Q1 2022 Anthem Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to anthem first quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session, where participants are encouraged to present a single question.

If you wish to ask a question. Please press Star then one on your telephone keypad, you'll hear a prompt that you have been cute you may withdraw your question at any time by pressing Star then Q. These instructions will be repeated prior to the question and answer portion of this call.

A reminder, today's conference is being recorded I would now like to turn the conference over to the company's management. Please go ahead.

Good morning, and welcome to anthem as first quarter 2022 earnings call. This is Steve <unk>, Vice President of Investor Relations and with US. This morning on the earnings call are Gail Boudreaux, President and CEO , John Gallina, Our CFO , Peter Hi, Italian President of our diversified business group and in Junior Rx.

Morgan Kendrick President of our commercial and specialty business Division and Felicia Norwood President of our government business Division.

Gail will begin the call with a brief discussion of the quarter recent progress against our strategic initiatives and close Ananthous proposal to change our holding company named to element itself.

John will then discuss our financial results and outlook in greater detail.

After our prepared remarks, the team will be available for Q&A.

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

We will also be making some forward looking statements on this call listeners are cautioned that these statements are subject to certain risks and uncertainties many of which are difficult to predict and generally beyond the control of anthem. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed.

In today's press release and in our quarterly filings with the SEC I will now turn the call over to Gail.

Thanks, Steve and good morning, everyone. Today, we're pleased to share that anthem is off to a strong start in 2022.

In the first quarter, we delivered GAAP earnings per share of $7 39.

We grew adjusted earnings per share by 18% to $8.25 exceeding.

Exceeding our expectations.

Based on the strong start to the year and the momentum in our business, we have increased confidence in our ability to deliver another year of growth in line with our long term, 12% to 15% annual adjusted earnings per share growth target.

As a result, we've increased our full year outlook to greater than $28 40 per share rep.

Representing growth of at least 12, 7%.

The adjusted baseline we provided last quarter.

It's the ongoing momentum in every one of our businesses driven by the disciplined execution of the strategy. We shared with you at last year's Investor Conference, coupled with the balance and resilience of our core benefits business that is allowing us to produce this level of growth.

Yes.

We ended the first quarter with medical membership up seven 5% year over year.

$46 8 million members widening anthems lead as the largest insurer by U S medical membership.

In recent years anthem has been on a journey.

To transform from a traditional health insurance company to a lifetime trusted health partner.

By focusing on whole house.

Addressing the physical behavioral and social drivers that we know are critical to achieving optimal health.

Our results demonstrate that our employer consumer and state partners are universally looking for solutions that address underlying drivers of cost, while enhancing and simplifying the consumer experience.

We are delivering in these areas and it's propelling strong organic membership growth in each of our benefits businesses. In addition to creating opportunities to scale our service divisions.

Last quarter, we shared that anthem produced its strongest national accounts selling season in the history of the company today.

Today, you can see in our results our commercial group fee based enrollment grew by over 750000 members in the first quarter alone.

With a meaningful proportion of that growth driven by existing large employer clients consolidating their business with anthem after working with us on a piece of their business in the past.

Cost of care is Paramount for self funded groups and the success, we're seeing underscores our confidence in our leading cost of care position.

Employers have come to expect more notably in the way of enhanced experiences and we continue to innovate to meet their needs.

In the first quarter, we expanded virtual primary care capabilities to reach 5 million commercial members and expect to reach 10 million members by year end.

We're excited about the potential to expand access to care.

Especially in underserved and rural areas, while offering convenient personalized solutions.

We also continue to advance client advocacy solutions and elevate our consumer engagement platform.

Any health, which has been core to our success in the employer market.

Last year, we launched Sydney preferred a version of our Sydney Health App that allows employers to customize our engagement platform for their unique benefits of needs.

Today, nearly one 2 million members around Sydney preferred.

And we closed the first quarter with more than 12 million registered users on Sydney.

Approximately 40% year over year.

Our commitment to whole health is also driving growth in our government business where.

Where we are focused on health equity and meeting the needs of vulnerable members.

Last quarter, we shared how our whole health index helps us better understand and address local social and physical drivers as health.

We're leveraging the tool to identify members with diabetes, who may benefit from one on one virtual coaching supplies and preemptive notifications to help better manage their health.

And our diversified business group, new behavioral health programs launched by Beacon address family therapy suicide prevention and offer a concierge model for members with comorbid conditions.

All of these efforts support our focus on community health.

Through our whole health index, we've been measuring anthem impact on health outcomes and are seeing encouraging, albeit early trends.

Our health equity and community health initiatives targeted vaccine outreach community health worker readiness housing stability and diabetes management during COVID-19.

Programs made possible by our deep roots in our communities were recognized recently by the Institute of Medicaid innovation.

All of this work keeps anthem uniquely well positioned to serve the needs of our state partners and directly ties to 100% Medicaid RFP win rate that we extended into 2022 with renewal awards in Indiana and Louisiana.

Personalized whole health solutions are also resonating with seniors.

Notably dual eligible members with complex and chronic needs and driving strong growth for anthem and Medicare advantage.

For example.

Supplemental health plan benefits like those offered by simply healthcare address food and security issues by delivering food shipments directly to our most vulnerable members.

Benefit packages like our everyday extras provides members the flexibility to choose which supplemental benefits matter most to them from menu of options.

We remain on track to produce double digit organic growth in our individual MA business led by growth in duals. We also remain opportunistic in terms of driving inorganic growth through acquisitions.

M. M. M has performed well since we acquired them last year, and we look forward to adding integra, a high performing plant serving high needs Medicaid members in New York to our portfolio when we close our purchase later this year.

Across our organization, we're committed to accelerating value based care.

But in context of benefit expense for health plans and growth of our diversified services businesses, we know that value based care leads to higher quality outcomes better patient and provider satisfaction.

More predictable cost for health plans and by extension.

More stability in our benefit packages all of these factors can lead to higher star ratings, and Medicare advantage, which is a key strategic priority for anthem.

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

This drive towards value based care is one of the most important strategic imperatives inside of our organization.

In 2021 more than 60% of our consolidated medical expenses were paid undervalued based care arrangements with roughly a fifth of that.

We're a low double digit percentage of total spend and arrangements with downside risk.

In the coming years, our primary focus will be to increase the penetration of downside risk sharing including via global competition.

We expect to make significant strides in the coming years targeting more than a third of overall spend arrangements with downside risk in 2025 with significant increases in penetration in Medicaid commercial and Medicare.

In addition to the benefits our health plans derived from value based care, we see significant pull through opportunities for our diversified business group in the areas of provider enablement and carve outs of specialized care management, including behavioral and home health.

And in my Nexus are leaders in these areas with a proven ability to generate high quality outcomes and solid profitability in risk based arrangements, notably 100% of my Nexus is affiliated revenue earned from anthem health plans and 99% of beacons.

Will flow through risk based contracts in 2022.

Guided by our enterprise strategy, we are making significant investments in our digital capabilities and platforms.

We see three distinct benefits elevating consumer and provider experiences improving the cost and quality of care.

And improving administrative efficiency by automating manual processes.

Adoption of our digital tools combined with strong and rising customer satisfaction surveys suggests that our consumers and care providers are finding value in our digital channels.

Less than two years ago, we implemented live chat in AI and messaging capabilities for consumers and care providers to provide more choice and convenience today chat is our best performing channel for issue resolution and consumer experience metrics.

Consumer chat usage grew by nearly 40% year over year in the first quarter and now represents 24% of the contact mix.

For care provider chat usage grew by nearly 50% year over year and now represents 20% of our provider contacts.

Meanwhile, anthem is benefiting from improved efficiency.

Having reduced an estimated 1.2 million calls from members and another $1 million from care providers in the first quarter alone.

Year to date, we've also made significant progress advancing our health O S. Digital platform, which is now utilizing clinical data from providers and health systems for more than 20 million members.

We use these data to advance clinical quality and elevated experiences by sharing more comprehensive data and insights with care providers in value based care arrangements in order to facilitate better care management and personalized member interventions.

We're also leveraging the platform to advance our cost of care analytics and streamlined data collection for risk adjustment.

All while automating processes that reduce administrative burden for our associates and providers.

We're rolling this tool out rapidly with a goal of covering another four and a half million members by the end of this year.

In conclusion, we're continuing on our journey to transform from a traditional health benefits organization to become a lifetime trusted health partner.

On our proposed name change to elegance health marks an important milestone.

Bringing together the ideas of elevate in advance.

<unk> health will reflect our position as a health leader committed to elevating the importance of whole health and advancing health beyond health care for our consumers their families and communities.

Grounded in our mission and fueled by our bold and ambitious purpose to improve the health of humanity.

Elegance health represents the company that we are today and will continue to be in the future.

I would like to thank our nearly 100000 associates for the important work. They do every day on behalf of the members who we are privileged to serve.

Our passion to improve lives and communities is inspiring and it extends to our own associates.

We were pleased to once again be recognized as one of Fortune's 100, best companies to work for with a ranking of 57 up from 71 last year on this year's list of America's leading employers and workplaces.

Now I'd like to turn the call over to John for more on our operating results John .

Thank you Gail and good morning to everyone on the line.

As Gale mentioned, we delivered strong first quarter results, including GAAP earnings per share of $7.39 and adjusted earnings per share of $8.25, reflecting growth of approximately 18% year over year.

First quarter results demonstrate continued momentum across all of our businesses driven by the execution of our enterprise strategy.

Benefits of investments in key capabilities, and the balance and resilience of our core benefits business.

We ended the first quarter with $46 8 million members up $3 3 million or 7.5% year over year with nearly three quarters of the growth being organic.

In fact, we generated organic growth in each of our Medicaid.

Medicare commercial risk and commercial fee based businesses.

Membership grew by 1.4 million lives in the quarter alone driven by the strongest national accounts selling season in anthems history.

And aided by the acquisition of Ohio, Medicaid members from Paramount advantage.

Commercial membership is off to an especially strong start this year as anthem integrated solutions, which focus on whole health the.

The customer experience.

Total cost of care continue to resonate in the employer market.

Our brand value and unique product offering leveraging our deep local roots and value based provider partnerships also continued to gain traction with consumers.

For example, in the ACI exchange market, we delivered individual membership growth of 8% in the quarter or 12% year over year.

The Medicare open enrollment period was also consistent with our expectations as we remain on track to produce double digit organic enrollment growth in our individual Medicare advantage business.

This includes strong growth in our dual special needs plans, where our strategic investments targeting specific benefit categories continue to attract consumers with complex and chronic health needs.

In Medicaid we overcame a significant membership have when to start the year as additional carriers entered two of our existing markets and we still ended the quarter up 319000 net new members.

In addition to continued organic membership growth.

The acquisition of Paramount advantages, Ohio Medicaid members in February added 256000 members in the quarter.

We are very excited about this strategic acquisition, which provides anthem scale in Ohio is Medicaid program ahead of the future launch of the new contract we were awarded last year.

First quarter operating revenue of $37.9 billion increased $5.8 billion or 18% over the prior year quarter with strong growth in each and every one of our businesses.

We earned higher premium revenue due to the growth in Medicaid membership.

The acquisition of my mom, and Paramount and the individual Medicare advantage and commercial risk based enrollment growth.

In addition to premium rate increases to cover overall cost trends.

We also produced strong double digit organic growth in our in junior Rx and diversified business group businesses.

Our services businesses are off to a strong start this year as in junior Rx's value proposition is gaining traction in the market.

The diversified business group continues to execute on the strategy, we articulated at our Investor day in March of 2021 growing both affiliated and unaffiliated operating earnings across its portfolio of best in class assets.

In the first quarter <unk> continued to grow its risk based arrangements with our commercial health plans consistent with our strategy.

With the risk transfer between businesses, we expect more seasonality in D. B Ge's earnings with a larger proportion of full year earnings in the first quarter relative to prior years and a decrease in the seasonality inherent in the commercial business.

It is important to note that this affects seasonality only our annual segment target margins for the commercial and specialty business Division are unchanged.

Revenue eliminated in consolidation, representing intersegment business grew 23% year over year and represented 21, 4% of benefit expense in the first quarter up from 27% in the same period a year ago.

And if it was consolidated benefit expense ratio for the first quarter was 86, 1% an increase of 50 basis points over the first quarter of 2021, primarily driven by the continued shift in mix of business towards government, which has a higher met.

The loss ratio.

Relative to our expectations as of mid January when the omicron surge was still peaking in.

In the terms of the at home Covid testing coverage rule had just been released.

Our medical cost structure develop meaningfully better than our original guidance ranges driven by a lower net impact from Covid.

Specifically, the omicron surge dissipated faster than we had expected in February while producing lower acuity COVID-19 cases relative to prior surges.

This combined with the absence of any material stockpiling or abuse of free at home Covid test.

Helped drive favorability in the first quarter benefit expense ratio relative to our initial guidance.

Even with these positives the overall cost of care in the quarter was still above what we would consider to be a normalized level.

Anthems SG&A expense ratio in the first quarter was 11.5% on a GAAP basis, a decrease of 70 basis points over the prior year quarter.

Decrease was driven by expense leverage associated with strong growth in operating revenue.

Partially offset by higher investments to support our growth and digital transformation.

First quarter operating cash flow was $2 $5 billion or one four times net income.

Please note that we continue to expect to pay our share of the B C. B S. A litigation settlement.

Approximately $500 million later in 2022, which was included in the guidance. We provided for full year operating cash flow of greater than $6.9 billion as we discussed on our fourth quarter 2021 earnings call.

As of the end of the first quarter anthems debt to cap ratio was 39, 2% in line with their expectations and well within our targeted range.

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

Days and claims payables stood at 46.9 days at the end of the first quarter, an increase of 1.7 days from year end and in line with the first quarter of 2021.

Medical claims payable once again grew faster than premium revenue in the first quarter relative to the prior year.

With respect to our outlook. We are pleased to have delivered a stronger than anticipated start to the year.

Outperformance in the first quarter has increased our confidence in our ability to grow adjusted earnings per share or 12% to 15% in 2022 off the adjusted baseline of $25.20 in line with our long term target.

We now expect benefit expense ratio for the full year to be at the mid point or in the lower half of our initial full year guidance range for this metric.

Given the strong start to the year, we now expect to produce adjusted net income per share of greater than $28.40 representing growth of at least 12.7% from our adjusted baseline.

With the recent extension of the federal public Health Emergency. We also now expect Medicaid Redetermination will begin later than we had previously assumed.

While the extension will enable us to maintain our Medicaid membership longer. Please note that we will also incur increased cost associated with the phe in our Medicare and commercial risk based businesses for an additional three months.

Importantly, anthem is uniquely well positioned to navigate the end of the public health emergency and to support continuity of care for Medicaid members, who lose access to Medicaid by providing a robust set of commercial offerings.

The momentum we have in each of our businesses, coupled with the balance and resilience of our core benefits business should allow us to maintain healthy levels of membership while continuing to scale our diversified services operations.

Consistent with this strategy, we are well positioned to continue delivering against the financial targets. We shared at our March 2021 Investor Conference.

In that context, I want to point out that while we are excited by strong growth in our commercial business and the expansion of our risk based arrangements with our diversified business group.

The operating margin of the commercial and specialty division remains challenged by the net impacts of Covid.

However, while the year over year margin performance in our reportable segments table includes the impact of the seasonality shift I mentioned earlier, the underlying performance of the business is better than the optics.

Relatedly, we would caution against Annualizing first quarter operating profit of the other segment, which includes the diversified business group and the impact of the seasonality shift on that business.

Importantly, the expanded risk sharing arrangements with D. B G have no impact on our full year margin expectations for the commercial and specialty business.

We expect commercial margins to recover as the effects of the pandemic subside.

We also anticipate strong earnings growth in our Medicare business.

These opportunities coupled with the expectation of continued strong double digit growth in our services businesses anthems programmatic approach to M&A and our opportunistic focus on share repurchases leave.

Leave anthem uniquely well positioned for growth in the coming years.

With that operator, we will now open up the line for questions.

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

That may wish to participate in this portion of the call for our first question will go to the line of Scott Fidel from Stephens. Please go ahead.

Hi, Thanks, good morning.

If you could give us your perspective on the final 2023 Medicare advantage rates.

Certainly without quite solid for my opinion, and just interested in how you're thinking about some of the game theory at this point just around competitive psychology out there just given what seems to be a pretty strong tailwind that we're seeing around the 2023 and day rates.

Thanks, Scott I'm going to have Felicia Norwood, who leads our government business address your question.

Good morning, Scott and thank you for the question you know with respect to that the CMS final notice.

Specced at rate increase excluding CMS its estimate of coding trend was $4 eight 8%, which was certainly better than we expected. You know we're also very pleased with the progress that we've made in stars last October which will have approximately 73% of our members and plan set up four stars or higher.

And the payment for 2023, which is up from 58% in payment year 2022.

So coupled with the positive proposed rate increase from CMS, we think the 'twenty 'twenty three is shaping up well our plants have stayed competitive as we focus on supplemental benefits to address whole person health and believe we will continue to remain competitive. So all things considered we would expect a Medicare.

Margins to be inside of our target range and we would expect another predictably competitive I'm here with respect to Medicare advantage.

Thanks, Felicia and thanks, Scott and as you heard I think we feel really good about our Medicare advantage, especially the start to this year and going into next so next question. Please.

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

Hey, good morning.

Yeah.

And our cost trends.

You give us a little bit of color of where you see COVID-19 versus non covered across the three businesses in the quarter and John you also talk about commercial.

The investments Youre, making there are running a little bit below where where do you think.

So margins could shake out over the next two or three years once you get pass through the five to one three to one gig.

Commercial trend normalizes.

Yeah. Thanks, Justin So you know in terms of Covid and non Covid combined you know as you know that there was a significant spike of Covid in January and then it came down even at a faster rate in February and March than we had seen a decline at any point in time during the entire pandemic.

<unk> said that.

Commercial had the highest COVID-19 cost in the quarter on a comparative basis. So commercial COVID-19 non COVID-19 combined were clearly above baseline for the quarter.

Medicare was next and if you take Medicare Covid and Medicare non Covid combined it was still above baseline but.

Performed actually much better than commercial and then Medicaid continues to actually be the line of business, that's performing the absolute best or in the entire pandemic from a COVID-19 non COVID-19 combined perspective, and the total of those two are relatively close to baseline. So all in the company was above baseline, even though it was better.

Then our overall expectations.

Associated with our commercial margins.

Yeah, we do feel good about the the tar.

Targets that we laid out in Investor day back in 2021, as you know we talked about getting to attend and have to an 11, 5% range by 2025.

We've got a lot of things going on with Covid is certainly the single biggest factor that is causing the commercial margins to be a little bit challenged this year versus prior years and we also have some seasonality issues.

With our risk deals with.

Our diversified business group and that's not going to impact the annual margins at all but it will impact certainly the quarterly margins and diversified business group is as I said in my prepared comments I would not annualize that because of the fact that the shifting seasonality.

And then commercial I wouldn't annualize that either because of that same aspect. So we feel very good.

The commercial growth and where we're heading as a company and the value proposition that has and and feel very good about our 2025 targets. We're just challenged this year given this quarter given the high Covid in January but thanks for the questions Justin.

Thanks, John next question please.

Next we'll go to the line of a J Rice from credit Suisse. Please go ahead.

Oh, hi, everybody I wondered if.

Just to get updated thoughts on how you're thinking about the re verifications on the Medicaid side I know, it's delayed does that change your thinking about how much of a roll off there might be what opportunities there might be for you to recapture.

Erode in other areas like the exchanges or.

Commercial book and then also just in that aspect the enhanced subsidies, which are slated to expire this year on the public exchanges. How important is it that those get extended and you're thinking about recapturing some people that might come off on the re verifications well. Thanks. Thanks for the multi part question a J we will.

Try to address it because there's a number of pieces in that one about our how we're thinking about re verifications in Medicaid, which right now as you think about it we've said with the extension we're really looking for those to begin sometime towards the late part of the summer. We also believe that they're gonna be paced.

Over time, so I think it's important to remember that our the states now have up to 14 months to do the reverse occasions and as a result of that each state will have a very different cadence of that so we do think that will be more phased in terms of your second part of your question I'm going to ask Morgan can drag to address that in terms of how we're thinking.

[noise] about capturing that we've done quite a bit of work on that and I know we've shared some of the statistics about where we see that business growing but I think Martin can offer a lot more color on that business. Some organ yeah, thanks, Gail and a J good morning.

Have done a lot of work and if you think about the fact that the commercial business the Medicare business the government business in entirety as well as our marketing organization and our governmental affairs partners have worked to build out a plan for wind River vacation begins and presently we're expecting roughly 35% of the present Medicaid membership to stay with the government Division and then 45% of that will move into <unk>.

<unk> group insurance with another 20 moving into the individual ACA exchanges.

Certainly the commercial group insurance will be one that you know the employers will pick it back up as they as they begin re verification, but on the exchanges I think one thing that's notably important as we talked last quarter about a renewed focus on our individual ACI business and looking at that business differently and more competitively.

We've expanded the product offering we've expanded the network opportunities we've expanded the counties in which we serve our customers from 71% to 83% of the counties in our 14 geographies. This year. So we filled we're poised quite well to pick up wind verification begins and as Gail noted that certainly will slide over a period of time, given the 14 months.

Dates out to continue to work, but thanks again for the question, Yeah, and just a bit of a clarification. The 35% really relates to the lives that were added during the suspension of Redetermination. So as you know some of our growth.

There's also the results of winning new Rfps and new entrants into markets, but overall, we feel good about the plan. We've obviously had this in place for a number of years and in addition to capturing some of our own Medicaid lives in commercial we think we have an opportunity to capture others Medicaid lives that will be coming off the books. So so again and planning for it we hope to see.

You're very organized transition of this and that's what we're working for US. So thanks very much for the question and next question. Please.

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

Yes can I just ask about your commercial enrollment enrollment outlook for the rest of the year, but particularly on the commercial side because.

You did have such a strong result in the first quarter youre already well above.

As I see it any way beyond the high end of your guidance range is on bolt.

Insured and south self insured enrollment and I'm wondering how you see it progressing from here.

I'm going to ask Morgan to address the question on commercial thank you.

So Matt Thanks again for the question. So yes, we've had a fantastic start to the year. We do expect that to continue certainly north of 50% of our business, especially on the upper end all of just about all of the National business is January focus. So we've kind of gone through that the balance of the business will be the continued local market business and we've seen a big.

Uptick in our fee based business, which is terrific.

We see the next big tranche coming on in July I wouldn't expect it to be materially larger than what we've seen in typical years, but where we're growing that business nicely month over month to me the assets are resonating in the market. When I look at you know how the business is performing and also the opportunity back to the comment earlier on expanding.

In in account value or the five to one three to one strategy is proceeding nicely just given the actual opportunity with the fee based business around stop loss presently I penetration, we've got opportunities there as well as our specialty products pharmacy as well so feel really good about it I wouldn't expect it to be right. Now we've said that we would be somewhere around a million members.

[laughter] business full year, and we've we have some attrition that certainly bleeds off through the year up a national business, but feel good about our position now and for the balance of the year as how it's setting up.

So thank you for your question Yeah. Thanks for the question overall strong growth and we really feel that we had a really strong selling season and as Morgan said feel good about our positioning so thanks again and and next question. Please next we'll go to the line of Nathan Rich from Goldman Sachs. Please go ahead.

Hi, good morning, and thanks for the question John I, just wanted to follow up on the updated expectations for M C or for the year I guess, you know given the significant beat in the first quarter I guess looking at the updated guidance. It doesn't seem like your expectation expectations have changed significantly for cost trend over the <unk>.

<unk> of the year I guess is that fair and are you still expecting I guess second quarter cost trend to be above baseline levels and related to that I'd just be curious if you're seeing any signs of a recovery in surgical procedures that you know some other med tech companies have talked about in in April just be curious on your updated second quarter outlook.

Thank you.

Yeah. Thanks, Nathan I appreciate the question.

We are we did end the quarter better than anticipated, but still above baseline are certainly very pleased with our start for the year.

However, there is still uncertainty boosters vaccination.

Potential spikes in Covid.

But we feel very good about where we are right now and and with those unknowns. We still believe that we don't want to take a prudent posture to our guidance with that though.

Now we have a bias that our medical loss ratio is going to be closer to the midpoint to the lower half of the range. So it is an improved outlook from what we talked about 90 days ago, but still very prudent given the overall circumstances. Thank you for the question next question. Please.

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

Hi, Thanks, I wanted to ask about the significantly higher interest rate backdrop, we find ourselves in I was hoping you could talk little bit about how you think this will impact your investment portfolio over the next couple of years as your investments mature and reinvested and also I guess, how should we think about this is impacting the EPS growth rate and you're targeting over the next few years wondering if it was going to be used potentially.

Invest further in the business or potentially that could help you'll you towards the higher end or maybe even slightly above the outlook you've laid out thanks.

Sure. Thanks for the question I'll take that one as well you know on.

The interest rates and its impact you look at our investment portfolio, we have about $35 billion in fixed maturities at this point in time.

And about 30% of that 35 billion is in variable rate.

So there is an immediate benefit.

That that portion of the portfolio gets from the rising interest rates.

Look at the other half of the balance sheet and as you know we try to target close to a 40% debt to cap ratio. We're at 39, 2% at the end of the quarter. So very much in line with our targets and that right now is about $23 billion of their debt and only a less than 10% of that is variable.

Right, which obviously will go up so we're actually winning the arbitrage game from that perspective, and so the rising interest rates are actually a net net good guy to us in terms of the long term earnings expectations, we're still very comfortable reaffirming that.

1% to 15% growth rate in EPS that we've been talking about here since our.

Our last Investor day.

And I think what these are interest rates do is give us a lot more flexibility in terms of decisions that we can make and be more strategic with those decisions here in the in the future, but thank you for the question.

Next question please.

Next we'll go to the line of Whit Mayo from SBB Securities. Please go ahead.

Hey, Thanks, I'm Gail can you elaborate more on the carve out opportunity with Beacon and my next is maybe just more specifically my Nexus and just elaborate like what youre doing differently or it sounds like something is new here I've kind of thought about this more as a utilization management play, but I hear you talking more about risk so just anything that strategically.

Changed it would be helpful.

Great well. Thanks, Thanks very much for the question and you know I think my next this is a great example, as our aim in beacon and some of the other assets that we haven't inside of the diversified business group.

When we brought my Nexus into the family the opportunity obviously to transition patients from the hospital to the home we had strong expertise with them already in our Medicare advantage business, but part of our goal is to do two things one to take our assets and embed them in our value based payment arrangements so as I.

And we have a number of those arrangements already that we're working on both with our primary care assets that we've invested in plus also those that we're moving to value based care, we see that as a downstream opportunity, but we also have an opportunity to capitate that business inside of anthem health plans and there's a huge runway for us there and so.

Generally we've started in our diversified business group first with a fee for service arrangement and then as we get confidence in our ability to execute and do well with that we're moving that along the risk continuum to cap and that's a good example of that might be a good opportunity for Pete to share a little bit about how he sees what's happening in our diversified.

This group and maybe you can talk a little bit more about my Nexus capabilities P. I would.

No I appreciate that Gil and I think I'll answer it you know really well and comprehensively I would say, though what you've sort of referenced the change in strategy. Let me just reiterate what our strategy is we're really focused on managing the complex and chronic patients and managing the complexities in healthcare more generally and as Gail said our primary.

Client is anthem the opportunity is very best when you think about the complex in the chronic members in the spend associated with that population you're talking about around $12500 per member per year compared to an average commercial member that's about $4500 per member per year. So you can see there's a lot of excuse me spend there.

A lot of opportunity there and as Gil said as we get more mature and the development of our assets. When you think about things like mine access we think theres a lot of opportunity to actually grow the portfolio. Yes. It is known for its U M capabilities and its access to care capabilities in terms of managing home care, but we see a lot of natural extension arm.

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Shortly generating value in the D b G and incremental value for anthem overall.

Thanks, Pete next question please.