in primary care.

Where it's less mature and then within kindred as we described focusing on improving nurse retention for the purposes of creating additional capacity to drive topline growth is where we might focus. So it will look a little bit different I would say in places like healthcare services will look for opportunities to optimize the business performance to improve addition.

<unk> pre tax contribution value acceleration, where some of our more mature businesses, we will likely see more benefiting from more traditional cost initiatives and productivity.

In terms of how we will use the capacity that we create that'll be a combination of benefits marketing and distribution on the Medicare side as well as continued investment in health care services across pharmacy primary care and kindred in order to support some of our forward looking capabilities there so how.

Exactly that will be allocated will be determined based on some additional work that still needs to be done as we approach. Our 2023 bids. Our teams are actively working to assess the impacts of the 2023 selling season.

Formulate their recommendations in terms of how to best optimize those investment dollars across product marketing and distribution.

<unk>.

It's.

Hard to say right now, whether we can fully get back to industry, leading growth by 2023 that certainly would be our goal and we'll work hard to see if we can do that but recognizing the rate notice.

It needs to be reviewed once that comes out in a variety of other factors, we need to consider that will ultimately determine whether we can do that in one year or whether it takes a little bit longer and again as we.

Through the year, we'll keep you apprised of our efforts, but certainly we will work hard.

To accelerate growth as quickly as possible.

I'm showing it for 24 and just sustainable are our objective in the.

And this $1 billion goal is to have a significant amount of the.

Savings to have a sustainable year by year. This isn't just a one year shot.

And really focused on the improve productivity.

As an important part of that obviously the clinical programs. We can build off of a really two areas that we look at as having sustainable long term impact.

Got it thank you.

Yes.

Our next question comes from a J rice with credit Suisse.

Hi, everybody.

I think I might just ask you about the primary care centers, it's been a while since you talk about the economics of those I know Bruce in your comments, you said that maturity.

Center could contribute 2% to 4 million can you talk a little bit about.

How long it takes.

Any updated thoughts on how long it takes to get to profitability and then once you get to breakeven how long. It takes you to get to that mature margin.

On a center, what would a $2 million to $4 million represent in terms of the EBITDA margin.

Maybe just flush that out a little more.

Sure Hey, Jay.

I think as we disclosed before we anticipate that it will take roughly three to five years to deliver.

And achieve sort of mature operating performance within an individual de Novo clinic, and we threw our Welsh Carson partnership seem to be on track to deliver that I don't believe we've disclosed the targeted margin for our primary care centers, but I think we've said.

Said previously we don't believe that our operating performance or look meaningfully different than others that are operating in a public space other high quality performing providers have.

I have every reason to believe that our cost per foot would be similar to others and performance level.

Okay alright. Thanks.

Our next question comes from Josh Raskin with Nephron research.

Hi, Thanks, Good morning, I wanted to get back to the $1 billion of additional value and specifically the impact on Humana is all of that getting reinvested to help longer term growth or does some of that actually some of those savings actually fall to the bottom line and then you talked about areas, where you have the greatest conviction on significant value potential should.

We assume that that means primary care in the home I apologize for the run on question, but the last part would be you have spoken about a four 5% to 5% target MA margin for the individual Ma.

As you put this together in terms of this value creation project is there a different thoughts on target margins and is that should we be thinking more about enterprise level margins as opposed to individual lemay. Thanks.

Sure Hey, Josh I can take that.

So in terms of your first question about whether the $1 billion investment would fall to the bottom line or be reinvested I think our thinking right now is that it's likely to be predominantly reinvested into.

Priority areas, including Medicare product distribution and sales as well as primary care in the home, having said that though is that allows us to return to industry, leading growth just the trajectory of that membership growth and the resulting benefits to the full enterprise and a variety of capabilities and services that support those members that can.

Also allow for some of that margin expansion over time as well.

In terms of the references we made to value creation, what thats recognizing is that over the last number of years, we've made meaningful investment in a variety of areas things like consumer experience technology platforms digital and analytic capabilities as well as on the health care services side within primary care in the home as well as pharmacy.

And what we're going to ask the enterprise to do is rather than embark on additional investment in some of those capabilities rather focus all of our resources on maximizing value creation out of those investments we've already made and we believe that that will lead to opportunities to accelerate value creation for the enterprise that can then be reinvested into all of those things I just.

Mentioned and one example of that is the introduction of our value based home health model, while we envision a comprehensive model that Bruce described in his remarks. There are also opportunities to deploy discrete elements of that whether that standalone dnb or utilization management and markets that maybe don't have the density to support the full model.

<unk> and that we can accelerate some of that to generate additional value for the enterprise. So those are things that we'll ask the team to focus on and is maximize return off the investments we've made to date rather than continue to invest incrementally more in the current timeframe.

On the margin question. So again, we remain committed to our long term individual MA margin. We're pleased to announce that we will see some progress positive progress. This year as we mentioned in my remarks, we expect expansion of about 50 basis points.

In 2022.

We think that again over time as we return to an industry, leading position and scale. Some of our other businesses that does allow us to continue to expand margin long term discreetly within the health plan, but also as we've said before we think it is important that everyone continue to focus on the broader enterprise margin potential off of our health care services capabilities.

Which as we continue to expand the coverage of primary care in the home and increased penetration in pharmacy, those discrete contributions allow us to add significantly more value to the enterprise off of that base individual MA membership long term such that we should be able to see even greater enterprise margin expansion over time and as.

We continue to grow those businesses that will just become an increasingly important part of our value creation story and support our long term sustainable EPS growth target.

Perfect. Thanks.

Our next question comes from Scott Fidel with Stephens.

Hi, Thanks, good morning.

Just a quick numbers questions if I could.

First is just if you could update us on for the MRA headwinds.

Related to the pandemic, where that ultimately came in for 2021 and then it sounds like are you assuming that youre going to fully normalize on the risk scores in 2022 or maybe if you could just talk to you specifically how much improvement you expect on that.

And then just the second one if I could ask just as it relates to HHH and as we think about what.

What you had previously told us Youre planning to do with hospice.

I remember that when you initially gave us the presentation.

Acquisition. There was a 50 50 split that you talked about between home health EBITDA versus hospice EBITDA still just interested if that's where it's tracking heading into 2022 as well. Thanks.

Great. Thanks, Scott.

So for the first question related to premium so yes.

Gave disclosures throughout 2021 as we continue to track the submission of diagnosis codes, which obviously it was important into returning to more normalized premium levels for 2022. So we did continue to see diagnosis code submissions track as we expected it's important to consider that the January premium overall is also when you reflect it.

The impact of members newly enrolled or dis enrolled.

<unk> also now reflects the impact of the higher mortality that we experienced as a result of Covid. We've mentioned that we've been studying those impacts for some time recognizing that the members who passed away as a result of Covid had higher than average risk scores as well as higher than average claims recognizing that individuals with multiple chronic conditions, where the most.

Exceptive order severe COVID-19 complications. So you will certainly see that reflected in our premium yield for the year, which all other things being equal it will be a little bit lower than we otherwise would have expected because of that higher mortality due to COVID-19 again. The claims also run higher for that population and the results of both of those dynamics are reflected in our estimates so we.

Do expect our individual Ma TMT.

<unk> yield to be in the high single digit range for 2022.

And then Susan just on the Hh nasal and EBITDA and then yes on your question, Yes, as you mentioned when we disclosed the transaction. It was roughly 50 50 split.

<unk> had slightly higher margins in the home health business and that those trends continue so thats a reasonable assumption.

Okay. Thank you.

Our next question comes from Kevin Caliendo with UBS.

Hi, Thanks for taking my question. So I wanted to just talk about the third you talked about extra training for third party sales and I just wanted to get to the bottom of this whole disclosure.

<unk> do you expect the market to sort of move in your direction or can you talk a little bit about how youre going to change.

Or what exactly the training might be that sort of fixed the messaging.

In that channel.

So let me start and I'll look decision to add.

We will continue to work with our external partners.

Being able to ensure that they are.

Customers in and frankly the industry customers.

Properly have the understanding of what they are buying at the end of the day, that's what we're trying to ensure.

Our disclosures are not much different than others in the marketplace.

At the time that people spend on ours members.

And throughout the industry I think are about the same but we do believe considering just the sales channel itself continuing to reemphasize to our to the members Medicare members in totality and understanding what they are buying is very important we are seeing increasing inter.

Just by CMS around this.

Particular matter and in fact in fact, you saw it in some other.

Regulations that came out in the early part of January that they continue to be oriented to this particular area here.

Great.

Very helpful. Thank you very much.

Our next question comes from Ben blocks with Jefferies.

Is that.

Dave Windley.

Is it me.

Hey, Ben your line is open.

Hi, So Dave Windley here, sorry for the confusion on that but my question would be.

How synergistic Bruce or your.

Primary care in the home your.

Your home health initiatives and your primary care clinic initiatives and to what extent I've noticed in some of your releases some of the same states, but to what extent are you focusing your efforts in those two areas on the same local markets to drive.

Duplicative impact.

Yes, that's great question, David we actually refer to that internally as the flywheel and the ability for us to leverage.

The touch points with our members and the various different providers and that would also include the pharmacy side.

We're seeing great benefit from that all the way from obviously driving more volume better clinical outcomes as a result of the coordination that's there.

And in addition.

Driving higher satisfaction, so it's really touching all parts.

What I would say is what you see we started with started primary care is much more focused in the markets there and while kindred has a much broader.

Platform that can be wrapped around the primary care side and so in a few markets. This year, we're actually going to work on the integration of that together and Thats. One of the reasons why you also see a consistent brand.

Around center, well, where we're beginning to start to integrate that so I would say 2022 is a year of of beginning that process, but I would say subsequent to 2022, you'll see a lot more activity in the local market of Rushmore integration around the care model. In addition, we see significant benefit from that.

Is it is it two if I could if I could ask you is it too early to know numbers of like how much you've been trend or cost savings from that flywheel.

Yes, we haven't.

C between two to four times better outcomes, when I say that both financially and clinically as a result of the <unk>.

Ability to bring this soon.

Thanks.

Our next question comes from Ricky Goldwasser with Morgan Stanley .

Yes, hi, good morning, staying under primary care 206 centers now expanding throughout the year.

What percent of Humana's MA members overlap with your primary care centers.

Type of retention rates you see with these members versus the rest of the book.

And then secondly, just to clarify, though we talk about the $1 billion in <unk>.

<unk> creation, but as you think about that value creation, how much should we assume.

It's going to come from gross cost cutting initiatives.

Sure Hey, Ricky so on the first question.

I would actually have to get back to you on the actual technical coverage in terms of our center, while clinics overlay to our Medicare membership. So we can get back to you with that number.

Believe we've ever disclose anything specific to your attention related to Humana members in those clinics I will just point out that our clinics to provide care agnostic Lee so they have many other health plans.

They serve and so even if the humana members should choose to enroll in another plan do you have an opportunity to preserve that member.

They participate in those networks as well.

Those centers continue to expand though that is an area that we are very focused on and really understanding sort of the experience that they are providing to patients and working to ensure that those.

We have industry, leading retention within those clinics as well and they do have very high NPS and patient satisfaction as a result of the high quality and comprehensive care that they provide.

On the $1 billion of value creation as I mentioned, the four categories that Bruce described we think will contribute roughly equally to our overall goal.

So if he described there are there is a component of it is related to value acceleration, which we think can impact a variety of topline growth opportunities.

<unk> trend savings et cetera, but the other categories do you involved really taking cost out of the system by working more efficiently and effectively eliminating sort of lower value work as a way to get more streamlined and focused our associates on the the most important work in front of us.

So should we just interpret it as it equally so do we just take the $1 billion in saying $250 million in gross cost savings just trying to think about or how should we saw that sort of P&L.

Yes, so as you think about the breach laid out four categories.

There is the supply chain, which again that as savings as well. So I'd say really it's more like three quarters of the total is probably going to come from various savings initiatives and then about a quarter from other value acceleration opportunities.

Thank you.

Our next question comes from Whit Mayo with SBB Leerink.

Hey, Thanks, I wanted to go back to Kevin's question on third party marketing for a second maybe just ask this a different way I think there's still some confusion when CMS issued their October memo last year around compliance and oversight of first year and third marketing organizations did you pull back materials in the market.

It did.

Actual compliance requirements have an impact on you I am just trying to understand if you were out of the market.

Thank you have a better view on how to course correct us.

Hey. This is this is jobin, Charlie maybe handle that one we've done a variety of channel checks with our partners to make sure that we were not an outlier. When you look at the compliance requirements that came out of CMS I think as you. All know it was a recognition of responsibility for third party marketing.

On behalf of all of the payers and so our channel checks confirm that but we were not an outlier. Our partners are working in this way with with other large payers as well as Bruce mentioned to make sure that our members when they call and they purchase a plan. They know what they are purchasing and that they are aware and then it's a good quality sale for them.

Okay. Thanks, a lot.

Just I know Theres a lot of interest in this I would maybe just provide a little more clarity on what we find in this channel is there is a high degree of confusion that has that is with the members and what they buy and Thats. One of the reasons why you see the high churn and it has created a number of downstream issues both.

The confused and.

Members and then in addition, just just some compliance issues and Thats why you see the efforts by by Us and other organizations to ensure that.

We ensure that the individuals properly purchasing of the plan that they choose.

Our next question comes from Nathan Rich with Goldman Sachs.

Yes.

Hi, good morning, Thanks for the question.

Maybe just trying to pull together the commentary on the value creation program. I guess do you envision is allowing you to return to market growth in individual MA kind of while maintaining the target margins that you have for that business by leveraging those savings in.

The follow on to that would be the $1 billion, we'd give you over 100 basis points of margin to kind of reinvest in that business can you maybe talk about where those investments would be.

And then a quick follow up if I could with the 23 rate notice.

Coming imminently do you have any expectations that you can share and how significant of a swing factor do you feel that is for next year given that you are making kind of significant.

Organic investments in the MA product 23, thank you.

Hi, Nathan sure so as it respects the value creation goal that we've set that is with the intent of allowing us to invest in the Medicare business as well as health care services and return to industry, leading growth not at the expensive margin. So the intent is that that will be reinvested such that we don't deteriorate margins, but rather maintain and then.

Time continue to expand margins toward our long term goal and we believe that that target savings and value creation opportunity will allow us to do that.

In terms of where we'll focus those investments I think within the Medicare business as I said Theres a lot of additional work to be done, but certainly we will make product investments as we analyze our results in the D. SNP space, while we continue to grow nicely, we're not growing as much as we had last year and there are certainly opportunities to enhance that product offering that we think will allow us to get back to.

Two our leading position in D snips, and we'll look at other opportunities byproduct as well as geographically to do that and be really thoughtful in the way we optimize any investment that we're going to make we also are looking at distribution as we've been discussing and what opportunities. There may be there in terms of further investment in incentives to encourage retention.

Other things to optimize those channels as well as marketing we will continue to look for ways to increase our share of voice as Bruce described but also ensure we're getting the highest return on that investment and there's likely some opportunities to do more there.

In terms of the rate notice, whereas as anxious as everyone to see that that should come out soon based on the strong bipartisan support of the program and the strong enrollment and continued enrollment by Medicare beneficiaries as they choose MAA given the value that it provides to consumers we would expect that that would be more moderate.

Our expectation is that it may not be quite as favorable as we've seen in recent years, but our expectation is not that it's negative either but certainly this is we recognize it as the first rate notice we will see at the Bod and administration and look forward to seeing that and hope that it continues to support.

The program and all the beneficiaries that it serves.

Our next question comes from Gary Taylor with Cowen.

Hi, Good morning, I, just wanted to ask a little bit about value based care.

Center, well could be the noted your announcement about the center expansion and expectations for continued tuck in but it does look like at least there is a modest increase investment that youre, making there for all the reasons that <unk>.

Highlighted historically, what I wanted to ask about was what is your appetite to do something.

Beyond just tuck in I think you said last year 15 centers acquired in nine different.

Transactions, we've seen in the public market enormous valuation correction, which presumably ultimately flows through the private market as well and we know theres a number of private companies with much larger center accounts that have pretty significant overlap with your MA penetration. So just.

Just wondering if there is an appetite on the tuck in side to do something larger.

Environment, where valuations seem more reasonable.

Hey, Gary just a few things.

<unk>.

On the tuck in ones, we see those as just great opportunities because we can buy them at a fairly low multiple as a result of the synergies that we get in the marketplace. There. So they are very comfortable.

Great deals for US overall, so we want to continue to do those and as you have seen over the years, we have been very sensitive to how we utilize our capital insensitive to valuations because we do believe over time, the ability to drive value received greater than the organic side and and just densification in the markets.

That we're in.

That being said I mean, we would we obviously would look at those those companies. There we still think the valuations, albeit they've come down quite a bit we continue to look at them and say are they at a level that would make sense today.

<unk>.

<unk> question, a little bit of that but that being said, we would continue to look at them, but I just we just feel what we're doing.

And the organic side combined with tuck ins is really driving will drive a significant amount of value for the shareholders over a longer period of time.

Continued to advance our strategic positioning.

Thank you.

Our next question comes from Lisa Gill with Jpmorgan.

Hi, Thanks, very much and good morning.

I wanted to go back Susan to your comments on the Pbms side of the business you talked about.

Rx being up 8%, what's your expectations going into 2022 around script growth and then secondly, what are some of the opportunities you see when we think about specialty and Biosimilars for your <unk> for 2022.

Hi, Lisa Susie.

As soon as it respects the pharmacy business.

As we look at our 2022 expectation certainly with a lower than expected MMA grows that will have some impact.

The <unk> year over year, but we also had outperformance in the premise.

Ohlone part D space, which to some degree offset although our PDP members don't use mail at quite the same rate as our individual MA so a little bit of a negative relative to what we would've expected, but otherwise we will continue to work to drive mail order penetration in and certainly utilization trends.

We're expected to continue to increase as you would expect and consistent with historical trends on the specialty side and the team does continue to look at opportunities in the specialty space and.

And evaluate ways to both provide services agnostic Lee, but also continue to drive their ability to participate in.

Distribution of various specialty related drugs. So they continue to look for ways to expand that business. The other thing that they do is they work very closely with our health plans, what we like about our own specialty business is there. They are really working towards the health plan goals, which is to reduce waste and ensure that we're reducing the cost of those high cost specialty drugs, where and when possible.

And we think Thats, a real advantage to having our own specialty pharmacy, which is very focused and oriented to the health plan goals.

Yeah.

Yes.

And when I was asking about Biosimilars I think im speaking specifically to something like Humira that will lose patent protection in 2023 is that.

Yeah.

<unk> delivered products to the home. It is this something that will be beneficial to humana.

There could be again.

What we've seen is as they enter a generic.

<unk> status as a <unk>.

Great opportunity for the <unk> to drive value. What ultimately happens is we do drive those rebates back to our customer.

The part D cost. So as you think about just the opportunity here is always around how do you create a competitive product in the marketplace.

But it is an opportunity for us.

Great. Thank you.

Our next question comes from George Hill with Deutsche Bank.

Yes, good morning, guys and thanks for taking the question Bruce and Susan I wanted to give you a chance to kind of clarify something on the $1 billion in value accretion given the questions that I have already gotten this morning, which I guess is can you talk about how much of the $1 billion. We should think about as cost savings initiatives that flow to the bottom line versus initiatives undertaken to accelerate.

Revenue growth for growth in the services segment and then my follow up to that would be can you talk about the incremental spend that will be required to achieve the ability to kind of go above and beyond what was previously planned just I'm getting the sense of.

Investors are already reading of $1 billion through $2 billion in operating savings, which I think seems.

Seems to be the case.

Yes, let me try to clarify that I think our intention is really doing to reinvest in the customer value to be.

I think.

Ultimately it will show back up in the.

And the bottom line.

Line through higher growth.

As you all know we are.

All are focused on how do we continue to grow our our customer line and we feel today, we have the opportunity to to define.

Fine.

To invest in the channel the marketing and in addition, the product itself to drive that value. So from an investor's point of view I would like is more of the top line benefit from comes from that.

The bottom line just the margin itself. So it's a much harder math to do but it is a it is something thats.

Very oriented to topline growth.

In regards to.

Just the <unk>.

Structure of the cost savings evidenced we've talked about on a few occasions. It is a combination of cost savings taking costs out of the system being both efficient and eliminating things that.

Our lower value and at the same time improving revenue.

But mostly clinical costs as a result of.

So there will be when you think about the income statement line item.

Primarily it will show up in the.

Operating expenses with a lot of it's showing up in the in the area of the administrative.

Clinical piece.

That's helpful maybe anything on the incremental spend.

Incremental.

As a net number as we as we look at the $1 billion that is in that number for us.

Yes, the only thing George as we acknowledged in the releases there may be one time charges related to some things that we do like real estate.

Getting out of certain real estate and so those we would intend to non-GAAP .

Related to any one time charges in order to realize some of those run rate savings.

That's helpful. Thank you guys.

Our next question comes from Rob Cottrell with Cleveland Research.

Hi, Good morning, just quickly curious if you can comment on your expectations for additional individual membership.

Individual EMEA lives throughout the course of 2022, given you're already 80% of the way towards your full year guidance and then within that.

Susan you commented that you expect it to convert.

<unk> thousand PDP members to M&A in 2022, how many of those have already been converted as of January . Thank you.

Sure Thanks, Rob on individual Ma growth.

We continue to monitor our trends with sales in terms.

The open enrollment period that runs through March and I would say that generally speaking those trends continue to track consistent with our full year guide adjusted full year guidance. So we continue to feel good about that on the PDP I would say the seasonality of the PDP looks similar to overall sort of growth seasonality, where you do see a disproportionate amount in January .

But we do have an opportunity in PDP conversions in particular with low income members, who do have the opportunity to move throughout the year. So it is not quite as weighted to January as overall growth, but still more than 50% certainly.

Is realized in the month of January .

Got it thank you.

Yes.

Our next question comes from Steven Valiquette with Barclays.

Great. Thanks, Good morning, everybody. So I think you touched on this maybe a little bit, but just wanted to come back on the topic of commissions into the individual Ma market.

I guess, if we go back two years ago, My sense was that Humana and other major carriers, we're more than happy to pay full commissions in all distribution channels.

I would actually be willing to pay more.

For the regulated caps on the commissions, but obviously in some of your commentary from early January .

And that is that Humana was perhaps not paying maximum commissions in certain channels.

It really is a couple of questions around that I guess with with hindsight do you think you were alone among major carriers not paying maximum commissions.

And the telephonic channel that is kind of at the epicenter of all the recent discussion.

With better hindsight with a little more passage of time, how big of a role did this particular variable, but ultimately play into somewhat disappointing AEP and then just remind us on your commission strategy around that going forward from here just to kind of round out. This at this part of the conversation.

Yes, let me let me.

Start here.

First just.

And the investors are actually we will be close on our sales. This year. So it was more of a retention issue as opposed to the sales issues just want to put that in some context as we think about commissions.

We today pay the market value of the maximum commission on the sale itself. According to the to the regulations that are out there there are a number of other.

Dollars that are invested in the and the external.

Channel the telephonic channel.

That include marketing include some some additional incentives that are more oriented to the to the company as opposed to the salesperson itself. How the company distributed <unk> does that we really don't get into involved in that so when we talk about the commissions in total we talk about there's different levels that are at.

Our invested with the partner we have.

<unk> been more reserved in where we spend those dollars just because we also find there are more effective ways to do that in other channels over the past number of years and when you look at our sales success.

Success, even this share you'll see that the commission side is an area there.

But it does motivate churn in the marketplace, that's really what we're communicating to them and that that does does hurt us this year and I would say, so as others sort of ramped up the payments to date.

It did hurt us on the churn side as opposed to the sales side.

Going forward.

I think we're going to provide that kind of detail today, obviously, both it's early but it's also <unk>.

<unk> market out there and we want to make sure when we when we do.

Do something that is done more proprietary in and the way we approach it.

Okay got it okay. Thanks.

That concludes today's question and answer session I would like to turn the call back to Bruce Broussard for closing remarks.

Thank you and thank you for your continued interest in the company and investing the time today I hope our comments were.

But.

Humana is in a great position I think we will continue to lead the industry in both in the ability to drive membership growth and at the same time.

Improve the health outcomes for the people, we serve and obviously I want to thank our 90000.

Associates and teammates to make this happen every day because without their work we would not be as successful as we are so thank you and again. Thank you for your support.

Yes.

This.

Today's conference call. Thank you for participating you may now disconnect.

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Good day, and thank you for standing by and welcome to the Humana fourth quarter earnings call. At this time all participants are in listen only mode. After the speaker's presentation there'll be a question and answer session.

Can I ask a question during the session you will need to press Star then one on your telephone.

Please be advised today's conference maybe recorded.

You require operator assistance during the call. Please press Star then zero.

I'd now like to hand, the conference over to Lisa Stoner Vice President of Investor Relations. Please go ahead.

Thank you and good morning in a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Susan Diamond Chief Financial Officer will discuss our fourth quarter 2021 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the lines for a question and answer session with <unk>.

Industry analyst Jove insurer, our chief legal officer will also be joining Bruce and Suzanne for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks, and the related Q&A with analysts.

This call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Com later today before we begin our discussion I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and <unk>.

Uncertainties actual results could differ materially investors are advised to read the detailed risk factors discussed in our latest Form 10-K , our other filings with the Securities and Exchange Commission and our fourth quarter 2021 earnings press release as they relate to forward looking statements and to note in particular that these forward looking.

<unk> could be impacted by risks related to the spread of and response to the COVID-19 pandemic are forward looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward looking state.

<unk> and future filings or communications regarding our business result.

Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site call partition participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP.

Instruments explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share with that ill turn the call over to Bruce Broussard. Thank.

Thank you Lisa good morning, and thank you for joining us.

Today Humana reported financial results for the fourth quarter of 2021, reflecting the strength of our core operations, which continue to perform well throughout 2021. Despite the challenges the industry faced as a result of the pandemic.

With that in mind and as we enter our new fiscal year I want to take a moment and speak not only to our 2021 results and our outlook for the current year, but more broadly about our strategy and the steps we're taking position.

Position Humana for success.

Susan will discuss our results and outlook in more detail in a moment, but at a high level, our 'twenty to 'twenty one results and our 2020 outlook are largely in line with recently provided guidance adjusted earnings per share for the full year were $20 64.

Which was above our previous estimate of approximately $20 50.

This represents growth of 11 six.

Off of our 2020 baseline of $18 50.

All covering a $1 unmitigated net COVID-19 headwind.

Looking forward, we provided full year adjusted earnings per share guidance of at least $24. This represents 11, 6% growth over our 2021 baseline of $21 50 and.

And 16, 3% growth over our actual adjusted EPS of $20 64.

This guidance includes an embedded COVID-19 headwind of $1.

Before I highlight some of the actions were taken to delivered improved individual Medicare advantage membership and how we are applying learnings from our most recent annual enrollment season I want to emphasize that we are operating from a position of strength.

I am incredibly proud that Humana is the second largest Medicare advantage plan provider supporting over 5 million beneficiaries with high quality coverage.

The quality of our product offering is the highest among our public peers with over 97% of Medicare advantage members in plan with a four star rating are higher.

Also increased the number of contracts that received a five star rating from one contract in 2021 to four contracts in 2022.

Which is the most in our history.

Finally, we saw an improvement of 930 basis points and our net promoter score this past year, reflecting our ongoing efforts to enhance the customer experience.

We continue to advance our customer segmentation efforts developing plans that are tailored to the unique needs of our specific member populations.

This allows us to provide benefits that enhance and complement and individuals existing coverage through programs like Medicaid or entities, such as veterans Affairs.

We're seeing great success through our initial segmentation efforts growing D SNP membership greater than 40% in both 2020 and 2021 .

In addition, our human manner honor plan designed for veterans that is also available to all Medicare eligible grew membership 80% last year.

We have a strong brand and our expertise caring for people as they age is highly recognized by consumers.

As a result, we have increased market share over time, achieving annualized enrollment growth of 11% since 2017, which is well above market growth more.

Moreover, we have a proven track record of balancing membership and margin growth with our long term earnings growth target range of 11% to 15% continuing to be the ultimate goal.

With that in mind, a key element of our plans to return to industry, leading membership growth without negatively impacting earnings growth.

We will achieve this by leaning into our successful history of reducing costs and improving operational efficiencies.

We are committed to delivering sustainable cost reductions in order to create the needed capacity to improve our competitive positioning.

We are committing to drive a $1 billion of additional value for the enterprise through cost savings productivity initiatives and value acceleration from previous investments.

This will create the capacity to fund growth and investments in our Medicare advantage business and further expansion of our healthcare service capabilities.

These efforts spanned several areas first we have already begun a critical review of our ongoing strategic initiatives across the company. We intend to further focus our investments on those priorities, where we have the greatest conviction of significant value potential we will slow or pause further investment in some.

Areas in order to focus on accelerating value creation from investments we've already made.

Next we will drive further organizational efficiencies by optimizing our workforce in order to speed. This increase the speed agility and pace, we must work out as a large integrated health care organization, we see the opportunity to streamline our operating structure standardized work and simplifies certain.

Processes to eliminate low value work.

Third we will reduce and optimize third party spend in some areas of our business. This will translate to a decrease in vendor you will use.

While in others, we will outsource work to best in class suppliers.

In addition, with the ongoing reality of Covid and the way it has changed the way everyone works, we will be we will be significantly rationalizing our real estate portfolio.

And finally, we are driving greater operational efficiencies across the organization by modernizing streamlining and improving our processes through automation and digital advancement. This includes the use of technology to replace manual efforts in our core operations and to increase productivity of our workforce.

Beyond creating capacity to invest in our Medicare advantage products. We are also focused on optimizing our marketing spend and sales channels to maximize growth.

As we've discussed previously we have undertaken significant work each year to determine the optimal level of marketing investment and how these dollars are put to work.

Applying our learnings from the most recent selling season, we expect to further optimize our investment in marketing to ensure our messages are heard by more prospective customers.

We also plan to accelerate digital capabilities to increase our effectiveness and efficiency of member acquisition and.

And focus on experience of our existing members to improve retention.

We will continue to focus on ensuring we have a clear differentiated omni present brand with a strong call to action that supports industry, leading customer acquisition.

And as we improve the value proposition of our plans. We believe we will see even greater returns from our marketing spend.

Regarding our sales channel, we will look to optimize the use of our internal channels as well as external partners or 'twenty 400 employed sales agents work to create long term relationships with our members ensuring they are educated on their planned choices and the benefits and additional support.

Services. Each plan offers this leads to better engagement greater planned satisfaction, and ultimately better health outcomes and longer tenure with Humana.

We do not expect significant shifts in channel mix. This year, we will continue our efforts to improve retention of our members broadly. This will include a particular focus on those enrolled in third party call centers, where we've seen term rates of approximately 400 basis points higher than our <unk>.

<unk> call sales channel.

We will be working with our call center partners to more closely replicate the experience delivered by our employed agents through enhanced training and service level agreements and we will also look for opportunities to create greater retention and quality incentives for our sales partners.

As I mentioned, a few moments ago Humana offers superior quality to its members has a strong brand and a long history of expertise in caring for people as they age. Additionally.

Additionally, our clinical focus and suite of healthcare service capabilities allow us to take a holistic approach to supporting members, ensuring they receive high quality proactive and comprehensive care, which improves health outcomes.

We will leverage the strength of these core fundamentals as we work with our internal and external partners to improve retention.

As we look ahead and focus on our core operations. We are committed to continuing the track record of being capital efficient as we consider strategic advancement and return of capital to shareholders to that end, we are committed to advancing our plans to divest a majority interest in our hospice.

This business as we are confident we can deliver the desired experiences and outcomes for patients transitioning for restorative care to hospice through partnership models.

We have continued to explore various alternatives for the long term ownership structure of the business and have initiated steps to reorganize the hospice business for Standalone operations, while also making investments to improve clinician recruiting and retention to position the business for further growth.

We're not able to share details today on a specific transaction structure or timing, we expect that we will be in a position to provide a meaningful update by our first quarter call.

Our ability to drive innovation and improve clinical outcomes is enabled by our strong integrated care delivery platform.

And in recent years, we've made significant has significantly expanded our healthcare service capabilities in order to better serve our members and strengthened our payer agnostic care offerings.

Our healthcare service businesses are an important component of our strategy and will contribute considerably to humana's long term growth.

Combining our leading Medicare advantage platform and growing pharmacy primary care and home services increases our total addressable market and creates the opportunity for improved clinical outcomes lower cost of care and increased enterprise margin.

From our health plan members.

Our <unk>, which is the fourth largest in the country process $515 million 30 day equivalent scripts in 2021, an 8% increase year over year.

In addition, our pharmacy dispensing business continues to deliver industry, leading mail order penetration and we have successfully implemented tools to enhance our e-commerce experience, while expanding our mail order footprint as we get closer to the customer.

Our success is not only expanding volume, but improving health outcomes evidenced by our four star level performance in medication adherence metrics, which are three times weighted.

And our primary care business, we are in the early stages of growth and continue to expand our geographic presence. We are committed to funding the organic growth of our primary care organization in 2023 and beyond through a combination of on and off balance sheet such that.

We expect no dilution to earnings growth from the organic growth expansion.

To provide more insight into our primary care organization. We ended last year with 206 centers, representing a 32% increase over the prior year.

We are accelerating the build out of our platform through a combination of de novo expansion and organic growth.

We completed nine acquisitions last year, bringing 40 newly wholly owned centers to our portfolio. We also opened 15, new de Novo centers and consolidated five clinics into other locations.

We plan to continue prioritizing tuck in acquisitions focused on the markets, where we have established presence to provide more access and high quality care to patients.

In addition, we recently announced our intent to build an additional 26 centers this year under our existing joint venture with Welsh Carson.

When combined with planned acquisitions. This is expected to increase our center count by approximately 20% and bringing our total center count to approximately 250 centers by the end of this year.

As we look to 2023 and beyond we plan to build and acquire an additional 30 to 50 centers per year.

<unk> financed in a way that is not expected to be dilutive to earnings.

I would remind you that each mature center is projected to drive annual EBITDA of $2 million to $4 million highlighting the meaningful opportunity increased contribution to enterprise enterprise earnings going forward.

Turning to the home, we recently announced the appointment of our new home leader Dr. Andy argument.

Andy comes to Humana from the University of Connecticut, where he served as interim University President.

And as CEO of the Uconn health system.

He will join Humana and serve as a member of our management team. Starting later this month.

He has been responsible for many home health organizations as part of integrated health systems.

He has extensive operational experience for with for profit and nonprofit organization and as a doctor he understands the value of care in the home, while seniors want more of it and our vision at Humana for making it easier for people to get the care they need at homes.

Kindred at home is a strong fee for service business that we are committed to continuing to grow.

In addition, as I shared last quarter, we have made substantial progress towards our goal of scaling and maturing our risk bearing value based model that manages the provision of home health durable medical equipment and home infusion services. We believe the model has significant value creation potential both with.

In the Humana as well as payer agnostic way.

We have a goal of covering nearly 50% of Humana Medicare advantage members under this model within the next five years. The home model is active in South, Florida, and Texas today, we will begin and today, we will begin the rollout of additional markets in Virginia, and North Carolina in the second quarter.

With.

Subsequent rollout to additional geographies this year and early next year.

After completing these first two phases of expansion or value based home health model will provide coverage to approximately 15% of Humana Medicare advantage members.

In addition to the expansion of the full value based model, we have the opportunity to accelerate our return on investment by introducing select components of the full base home health model, such as stand alone DMA or utilization management services and less dense markets. We believe approximately six.

60% to 70% of Humana members will be served by the comprehensive value based model over time all of the remaining will be supported by select components based on the needs of the market.

Before I turn it over to Susan I want to once again emphasize that humana's core operations are strong and we continue to create significant value by driving growth in our top tier Medicare advantage business, expanding our Medicaid footprint and increasing contribution from our healthcare service businesses and delivering.

Ongoing cost efficiencies and productivity improvements across the company.

Indeed, we have great confidence both in the fundamentals of the Medicare advantage industry and the long term growth prospects for Humana.

And as we look ahead, our improved membership growth combined with further penetration in our growing and maturing healthcare service businesses position Humana favorably to deliver on our long term earnings target in 2023 and beyond.

We have a proven track record of not only balancing membership and margin to deliver our long term, 11% to 15% earnings growth target, but also improving health outcomes and lowering the total cost of care for our members and optimizing our operation through productivity and efficiency initiatives and we are.

Look forward to delivering on our latest targets.

With that I'll turn the call over to Susan.

Thank you Bruce and good morning, everyone. Today, we reported full year 2021 adjusted earnings per share of $20 64 slides.

Slightly ahead of our expectations of approximately $20 50.

As Bruce mentioned, despite the challenges we faced in 2021 due to the pandemic our fundamentals remained strong with the underlying core business delivering solid results for the full year.

Including the impact I mean, unmitigated net COVID-19 headwind of one dollar our adjusted EPS grew 11, 6% off of our 2020 baseline of $18 50.

And our individual Medicare advantage membership grew 11% outpacing the industry.

I will now take a few moments to discuss our fourth quarter results and underlying trends before turning to our expectations for 2022.

We reported fourth quarter adjusted EPS of $1 24 slot.

Slightly above internal expectations and consensus consensus estimates.

Fourth quarter results for the retail segment were largely in line with expectations.

Total medical costs in our Medicare advantage business ran approximately 1% below baseline during the fourth quarter in line with the forecast we shared in early November .

While COVID-19 utilization ran higher than initially expected due to the omicron Varian Serge we continued to see a corresponding reduction in non COVID-19 utilization through the end of 2021 and this trend has continued into early 2022.

Although a smaller percentage of individuals that are infected with the omicron variant require hospitalization as compared to previous surges COVID-19 admissions in recent weeks have been consistent with levels experienced in January 2021, due to the significantly higher rate of Transmissibility of the omicron variant.

With respect to the flu trends remained favorable to expectations in the fourth quarter and is continue this pattern in the first few weeks of 2022.

In our group and specialty segment, our results were slightly better than previous expectations for both our group medical and our specialty businesses.

All in utilization in our fully insured group medical business continued to run a bit above baseline, but slightly better than our previous expectations.

Our specialty business results also outperformed as utilization, particularly for dental services continue to run lower than anticipated.

Finally, each of our healthcare services businesses performed consistent with expectations in the fourth quarter.

The integration of Kindred at home operations remains on track and results post acquisition have emerged as anticipated.

Fourth quarter 2021 home health admissions were up slightly while hospice experienced a low single digit decline as compared to the fourth quarter of 2020.

From a full year perspective, we have seen home health admissions up low single digits with hospice admissions down low single digits year over year.

It is important to note the hospice volumes have been impacted by the higher mortality rates driven by Covid as well as lower post acute facility volumes.

As I shared last quarter, we are closely monitoring admission in clinical staffing trends and are making targeted investments to sustainably improve the recruitment and retention of nurses to position the businesses for further growth as trends begin to normalize.

We improved home health and hospice nurse retention by double digits in 2021 positively growing net <unk> head count in the second half of the year.

We also reduced the number of nurses who are accurate in the first 90 days of employment in the second half of 2021 for the first time since the pandemic began.

While we are pleased with this progress we acknowledged in the labor market remains challenging and there is more work to be done to further improve nurse satisfaction and retention.

And our primary care organization patient growth and our de Novo centers exceeded expectations in 2021, increasing 68% year over year with these centers now serving over 20000 patients. We expect this growth to continue into 2022.

Finally, our pharmacy operations remained strong with industry, leading mail order penetration.

Amongst our individual Medicare advantage members, 38% of scripts prescribed in 2021 were dispensed by Humana pharmacies Mail order business, which continues to increase year over year.

In addition, and more mature center well clinics, we've seen mail order penetration rates for Humana members approached 50% and when combined with prescriptions dispensed by co located Humana retail pharmacies total humana pharmacy market share can approach 60%.

Our strong mail order volumes continue to highlight that members value the convenience and cost savings mail order delivery provides which also leads to better medication adherence and health outcomes benefiting our members and health plan.

Before turning to our 2022 outlook I would like to add to Bruce's earlier comments regarding our commitment to taking significant actions to create capacity for investments in our Medicare products, which will allow us to significantly improve membership growth in 2023 without impacting earnings growth.

We have already begun taking action to deliver on this commitment, including engaging external consultants to benchmarks humana's operating structure and initiating a deep dive into processes across the organization to ensure that we identify a comprehensive set of opportunities.

We are on a continuous journey of improvement and are confident in our ability to remain a leader in the Medicare advantage industry and deliver on our long term earnings growth target in 2022 and beyond.

Now turning to our 2022 expectations and related assumptions today.

Today, we are providing adjusted EPS guidance for 2022 of at least $24 representing growth of 11, 6% over our 2021 baseline of $21 50.

And 16, 3% of our actual 2021, adjusted EPS of $20 64 <unk>.

Consistent with our previous commentary.

This guidance contemplates an explicit COVID-19 related headwind of $1 in adjusted EPS.

In addition, as previously shared we are assuming medical cost returned to baseline levels and the costs related to Covid continue to be offset by the depressed non COVID-19 utilization in our Medicare advantage business.

Judy extent, the $1 explicit COVID-19 headwind is not ultimately realized we will be conservative regarding the timing and pace with which we adjust our full year earnings guidance to ensure we do not get ahead of any potential emerging trends.

Our 2022 outlook reflects topline growth above 10% with consolidated revenues projected to be north of $92 million at the midpoint.

Driven by continued growth in our Medicare advantage business and expansion of our payer agnostic healthcare services businesses, partially offset by expected declines in our commercial group medical Medicaid and Medicare Standalone part D. Our PDP membership.

2022, EPS also reflects the impact of a reduced share count as a result of the $1 billion accelerated share repurchase program entered into in January .

With respect to the forecasting quarterly EPS, we acknowledge it will continue to be challenging predicting the timing of additional COVID-19 surges and the related rise in COVID-19 costs and offsetting reductions in non COVID-19 utilization, which generally occurs on a lag.

At this time, we expect the percentage of first quarter earnings to be in the high <unk>, we will provide.

I'd updated color on our expected quarterly patterns throughout the year, but would encourage investors to focus on the full year results given these COVID-19 related timing dynamics.

I will now provide additional color on the 2022 outlook for each of our business segments, starting with retail.

As recently shared we now anticipate individual Medicare advantage membership growth of 150000.

To 200000 members in 2022.

We added approximately 138000 members during the annual election period, including approximately 48000 decent members.

Touching on group MA we continue to expect membership to be generally flat for 2022 as we do not anticipate any large accounts will be gained or lost as we continue to maintain pricing discipline in a highly competitive market.

From a PDP perspective, we expect a membership decline of approximately 125000 members for the full year.

As previously shared the overall PDP market continues to decline as more consumers enroll in Medicare advantage and we remain focused on creating enterprise value from our PDP plans by driving mail order penetration and conversions to Medicare advantage. We are projecting approximately 80000 of our PDP members to give.

<unk> to the Humana Medicare advantage plan in 2022.

Finally, we anticipate that our Medicaid membership will decline 50.

100000 members in 2022.

This change reflects membership losses, resulting from the start of Redetermination, which we expect to begin following the end of the public health emergency in April .

These losses will be partially offset by membership additions expected as part of the Ohio contract Award, which will go live in July .

The addition of the Ohio contract award expands our Medicaid presence to six states, which as we have shared before has been largely accomplished through organic growth.

The retail segment revenue is expected to be in a range of $81 two to $82 2 billion, reflecting a 10% increase year over year at the midpoint.

The year over year change includes the impact of the normalization of Medicare risk adjustment revenue in 2022, the phase out of the sequestration relief beginning in the second quarter as well as the impact of changing member mix.

The benefit ratio guidance of $86 six to 87, 6% is 80 basis points lower than the 2021 benefit ratio of 87, 9% at the midpoint driven in part by the normalization of Medicare advantage revenue in 2021, partially offset by the expected return to baseline medical cost trends.

<unk>.

In summary, we are guiding to retail segment pre tax income in the range of $2 35 billion to $2 $5 5 billion for 2022, an increase of 26% over 2021 at the midpoint of the range, which includes the impact of an approximate 50 basis points increase in individual Ma margin.

Year over year.

Moving to our group and specialty segment, we are expecting total commercial medical membership, including both fully insured and ASO products to decline by 125000 to 165000 members.

This decline primarily reflects lower small room quoting activity and sales attributable to the COVID-19 pandemic, specifically as it relates to continued actions by our competitors to retain membership as well as the loss of a large group ASO account.

These impacts are expected to be partially offset by strong retention of our existing members.

From a profitability perspective, we expect this segment to show nice pre tax growth driven by improved profitability in the group medical business, resulting from the rating actions taken to account for the expected impact of Covid in 2022. This.

This improvement was partially offset by a reduction in expected earnings from our specialty business year over year as we do not expect the COVID-19 driven outperformance seen in 2021 to continue.

All in we are guiding to a pre tax range of 185 million to $285 million for the segment.

For our healthcare services segment, we expect adjusted EBITDA in the range of $1 $6 75 billion to $1 85 billion for 2020 to the.

The 2022 outlook reflects a full year contribution of kindred at home and continued growth in our pharmacy and primary care businesses. These.

These items are partially offset by investments to enhance our clinical capabilities and expand our value based home care model as well as investments to support the continued expansion of our primary care organization.

And our kindred at home business home health admissions are expected to be up mid single digits with hospice admissions up low single digits year over year.

As I mentioned previously kindred at home anticipates ongoing staffing challenges in 2022, driven by the labor shortage. The industry is currently facing.

We are focused on mitigation efforts through targeted investments to improve recruitment and retention of nurses. We expect these investments to continue our second half of 2021 trend of improved retention and net nurse head count growth, providing additional capacity to support top line growth.

And our primary care business as Bruce shared we intend to build an additional 26 centers in 2022 under our existing joint venture with Welsh Carson, which when combined with planned acquisitions is expected to increase our center count by approximately 20% in 2022 and bring our total center count to approximately.

<unk> hundred 50 centers by the end of the year.

Patient growth in our de Novo centers is expected to exceed 10000 in 2022, reaching approximately 30000 by year end at 57% increase year over year.

From an operating cost ratio perspective, we are guiding to a consolidated adjusted operating cost ratio in the range of $13. Two to 14, 2% for 2022, an increase of 160 basis points at the midpoint from the adjusted ratio of 12, 1% in 2020.

This increase.

<unk> reflects the full year impact of kindred at home, which has a significantly higher operating cost ratio than the Companys historical consolidated operating cost ratio the incremental seven five months impact of kindred at home operations are contributing approximately 150 basis points to the expected year over year increase.

I would like to now briefly discuss capital deployment for 2022, we.

We will continue to prioritize investments in our core business to drive organic growth.

Strategic tuck in M&A remains part of our overall framework and we will be prudent and opportunistic as we focus on organic growth in the near term.

And finally, we recognize the importance of returning capital to shareholders and we expect to maintain our strong track record of repurchases as demonstrated by the $1 billion accelerated repurchase program that we entered into in January .

While our debt to cap ratio is temporarily impacted by the acquisition of kindred at home. We believe we have sufficient capacity to execute on high priority investments initiatives, such as primary care growth, while continuing to deliver strong shareholder returns.

In closing I would like to reinforce our commitment to drive $1 billion of additional value for the enterprise through cost savings productivity initiatives and value acceleration from previous investments in order to create capacity to fund growth and investment in our Medicare advantage business and further expansion of our health care services capability.

<unk>.

As reflected in our initial guidance for 2022, we have entered the year targeting the low end of our long term earnings growth range of 11% to 15%, which includes an embedded COVID-19 headwind to the extent. This COVID-19 headwind is not ultimately realized we will be conservative regarding the timing and pace with which we adjust our full year guidance we believe.

In the year with this headwind incorporated into our guidance is prudent in our current environment and we are proactively taking steps to position the company to continue to deliver on our long term targets in 2023 and beyond.

With that we will open the lines up for your questions in fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.

Our first question comes from Matthew Borsch with BMO capital markets.

Thank you.

Maybe if you could talk about.

<unk>.

<unk> earnings upside for this year, just given the way that your position.

Gary I don't know Barry, but a conservative.

For 2022.

You think that would make margin upside more likely as you move through the year. Thank you.

Sure Hi, Matt Thank you.

Certainly as we've said repeatedly we definitely are approaching our 2020 guidance with.

To them, which we think is a prudent thing to do we've disclosed the explicit $1 COVID-19 headwind, which is embedded in our guide and while we do consider that conservatism. We do just want to reinforce that there remains to be a lot to learn about COVID-19 . There are certain dynamics that continue to emerge things like what or whether Medicare will cover over.

The counter testing, we continue to watch the trends in terms of hospitalizations due to Covid as I mentioned, while the omicron variance seems to be less severe it is much more transmissible, leading to many more COVID-19 hospitalizations some of which are not frankly directly related to COVID-19 in terms of the <unk> meeting condition, but rather they are being admitted.

And happened to test positive for Covid and that results in that extra 20% payment that's provided for under the public health emergency. So those are just two examples of the things that we'll continue to watch which may prove to be one dollar COVID-19 headwind becomes necessary, but as we've said clearly if it proves that like we've seen historically.

All of the Covid cost continued to be offset and that proves to be conservatism. Then you will see that release over the course of the year through additional earnings and if the entirety of that dollar was not needed. Then we would ended up above the high end of our long term targeted range, but just again encourage everyone to not get ahead of us on that is there is still a lot to be learned and monitor as.

Irrespective of Covid trends over the coming year.

Thank you.

Our next question comes from Justin Lake with Wolfe Research.

Thanks, Good morning, a couple of numbers related questions here first on the billion dollars can you talk about how much of that billion will be cost cutting which is other value creation with the timing of embedded with your year end 'twenty two 'twenty.

'twenty, three and beyond and whether any of this benefit is assumed in 2022 Etfs and then quickly just in your release you reiterated your 11, 15% earnings growth target through 2023 and beyond should we take that to indicate that you expect to grow 15% next year. Despite the headwind from lower membership growth from Israel.

Sure I can take that Justin.

For your first question about the $1 billion cost cutting how much cost cutting Bruce laid out for sort of high level categories that we expect to contribute to that overall goal of $1 billion in value creation. We would estimate currently that each of those will probably proportionately.

Contribute to that goal evenly over those four categories. There is still a lot to be done to finalize discrete initiatives and the timing of those but that is our initial thinking and we'll certainly keep everyone apprised of our progress towards that goal as we go through the year and finalize some of our 2023 pricing in bids.

As it respects to the timing of that as I said, we continue to work on the detailed assessment of opportunities that will lead to a variety of implementations over the course of the year.

We are highly motivated to create a path to that so we have a run rate going into 2023. So we can count on that and pricing and we would certainly expect some benefit from these actions in 2022, although the benefit would be meaningfully smaller than our overall 2023 target expecting that most of these initiatives would be implemented late in the year and so contribute.

Obviously, the 2022 guidance.

As we discussed recently with the reduction of our 2022 individual MA membership growth expectations, but that all other things being equal would have some negative impact of 2022, certainly any acceleration we can get from the $1 billion of value creation activities can certainly help as one of the puts and takes that we always consider as we finalize our full year forecast.

So all in again, while we might have some impact from these initiatives and acceleration that would be contemplated in our guide and it is just one of many things that we've considered as we go out with our initial guidance.

With respect to 2023 and beyond in our commentary, we do remain committed to delivering against our long term earnings growth target. We believe that the actions we'll be taking this year to position us to return to leading growth will help us do that without negatively impacting our expected long term EPS target. So that's our current expectation and certainly we will continue.

To keep you apprised as we go through the year and Justin just to maybe create some clarity on when we talk about the initiatives that we're focused on slowing down I just want to re emphasize to the shareholders that we are very oriented to grow in the primary care in the home area and so those initiatives really would continue to say.

The planned investments in those areas, there's other areas that we.

Slow the growth or.

Cause pause as a result of a $1 billion goal.

Great. Thanks for the color.

Okay.

Our next question comes from Kevin Fischbeck with Bank of America.

Okay, great. Thanks, I guess, maybe just to go into this billion dollar value comment a little bit more I mean some of these.

Things that have an enterprise you would be doing.

To some degree every year anyway, I mean, how should we think about this billion dollar number or is that incremental to what you would normally be assuming or is it.

And you only get $300 million and now you're doing $1 billion and it sounds like I just want to confirm that this is separate and distinct from trend vendors, but it just wasn't sure of that part of this $1 billion.

Yes, I'll take it as it is in addition to what we've normally have seen over the years.

We've continued to focus on our productivity.

We do believe a number of investments that we've made over the last few years are arrived to really help with the productivity side of our organization and in addition, I think there are some a number of them that will also provide some clinical and additional clinical benefits for us. So this is in addition to our normal as you referred to the trend vendors are.

Clinical outcomes there. So why do we think about the investments there but to be Frank with you. We are pushing the organization to be more efficient.

A much more larger effort for us as an organization, we feel that we have significant opportunity to do it we believe that focusing on investing in our customer is a top priority for us and continuing to expand the health care services side. So that just takes a continued refinement of where we spend our money.

And focus on continuing to be more efficient.

Great. Thanks.

Our next question comes from Stephen Baxter with Wells Fargo.

Hi, Thanks wanted to ask another one about a $1 billion.

Any rough sense, you can give us on how much of that will be allocated to Medicare advantage versus health care services and then within Medicare advantage, how should we think about the balance between benefit and improvement while youre talking about doing on the marketing side and I guess the continuation of that question would be should we think about the entirety of that benefit is accruing in 2023 or is there going to be an.

Mental benefit from some of these efforts as we move into 2024, just trying to think about how the growth acceleration could be sustained as we move past by 'twenty three.

Sure Stephen I'll take that.

So.

The value creation will span all segments different segments that we will probably contribute a little bit differently.

Certainly in our MA business and the scale at which we operate as Bruce mentioned, we might expect more efficiency opportunities in that business versus within healthcare services, where we're still looking to grow particularly in primary care, where it's less mature and then within kindred as we described focusing on improving nurse retention for the purposes of.

Creating additional capacity to drive topline growth is where we might focus so it will look a little bit different I would say in places like healthcare services will look for opportunities to optimize the business performance to improve additional pre tax contribution of value acceleration, where some of our more mature businesses, we will likely see more benefiting from.

More traditional cost initiatives and productivity.

In terms of how we will use the capacity that we create and that'll be a combination of benefits marketing and distribution on the Medicare side as well as continued investment in health care services across pharmacy primary care and kindred in order to support some of our forward looking capabilities there so how.

Exactly that will be allocated will be determined based on some additional work that still needs to be done as we approach. Our 2023 bids. Our teams are actively working to assess the impacts of the 2023 selling season.

Formulate their recommendations in terms of how to best optimize those investment dollars across product marketing and distribution.

It's.

Hard to say right now, whether we can fully get back to industry, leading growth by 2023 that certainly would be our goal and we'll work hard to see if we can do that but recognizing the rate notice.

It needs to be reviewed once that comes out in a variety of other factors, we need to consider that will ultimately determine whether we can do that in one year or whether it takes a little bit longer and again as we.

Through the year, we'll keep you apprised of our efforts, but certainly we'll work hard too.

Accelerate growth as quickly as possible.

Question on good morning for 24, and just sustainable are our objective in the.

This $1 billion goal is to have a significant amount of the.

Savings to have a sustainable year by year. This isn't just a one year shop, we're looking to really focus on the improved productivity.

As an important part of that obviously their clinical programs, where we can build off of a really two areas that we look at as having sustainable.

Long term impact.

Got it thank you.

Our next question comes from a J rice with credit Suisse.

Hi, everybody.

I think I might just ask you about the primary care centers. It's been awhile since you talk about the economics of those on a Bruce in your comments you said that maturity one center could contribute 2% to 4 million can you talk a little bit about.

How long it takes.

Any updated thoughts on how long it takes to get to profitability and then once you get to breakeven how long. It takes you to get to that mature margin and honest center, what would a $2 million to $4 million represent in terms of the EBITDA margin.

Maybe just flush that out a little more.

Sure Hey, Jay.

So I think as we disclosed before we anticipate that it will take roughly three to five years to deliver.

And achieve sort of mature operating performance within an individual de Novo clinic, and we add through our Welsh Carson partnership seem to be on track to deliver that I don't believe we've disclosed the targeted margin for our primary care centers, but I think we've said previously we don't believe that our operating performance will look meaningfully different than others that are operating the public <unk>.

Base other high quality performing providers. So have every reason to believe that our cost per foot would be similar to others and performance level.

Okay alright. Thanks.

Our next question comes from Josh Raskin with neuron research.

Hi, Thanks, Good morning, I wanted to get back to the $1 billion of additional value and specifically the impact on Humana is all of that getting reinvested to help longer term growth or does some of that actually some of the savings actually fall to the bottom line and then you talked about areas, where you have the greatest conviction on significant value potential should we.

Assume that that means primary care in the home I apologize for the run on question, but the last part would be you spoken about a four 5% to 5% target margin for the individual MA as you put this together in terms of this value creation project is there a different thoughts on target margins and is that should we be thinking more about.

Enterprise level margins as opposed to individual M&A. Thanks.

Sure Hey, Josh I can take that.

So in terms of your first question about whether the $1 billion investment would fall to the bottom line or be reinvested I think our thinking right now is that it's likely to be predominantly reinvested into.

High priority areas, including Medicare product distribution and sales as well as primary care in the home, having said that though is that allows us to return to industry, leading growth just the trajectory of that membership growth and the resulting benefits to the full enterprise and a variety of capabilities and services that support those members that can.

Also allow for some of that margin expansion over time as well.

In terms of the references we made to value creation, what thats recognizing is that over the last number of years, we've made meaningful investment in a variety of areas things like consumer experience technology platforms digital and analytic capabilities as well as on the health care services side within primary care in the home as well as pharmacy.

And what we're going to ask the enterprise to do is rather than embark on additional investment in some of those capabilities rather focus all of our resources on maximizing value creation out of those investments we've already made and we believe that that will lead to opportunities to accelerate value creation for the enterprise that can then be reinvested into all of those things I just.

As mentioned and one example of that is the introduction of our value based home health model, while we envision a comprehensive model that Bruce described in his remarks. There are also opportunities to deploy discrete elements of that whether that standalone dnb or utilization management and markets that maybe don't have the density to support the full model.

And that we can accelerate some of that to generate additional value for the enterprise. So those are things that we'll ask the team to focus on and is maximize return off the investments we've made to date rather than continue to invest incrementally more in the current timeframe.

On the margin question. So again, we remain committed to our long term individual MA margin. We're pleased to announce that we will see some progress positive progress. This year as we mentioned in my remarks, we expect expansion of about 50 basis points.

In 2022.

We think that again over time as we return to an industry, leading position and scale. Some of our other businesses that does allow us to continue to expand margin long term discreetly within the health plan, but also as we've said before we think it is important that everyone continue to focus on the broader enterprise margin potential off of our health care services capabilities.

Which as we continue to expand the coverage of primary care in the home.

Increased penetration in pharmacy, those discrete contributions allow us to add significantly more value to the enterprise off of that base individual MA membership long term such that we should be able to see even greater enterprise margin expansion over time and as we continue to grow those businesses that will just become an increasingly important part of our value for.

<unk> story and support our long term sustainable EPS growth target.

Perfect. Thanks.

Our next question comes from Scott Fidel with Stephens.

Hi, Thanks, good morning.

Just a quick numbers questions. If I could the first is just if you could update us on for the MRA headwind.

Related to the pandemic, where that ultimately came in for 2021 and then it sounds like are you assuming that youre going to fully normalize on the risk scores in 2022 or maybe if you could just talk to you specifically how much improvement you expect on that.

And then just the second one if I could ask.

Just as it relates to HHH and as we think about what.

What you had previously told us Youre planning to do with offsets.

I remember that when you had initially gave us the presentation.

Acquisition. There was a 50 50 split that you talked about between home health EBITDA versus hospice EBITDA still just interested if that's where it's tracking heading into 2022 as well. Thanks.

Great. Thanks, Scott so.

So for the first question related to premium so yes.

<unk> disclosures throughout 2021, as we continue to track the submission of diagnosis codes, which obviously was important into returning to more normalized premium levels for 2022. So we did continue to see diagnosis code submissions.

Track as we expected it's important to consider that the January premium overall is also going to reflect the impact of members newly enrolled or dis enrolled.

<unk> also now reflects the impact of the higher mortality that we experienced as a result of COVID-19 .

Mentioned that we've been setting those impacts for some time recognizing that the members who passed away as a result of Covid had higher than average risk scores as well as higher than average claims recognizing that individuals with multiple chronic conditions, where the most susceptible to severe COVID-19 complications. So you will certainly see that reflected in our premium yield for the year.

Which all other things being equal will be a little bit lower than we otherwise would have expected because of that higher mortality due to COVID-19 again. The claims also run higher for that population and the results of both of those dynamics are reflected in our estimates.

So we do expect our individual Ma.

<unk> yield to be in the high single digit range for 2022.

And then Susan just on the HHS and EBITDA, Yes, and then yes on your question, Yes, as you mentioned when we disclosed the transaction. It was roughly 50 50 split.

Had slightly higher margins in the home health business and that those trends continue so thats a reasonable assumption.

Okay. Thank you.

Our next question comes from Kevin Caliendo with UBS.

Hi, Thanks for taking my question. So I wanted to just talk about the third you talked about extra training for third party sales and I just wanted to get to the bottom of this whole disclosure.

Situation do you expect the market to sort of move in your direction or can you talk a little bit about how youre going to change or or what exactly the training might be that sort of fixed the messaging.

In that channel.

Let me start and I'll, let decision to add.

We will continue to work with our external partners.

Being able to ensure that our customers and frankly the industry customers.

Properly have the proper understanding of what they are buying at the end of the day, that's what we're trying to ensure.

Our disclosures are not much different than others in the marketplace.

At the time that people spend on ours members in.

And throughout the industry I think are about the same but we do believe considering just the sales channel itself continuing to reemphasize to our to the members Medicare members in totality and understanding what they are buying is very important.

We are seeing increasing interest by CMS around this.

Particular matter in fact in fact, you saw it in some other.

Regulations that came out in the early part of January that they continue to be oriented to this particular area here.

Great.

Very helpful. Thank you very much.

Our next question comes from Ben <unk> with Jefferies.

Is that.

Dave Windley that you were trying to is it me.

Hey, Ben your line is open.

Hi, So Dave Windley here, sorry for the confusion on that but my question would be.

How synergistic Bruce or your.

Primary care in the home your.

Your home health initiatives and your primary care clinic initiatives and to what extent I've noticed in some of your releases some of the same stage, but to what extent are you focusing your efforts in those two areas on the same local markets to drive.

Duplicative impact.

Yes, that's great question, David we actually referred to that internally as the flywheel and the ability for us to leverage.

The touch points with our members and the various different providers and that would also include the pharmacy side.

We're seeing great benefit from that all the way from obviously driving more volume better clinical outcomes as a result of the coordination that's there and then in addition.

Driving higher satisfaction, so it's really touching all parts.

What I would say is what you see we started with started primary care is much more focused in the markets there and while kindred has a much broader.

Platform that can be wrapped around the primary care side and so we are in a few markets. This year, we're actually going to work on the integration of that together and Thats. One of the reasons why you also see a consistent brand.

Around center, well, where we are beginning to start to integrate that so I would say 2022 is a year of of beginning that process, but I would say subsequent to 2022, you'll see a lot more activity in the local market of much more integration around the care model. In addition, we see significant benefit from that.

Is it is it two if I could if I could ask is it too early to know numbers of like how much you bend the trend or cost savings from that flywheel.

Yes, we haven't.

Between two to four times better outcomes, when I say that both financially and clinically as a result of the <unk>.

<unk> ability to bring this in.

Thanks.

Our next question comes from Ricky Goldwasser with Morgan Stanley .

Yes, hi, good morning, staying under primary care 206 centers now expanding throughout the year.

What percent of Humana's MA members overlap with your primary care centers.

Type of retention rates you see with these members versus the rest of the book.

And then secondly, just to clarify, though we talk about the $1 billion in value creation, but as you think about that value creation, how much should we assume.

Is going to come from gross cost cutting initiatives.

Okay.

Sure Hey, Ricky so on the first question.

I would actually have to get back to you on the actual technical coverage in terms of our center, while clinics overlay to our Medicare membership. So we can get back to you with that number.

I believe we've ever disclose anything specific to your retention related to Humana members in those clinics I will just point out that our clinics to provide care agnostic lease. So they have many other health plans.

They serve and so even if a humana members since used you're enrolling another plan to have an opportunity to preserve that member should they participate in those networks as well.

Those centers continue to expand though that is an area that we are very focused on and really understanding sort of the experience that they are providing to patients and working to ensure that those.

We have industry, leading retention within those clinics as well and they do have very high NPS and patient satisfaction as a result of the high quality and comprehensive care that they provide.

On the $1 billion of value creation as I mentioned, the four categories that Bruce described we think will contribute roughly equally to our overall goal.

So as he described there are there is a component of it is related to value acceleration, which we think can impact a variety of topline growth opportunities.

<unk> trend savings et cetera, but the other categories do you involved really taking costs out of the system by working more efficiently and effectively eliminating sort of lower value work as a way to get more streamlined and focused our associates on the the most important work in front of us.

So should we just interpret data to set equally so do we just take the $1 billion in saying $250 million in gross cost savings just trying to think about how should we saw that sort of P&L.

Yes, so as you think about the breach laid out four categories.

There is the supply chain, which again that as savings as well. So I would say really it's more like three quarters of the total is probably going to come from various savings initiatives and then about a quarter from other value acceleration opportunities.

Thank you.

Our next question comes from Whit Mayo with SBB Leerink.

Hey, Thanks, I wanted to go back to Kevin's question on third party marketing for a second maybe just ask this a different way I think there's still some confusion when CMS issued their October memo last year around compliance and oversight of first year and third marketing organizations did you pull back materials in the market.

What did the <unk>.

Actual compliance requirements have an impact on you I am just trying to understand if you were out of the market and if you think you have a better view on how to course correct us.

Hey. This is this is jobin, maybe handle that one we've done a variety of channel checks with our partners to make sure that we were not an outlier. When you look at the compliance requirements that came out of CMS I think as you. All know it was a recognition of responsibility for third party marketing.

On behalf of all of the payers and so our channel checks confirm that we were not an outlier. Our partners are working in this way with other large payers as well as Bruce mentioned to make sure that our members when they call and they purchase a plan. They know what they are purchasing and that they are aware and then it's a good quality sale for them.

Okay. Thanks, a lot.

Just I know Theres a lot of interest in this side, maybe just to provide a little more clarity here what we find in this channel is there is a high degree of confusion that has that is with the members and what they buy and Thats. One of the reasons why you see the high churn and it has created a number of downstream issues both.

The confused and.

Its members and then in addition, just just some compliance issues and Thats why you see the efforts by by Us and other organizations to ensure that.

We ensure that the individuals' properly purchasing of the plan that they choose.

Our next question comes from Nathan Rich with Goldman Sachs.

Yes.

Hi, good morning, Thanks for the question.

Maybe just trying to pull together the commentary on the value accretion program I guess.

You envision is allowing you to return to market growth in individual MA kind of while maintaining the target margins that you have for that business by leveraging those savings in.

Yes, the follow on to that would be the $1 billion, we'd give you over 100 basis points of margin to kind of reinvest in that business could you maybe talk about where those investments would be broke.

And then a quick follow up if I could with the 23 rate notice coming imminently do you have any expectations that you can share and how significant of a swing factor do you feel that is for next year given that you are making kind.

Significant organic investments in the MA product 23, thank you.

Hi, Nathan sure so as it respects the value creation goal that we've set that is with the intent of allowing us to invest in the Medicare business as well as health care services and return to industry, leading growth not at the expense of margin. So the intent is that that will be reinvested such that we don't deteriorate margins, but rather maintain and then.

Over time continue to expand margins toward our long term goal and we believe that that targeted savings and value creation opportunity will allow us to do that.

In terms of where well focus those investments I think and within the Medicare business as I said Theres a lot of additional work to be done, but certainly we will make product investments as we analyze our results in the D. SNP space, while we continue to grow nicely, we're not growing as much as we had last year and there are certainly opportunities to enhance that product offering that we think will allow us to get back to.

<unk>, a leading position in D snips, and we'll look at other opportunities byproduct as well as geographically to do that and be really thoughtful in the way, we optimize any investment that we're going to make.

We also are looking at distribution as we've been discussing and what opportunities there may be there in terms of further investment in incentives during encourage retention and other things to optimize those channels as well as marketing will continue to look for ways to increase our share of voice as Bruce described but also ensure we're getting the highest return on that investment and there is likely.

Some opportunities to do more there and.

In terms of the rate notice, whereas as anxious as everyone to see that that should come out soon based on the strong bipartisan support of the program and the strong enrollment and continued enrollment by Medicare beneficiaries as they choose MAA given the value that it provides to consumers we would expect that that would be more moderate.

Our expectation is that it may not be quite as favorable as we've seen in recent years, but our expectation is not that it's negative either but certainly this is we recognize it's the first rate notice we will see at the Bod and administration and look forward to seeing that and hope that it continues to support.

The program and all the beneficiaries that it serves.

Our next question comes from Gary Taylor with Cowen.

Hi, Good morning, I, just wanted to ask a little bit about value based care.

Center, well could be the noted your announcement about the center expansion and expectations for continued tuck. It does look like at least there is a modest increase investment that youre, making there for all the reasons that <unk>.

A highlight of historically, what I wanted to ask about was what is your appetite to do something.

Beyond just tuck in I think you said last year 15 centers acquired in nine different.

Transactions, we've seen in the public market enormous valuation correction, which presumably ultimately flows through the private market as well and we know theres a number of private companies with much larger center accounts that have pretty significant overlap with your MA penetration. So just.

Just wondering if there is an appetite on the tuck in side to do something larger.

Environment, where valuations seem more reasonable.

Hey, Gary just a few things on the.

On the tuck in ones, we see those as just great opportunities because we can buy them at a fairly low multiple as a result of the synergies that we get in the marketplace. So they are they are very controversial.

Great deals for US overall, so we wanted to continue to do those and as you have seen over the years, we have been very sensitive to how we utilize our capital insensitive to valuations because we do believe over time, the ability to drive value received greater than the organic side and and just densification in the markets.

We're in.

That being said I mean, we would.

We obviously would look at those those companies there we still think the valuations, albeit they've come down quite a bit we continue to look at them and say are they at a level that would make sense today.

And a question question, a little bit of that but that being said, we would continue to look at them, but I just we just feel what we're doing.

And the organic side combined with tuck ins is really driving will drive a significant amount of value for the shareholders over a longer period of time.

We continue to advance our strategic positioning.

Thank you.

Our next question comes from Lisa Gill with JP Morgan.

Thanks, very much and good morning.

I wanted to go back Susan to your comments on the Pbms side of the business you talked about.

Rx being up 8%, what's your expectations going into 2022 around script growth and then secondly, what are some of the opportunities you see when we think about specialty and Biosimilars for your <unk>.

For 2022.

Yes.

Hi, Lisa Susie.

As soon as it respects the pharmacy business.

As we look at our 2022 expectation certainly with a lower than expected MMA growth that will have some impact.

The <unk> year over year, but we also had outperformance in the Standalone part D space, which to some degree offset although our PDP members don't use mail at quite the same rate as our individual MA so a little bit of a negative relative to what we would've expected, but otherwise we will continue to work to drive mail order penetration and then certainly <unk>.

Elevation trends.

Are expected to continue to increase as you would expect and consistent with historical trends on the specialty side and the team does continue to look at opportunities in the specialty space and.

And evaluate ways to both provide services agnostic Lee, but also continue to drive their ability to participate in.

Distribution of various specialty related drugs. So they continue to look for ways to expand that business. The other thing that they do is they work very closely with our health plans, what we like about our own specialty business is there. They are really working towards the health plan goals, which is to reduce waste and ensure that we're reducing the cost of those high cost specialty drugs, where and when possible.

And we think Thats, a real advantage to having our own specialty pharmacy, which is very focused and oriented to the health plan goals.

Sure.

Yes.

And when I was asking about Biosimilars I think im speaking specifically to somebody like Humira that will lose patent protection in 2023 is that.

Yeah.

Delivering products to the home. It is this something that will be beneficial to humana.

There could be again.

What we've seen is as they enter generic.

<unk> status as a <unk>.

Right opportunity for the PVM to drive value. What ultimately happens is we do drive those rebates back to our customer and lower the part D cost. So as you think about just the opportunity here is always around how do you create a competitive product in the marketplace.

But it is an opportunity for us.

Okay, great. Thank you.

Our next question comes from George Hill with Deutsche Bank.

Yes, good morning, guys and thanks for taking the question Bruce and Susan I wanted to give you a chance to kind of clarify something on the $1 billion in value creation, given the questions that have already gotten this morning, which I guess is can you talk about how much of the $1 billion. We should think about as cost savings initiatives that flow to the bottom line versus initiatives undertaken to accelerate.

Growth for growth in the services segment and then my follow up to that would be can you talk about the incremental spend that will be required to achieve the ability to kind of go above and beyond what was previously planned just I'm getting the sense of.

Investors are already reading that billion dollars $31 billion in operating lines savings, which I think.

Seems to be the case.

Yes, let me try to clarify that I think our intention is really doing to reinvest in the customer value to be.

I think.

Ultimately it will show back up in the end.

Bottomline through higher growth and as you all know we all are focused on how do we continue to grow our our customer line and we feel today, we have the opportunity to to.

Fine.

To invest in both the channel the marketing and in addition, the product itself to drive that value. So from an investor's point of view I would like add more of the top line benefit from comes from that.

The bottom line just the margin itself. So it's a much harder math to do but it is a it is something thats.

Very oriented to topline growth.

And in regards to.

Just the <unk>.

Structure of the cost savings evidenced we've talked about on a few occasions. It is a combination of cost savings taking costs out of the system being both efficient and eliminating things.

Our lower value and at the same time improving revenue.

But mostly clinical costs as a result of.

So there will be when you think about the income statement line item.

Primarily it will show up in the.

Operating expenses with a lot of it's showing up in the in the area of the administrative.

Clinical piece.

That's helpful maybe anything on the incremental spend.

Incremental.

Our net number is.

The $1 billion that is in that number for us.

Yes, the only thing George as we acknowledged in the releases there may be one time charges related to some things that we do like real estate gain.

Getting out of certain real estate and so those we would intend to non-GAAP .

Related to any one time charges in order to realize some of those run rate savings.

That's helpful. Thank you guys.

Our next question comes from Rob control with Cleveland Research.

Hi, Good morning, just quickly curious if you can comment on your expectations for additional individual membership.

Individuals may lives throughout the course of 2022, given you're already 80% of the way towards your full year guidance and then within that.

Susan you commented that you expect it to convert.

80000, PDP members the MAA in 2022, how many of those have already been converted as of January . Thank you.

Sure. Thanks, Rob on individual MA growth, we continue to monitor our trends both sales and terms.

Into the open enrollment period that runs through March I would say that generally speaking those trends continue to track consistent with our full year guide adjusted full year guidance and we continue to feel good about that on the PDP I would say the seasonality of the PDP looks similar to overall sort of growth seasonality, where you do see a disproportionate amount.

In January but we do have an opportunity in PDP conversions in particular with low income members, who do have the opportunity to move throughout the year. So it is not quite as weighted to January as overall growth, but still more than 50% certainly.

Is realized in the month of January .

Got it thank you.

Yes.

Sure.

Our next question comes from Steven Valiquette with Barclays.

Great. Thanks, Good morning, everybody. So I think you touched on this maybe a little bit, but just wanted to come back on the topic of commissions into the individual Ma market.

I guess, if we go back two years ago, My sense was that Humana and other major carriers, we're more than happy to pay full commissions in all distribution channels.

I would actually be willing to pay more.

For the regulated caps on the commissions, but obviously in some of your commentary from early January .

On it is that Humana was perhaps not paying maximum commissions in certain channels. So it really is a couple of questions around that I guess with with hindsight do you think you were alone among major carriers not paying maximum commissions.

And the telephonic channel that is kind of at the epicenter of all the recent discussion.

So it was better hindsight with a little more passage of time, how big of a role does this particular variable, but ultimately play into somewhat disappointing AEP and then just remind us on your commission strategy around that going forward from here just to kind of round out. This at this part of the conversation.

Yes, let me let me.

Start here.

First just to remind the investors are actually we will be close on our sales. This year. So it was more of a retention issue as opposed to the sales issues I just want to put that in some context as we think about commissions.

We today pay the market value of the maximum commission on the on the sale itself. According to the to the regulations that are out there there are a number of other.

Dollars that are invested in the and the external <unk>.

Channel the telephonic channel.

That include marketing include some some additional incentives that are more oriented to the to the company as opposed to the salesperson itself. How the company distributed <unk> and does that we really don't get into involved in that so when we talk about the commissions in total we talk about there's different levels that are at.

Our invested with the partner we have.

Ben more reserved in where we spend those dollars just because we also find there are more effective ways to do that in other channels over the past number of years.

When you look at our sales success, even this share you say that the commission side is an area there.

But it does motivate churn in the marketplace, that's really what we're communicating to them and that that does does hurt us this year and I would say, so as others sort of ramped up the payments to it.

It hurt us on the churn side as opposed to the sales side.

Going forward I don't.

We're going to provide that kind of detail today, obviously, both it's early but it's also.

A competitive market out there and we want to make sure when we when we do.

Do something that is done more proprietary in and the way we approach it.

Okay got it okay. Thanks.

That concludes today's question and answer session I would like to turn the call back to Bruce Broussard for closing remarks.

Thank you and thank you for your continued interest in the company in an investing the time today I hope our comments were.

But.

Humana is in a great position I think we will continue to lead the industry in both in the ability to drive membership growth and at the same time.

Improve the health outcomes for the people, we serve and obviously I want to thank our 90000.

Associates and teammates to make this happen every day because without their work we would not be as successful as we are so thank you and again. Thank you for your support.

Yes.

This concludes today's conference call. Thank you for participating you may now disconnect.