Q3 2022 Elevance Health Inc Earnings Call

Based on our year to date results and confidence in our momentum we are increasing our full year adjusted earnings guidance to greater than $28 95 per share.

Representing growth of approximately 15% off of the adjusted baseline we provided at the beginning of the year.

Before we discuss the quarter in more detail I want to spend a moment on the recent hurricanes that have tragically impacted the lives of people in Florida, and Puerto Rico, including some of our own health plan members and associates, who live and work in the impacted areas.

As an organization deeply rooted in our communities the impact of these disasters is personal.

I'd like to thank our associates, who are leading efforts to provide water food durable medical equipment transportation and shelter along with our clinical teams social workers and behavioral health specialists for their extraordinary commitment to support those in need.

It is in times, such as these that our culture shines through and.

And I am proud of our associates for the work they are doing to support their colleagues and communities.

Turning to our business performance. We are pleased to report ongoing broad based momentum across elegance health.

Testament to our integrated and personalized whole health approach to addressing the physical behavioral and social needs of our members and communities.

Our focused efforts in investments in these areas are resonating with employers and state partners driving strong organic membership growth in our commercial and government health benefits businesses as well as rapid growth for Caroline and <unk> Rx.

While our business trends remained strong we are mindful of the inflationary pressure and general uncertainty in the economic environment and are focused on delivering affordability and value for customers and consumers and all of our businesses.

Medical membership grew 5% year over year to 47 3 million members.

Over the past year, we've grown to serve two 2 million more consumers with both our commercial and government businesses delivering robust growth that solidifies our position as the largest carrier by U S based medical membership.

In the employer market, we continue to gain market share on the strength of our leading cost of care position and innovative consumer products such as our total health connections suite of advocacy solutions.

Total health connection is an example of where we are delivering an integrated whole health experience for consumers by.

By guiding members to the next step in care through a simple intuitive and personalized experience.

Our clinical advocates to help members navigate the healthcare system.

Leveraging real time data analytics to identify health risks that enable our advocates to personally connect with members and help them proactively manage the medical behavioral and social issues impacting their health.

<unk> connections has grown more than 60% over the past two years and will support more than $5 million of our members in 2023.

In addition to advocacy solutions are integrated digital offerings are also gaining momentum.

Sidney Health the digital front door for our members' health needs continues to rapidly expand the number of registered users and is now hosting more than 6 million visits every month.

We are also seeing strong member satisfaction with our virtual primary care offering.

Which is available through Sydney health and integrated into our commercial products.

<unk> is increasingly being used to support members with chronic conditions, such as hypertension and type two diabetes.

Our findings reflect that 62% of the top 10 diagnoses to date have resulted in the treatment of chronic conditions.

Demonstrating that virtual primary care can improve access to needed care with the potential to improve health outcomes.

And reduce overall costs.

Turning to our Medicare business, we're well positioned to achieve another year of above market growth in individual Medicare advantage membership.

For 2023, we expanded our Medicare advantage offering to a 145, new counties and added PPO plans and 210 counties.

Significantly increasing our reach into this important market as we continue to deliver differentiated value for seniors with strong core benefits and industry, leading supplemental offerings.

With widespread pressure on the cost of daily living.

Affordability and value are more important for seniors than ever and our health plans are positioned to meet their needs.

Nearly 75% of our Medicare advantage plans will have a zero dollar premium and no co pays for primary care in 2023.

Our supplemental benefits include popular over the counter offerings transportation dental and vision as well as in home support and healthy groceries.

Seniors on our plans. We'll also now have a simplified way to access and keep track of their benefits with a single prepaid card that has customized with spending amounts for their unique benefits and can be used at thousands of participating retailers or.

On an online portal.

Medicare Star ratings remain a key focus area across <unk> health.

Many of our affiliated Medicare advantage plans continue to earn high quality scores and we're particularly pleased with the performance of our health Sun Health plans in Florida.

Which received a five star rating for the sixth year in a row and the recently released 2023, Medicare advantage star ratings, which will impact the 2020 for payment year.

In aggregate, we did see a modest drop in the percentage of our members in four star or higher rated plans for the 2020 for payment year predominantly.

Predominantly due to the end of Covid era relief.

And while we will decline by less than the overall industry.

We remain intensely focused on our long term goal of achieving and maintaining star ratings at the high end of all Medicare advantage plans in our markets.

Caroline continues to accelerate its impact and drive differentiated value for <unk> health plan members.

In the third quarter, we began implementing and rapidly scaling the mine Nexus post acute care management product, which is now serving our Medicare advantage members in 15 markets.

With plans to add more markets in the coming quarters.

This new product offering represents a major service line expansion that helps optimize appropriate levels of care post inpatient discharge by working with acute and post acute facilities to safely manage patient transitions and thereby reduce.

<unk> Hospital, Readmissions and average length of stay.

Caroline is also delivering distinctive cost and quality results for our commercial business at scale.

As we discussed earlier this year Caroline's aim specialty health business expanded its risk based contract with our commercial health plans to perform focused management of select clinical conditions.

Such as oncology surgery, and diagnostic imaging to cover our entire 14th state footprint at the beginning of this year.

AME has been performing well year to date.

<unk>, our commercial members, while producing stable predictable cost of care for complex conditions for our commercial health plans and driving growth for Caroline.

Our enterprise wide focus on health equity remains central to our strategy and continues to guide our business decisions and targeted investments.

We were pleased that our simply healthcare plan in Florida recently achieved health equity plus accreditation by the National Committee for quality assurance with an almost perfect score.

Similarly anthem Blue crosses individual exchange plan in California achieved NCQA distinction and multicultural health care.

Awards like these show our commitment and progress to identify and address local social and physical drivers of health with an emphasis on members who need us most.

These results would not be possible without the dedication of our more than 100000 associates.

And I would like to thank them for the important work they do and the impact they make every day.

Their passion and commitment is reflected in our recent recognition as a great place to work for the third consecutive year and also in our inclusion on the 2022 Fortune Best places to work for and People's companies that care lists.

Our associates take pride in the work they do and the difference there contributions made to our company our members and the community.

We see this every day.

And most recently and the results of our associate engagement survey, which showed that 96% of associates understand and are inspired by our purpose to improve the health of humanity.

These strong results and national recognitions reflect our commitment to leadership and represent our employee's experience defined by high levels of trust respect credibility fairness and pride and help our efforts to recruit and retain top talent.

A reflection of our culture.

Our passion to improve lives and communities is unwavering and we look forward to making a meaningful difference as <unk> health.

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 Gal mentioned earlier, we reported third quarter adjusted earnings per share of $7.53, an increase of approximately 11% year over year, driven by broad based momentum across our enterprise.

We are pleased to have delivered another quarter of double digit growth in revenue operating income and adjusted earnings per share driven by the disciplined execution of our strategy and ongoing growth of health benefits and services businesses.

Aggressive goes further down our path of transforming from a health benefits company to a lifetime trusted partner in health.

We ended the third quarter with 47 3 million members growing to $2 million or nearly 5% year over year.

Including growth of 232000 members in the third quarter, our industry, leading organic enrollment growth, which constituted nearly 90% of our total enrollment growth year over year was led by strong sales in our commercial fee based membership.

Growth in Medicaid driven in large part by the ongoing suspension of eligibility re determinations.

And growth in excess of the overall market.

Our individual Medicare advantage business, primarily driven by dual eligible members.

We supplemented strong organic growth with the acquisitions of the Paramount and Integra Medicaid health plans, which together added approximately 300000 Medicaid members earlier this year.

Operating revenue in the third quarter was $39 $6 billion, an increase of $4 $1 billion or approximately 11% over the prior quarter.

With strong growth in each of our businesses.

We earned higher premium revenue driven by membership growth in Medicaid, including the acquisitions of Integra in Paramount Medicare and commercial risk and fee based membership growth in premium rate increases to cover overall cost trends in all of our health benefits lines.

<unk>.

Our services businesses Carillon and junior racks produced very strong growth as we continue to execute against our long term growth strategy.

<unk> grew revenue, 11% year over year, while the other segment comprised primarily of carillon grew operating revenue 26%.

Caroline and <unk> are delivering significant value to our commercial and government health plans and consistent with our strategy. We continue to increase the breadth and depth of services Carolina is providing.

Revenue eliminated in consolidation a proxy for affiliated business between our risk based health plans and our services businesses grew 17% year over year in the third quarter, representing approximately 21% of our consolidated benefit expense.

Up from approximately 20% a year ago.

The consolidated benefit expense ratio for the third quarter was 87, 2% a decrease of 50 basis points over the third quarter of 2021.

During the quarter, we realigned certain quality improvement expenses incurred since the beginning of this year, which had a favorable impact on our benefit expense ratio and then offsetting unfavorable impact on our SG&A expense ratio with no impact on operating earnings.

Excluding the impact of the accounting realignment, our benefit expense ratio would've been approximately flat year over year and better than our expectations.

We were pleased to deliver operating margin expansion in our commercial business driven in part by stronger medical underwriting performance in our commercial group risk business.

The successful July one renewal process.

Where we repriced approximately 25% of our large group risk business and the continued increases in penetration of services into our fee based businesses contributed to this segment's performance.

We were pleased with the retention of our July one renewals and have even more confidence as we approach the January one renewal date.

Hello advance health SG&A expense ratio in the third quarter was 11, 4% an increase of 30 basis points over the prior year quarter.

The increase was primarily driven by spend to support growth.

And the realignment of certain quality improvement expenses as previously described.

Excluding the realignment our SG&A ratio would have improved by approximately 20 basis points year over year.

Third quarter operating cash flow was $4 $9 billion or three one times net income driven primarily by the early receipt of certain fourth quarter premium revenue from CMS during the third quarter.

We also paid our share of the Blue Cross Blue Shield associations litigation settlement of approximately $500 million in the quarter.

Excluding both of these items operating cash flow would have been $3 billion or one nine times net income another indication of high quality earnings.

Turning to our balance sheet, we ended the third quarter with a debt to capital ratio of 39, 7% in line with our expectations and consistent with our target range.

During the quarter, we repurchased approximately one 2 million shares of common stock for $579 million.

Year to date, we've been opportunistic with respect to share repurchases during periods of volatility in our share price.

<unk> already repurchased three 7 million shares for $1 7 billion.

Exceeding our initial outlook of repurchasing at least one $5 billion in 2022.

We continue to maintain a prudent posture with respect to reserves.

Days and claims payable stood at 47 seven days at the end of the third quarter, a decrease of one day sequentially, but an increase of nine days year over year.

Given strong performance year to date, we are increasing our full year earnings outlook.

We now expect adjusted earnings per share to be greater than $28 95.

Implying growth of approximately 15% off the adjusted baseline of $25 20 per.

Provided at the beginning of the year.

Our businesses are continuing to perform well with strong momentum that we expect will carry into 2023.

While we will not provide specific guidance for 2023 on this call I.

I would like to review, some known tailwind and headwinds worth considering as we continue planning for 2023.

Starting with a tailwind.

The continued execution of our commercial margin recovery in 2023 through disciplined underwriting to cover our forward view of medical cost trends.

Enhanced operating efficiencies and ongoing strategies to improve the productivity and profitability of our commercial fee based business.

The growth we anticipate in our individual ACA in employer sponsored membership as consumers transition coverage when Medicaid eligibility re determinations resume.

Okay.

We expect strong earnings growth in Medicare advantage drill.

Driven by membership growth in excess of the broader market and operating margin expansion that we expect will be driven by three primary factors.

Number one having 73% of our Medicare advantage members in four star or higher rated plans for the 2023 payment year, an increase of 15 percentage points year over year.

Number two the continued recovery and risk adjustment as utilization has returned to more normalized levels and number three a relatively strong funding environment for the overall industry in 2023.

Finally, we expect ongoing momentum and Carolina services and in junior Rx, which will carry into next year.

Okay.

<unk> will be weighed against one known headwind and that is the membership attrition and related impacts on our Medicaid business is eligibility redetermination are conducted over the course of the next year.

Although interest rates continue to rise rapidly investment income is not expect it to be a material tailwind or headwind.

In 2022, we enjoyed significant outperformance in our alternative investments in the first half of the year.

Rising interest rates are expected to benefit the second half.

And we are anticipating a full year of benefit from higher rates in 2023.

While performance in both years is expected to be strong overall.

I would not call out investment income is a material tailwind or headwind for either 2023 or 2022 at this point.

We're also mindful of the uncertain economic environment, and the risk that business conditions could deteriorate.

While the balance and resilience of our enterprise.

And the momentum we have across our businesses leaves us well positioned for growth in the coming years, a more severe recession could create challenges.

Our associates are prepared to adapt to any change in the business environment with detailed plans that ensure we will remain positioned to meet the unique needs of our clients and customers.

As they evolve with a commitment to affordability and value throughout.

Accordingly at this point in time, we expect to produce another year of growth in adjusted earnings per share in line with our long term target compound annual growth rate in 2023.

Which is consistent with the current consensus estimate.

We look forward to providing more specific guidance on our fourth quarter earnings call.

In closing, we continue to execute against the strategic priorities. We mapped out at our 2021 Investor Conference and are pleased to have delivered another strong quarter. While also continuing to reinvest in our business better positioning us to deliver strong growth for years.

Ears to come.

With that operator, please open 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 have been queued you may withdraw your question at any time by pressing Star then two if you are 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 Justin Lake from Wolfe Research. Please go ahead.

Hey, guys. Thanks for the question. This is Austin on for Justin here.

On commercial margins just focusing on that for a second you guys showed some sequential improvement there, but it looks like you probably need around 300 basis points to kind of hit that 25 target range that you laid out there.

Just curious on the pacing of that how much are you expecting to come in 'twenty, three and 'twenty four and then maybe a slight follow up there you mentioned retention John how did that track versus typical on those July one renewals.

Yes. Thank you for the question and maybe I'll start out and then turn it over to Morgan <unk> too.

Fine tune some of the comments on retention, but in terms of the pacing as I had stated 90 days ago.

We expect that that 300 basis points as of 2025 target.

And it'll be a little bit more.

Heavily weighted to the beginning half of the time frame. So as you know, we just repriced about 25% of our large group fully insured business here on July one.

We're going to reprice about 50% of that business on January one we have a 25% goes throughout the year, obviously, it's going to take a couple of years for that to get to the point, where it needs to get to and then the.

Really the really nice trajectory of improvement, we're having on Upselling our fee based businesses, our five to one to three to one strategy, it's going very much according to our expectations and the plans that we laid out which actually do have what's going through 2025. So I think the short answer to your question is.

A lot more of the improvements early on but we will take till 2025 to get there with that Morgan Hey, Jeff. Thanks, John and thanks for the question Justin as John said this is going to be it's going to take a bit to get it completely turned July came in actually as expected.

Certainly there was some attrition in the large group risk business.

To give you some concept there as it relate context, there as it relates to January .

John said about 50% of that business is up for renewal.

We have just released those end markets. So it's a bit early to tell but our expectations are that it will be some attrition.

Which is would be natural when we're right pricing this business.

We are.

Unmoved by anything being different than expected as we move forward.

Thanks, Morgan and thanks, Austin for the question and I think as you heard from both John .

And Morgan, we feel we're making really good progress in this business and as I shared in my opening comments, we're seeing really strong uptake, particularly in our fee based business along with the disciplined process and say overall it met our expectations on attrition to be real specific so.

Overall, we feel very good about the quarter and where we're heading on commercial next question. Please.

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

Hi, everybody. Thanks for the question.

Maybe just get you to comment a little bit on the trends in the government business I know you.

Swung to a little bit of a decline in margin year to year and the government can you just parse out a little bit more what youre seeing there and then any read on the landscape files and your expectations around MA growth next year. I know you said, Jon I think solid growth I'm, just wondering if theres any way to <unk>.

Fleshed that out further at this early date.

Thank you for the question a J so our government business Division is actually performing very well and for the year, we're certainly going to be posting some very strong results, both Medicaid and Medicare have been growing nicely and I think thats evidenced by the excellent top line growth, we're seeing of over 13% year over.

The year medic.

Medicaid performance is strong but are.

Our Medicaid and we've said this in the past on a quarterly basis.

<unk> can be a bit more variable and susceptible to swings and.

And when viewed in isolation any one quarter could be misleading.

Medicare is continuing to perform consistent with our expectations and as you know has significant upside for 2023.

Think about Medicare and the improving star ratings that I talked about in my prepared comments.

More complete and accurate risk, scoring that will allow us to enhance the revenue on those areas, we feel very well positioned for the future of.

Of our Medicare advantage book and in terms of 'twenty three growth it is premature to provide <unk>.

Specifics associated with 2023 growth, but our goal is to clearly grow faster than the industry and we have done that on a percentage basis now for the last several years in a row and expect to do that for the next several years ongoing. So thank you for the question a J and.

And thanks, a J, maybe I'll ask Felicia Norwood, who leads our government business provide a little bit more color on our Medicare advantage. It's early we just started the AEP process and as John said, we feel confident about above market growth, but she can give you a little perspective on just how we're seeing the marketplace Felicia yeah. Thank you Gail and good morning, a J.

All said was certainly very early in the Medicare advantage annual election period, but we're pleased with what we've seen so far around our competitive positioning.

When we think about our supplemental benefits they really compare favorably with our competitors and we really lead the industry in terms of our everyday ex rates are over the counter offerings transportation benefit and certainly those things that are focused on addressing the whole health needs of our members in those social drivers of health.

Additionally, as you know, we actually improved our footprint by expanding into 145, New counties on the HMO side, and then 210 counties from our PPO perspective, so while we're early in this process based on the feedback we're getting from our distribution channel and others. We feel very good about how we are.

<unk> as we head into AEP and look forward to continued growth in this business. Thank you. Thanks for the question next question. Please the.

And next we'll go to the line of Lance Wilkes from Bernstein. Please go ahead.

Yes, thanks, and good morning.

You talk a little bit about in Jennie O Rx and <unk>.

Interested in us or progress in cross sales for 'twenty three that you have.

Seeing thus far.

In our self insured book and then with the contract with Cvs ending in 'twenty four just wondering if youre entering into sort of a rebidding process or what the strategy is on a go forward basis for that thanks. Yeah. Thanks. Thanks for the question Lance I'm going to have Pete Hi, tiny who leads that business give you a perspective on an engineer, but overall.

Just say really pleased seeing some really really strong growth in Jennie O and.

More importantly, integrating it into our 5% to one of three to one strategy. So I think Pete can can provide you a lot more granularity on kind of what we're seeing in the market. Pete yes. Thanks, a lot ill answer that question. We are very pleased with both the operating performance and the growth in Jennie O just to put a little bit more color on that we are as you know we're trying to be a different PVM.

We're talking about the integrated whole health.

<unk> proposition and that does continue to play through nicely in the marketplace. This year, we're seeing as it relates to your specific question on on the ASO growth in the five to one to three to one about a 300% improvement year over year in terms of net new members that we're selling this year we're.

We're seeing good RFP activity I would say really strong performance in the middle and down market, where we perform very very well financially and where integration actually plays plays very well.

Market as you would expect there's a little bit more stickiness, especially in light of the economic situation Brian .

Overall, we feel very good about our growth prospects.

We move forward as we head into next year, we're already into the 23.

Selling season is well underway, we have good visibility on our growth again, we're seeing a lot of activity in the middle market and down market that the feedback we're getting right now from the brokers from a distribution perspective.

As our headline rates look really good the other thing that we're very focused on as it relates to in Jennie O is is upselling additional products and services.

So things like cost relief program specialty condition management programs and digital adherence program. So it's moving in the right direction.

Thank you next question please.

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

Hi, Thanks, good morning.

I was interested if you can just talk about the competitive environment and managed Medicaid in a bit.

Alright.

Actually we're in a pretty active RFP cycle, right now and with a couple of other big states coming up in and with a couple of the competitors having shown some improved momentum in some of the recent RFP results out.

So just in the competitive backdrop and then what <unk> is doing right now.

Strategically or tactically to try to keep your competitive edge in Medicaid.

Thank you Vanessa Felicia Norwood to address your question.

Good morning, Scott.

Many respects.

Medicaid space has always been competitive but you are right. It certainly become hyper competitive recently and we continue to be I think well position around our success when I take a look at the RFP process. As you know states really delayed part of the RFP process in the midst of Covid, but things have certainly.

Wrapped up significantly.

Over the past year or so when I take a look at where we are our focus has really been around health equity population health you heard Gill referenced earlier, our NCQA distinction with respect to health equity and our state partners are certainly looking at health plans, who can help them improve outcomes.

And focus specifically on those health equity areas that we've been working on here at element itself. So I feel strongly about our ability to kind of elevate in advance health for our members and address the needs of our state partners that are local level when I look at the RFP opportunities. We've been focused on certainly California was significant.

A really big win for US we want in every county, we were able to win in and we actually picked up a county that was the new county for US a very strong performance there.

<unk> also re procured our RFP in Puerto Rico coming in <unk> <unk>.

That demonstrated to me and continued strong momentum in terms of our ability to address the needs of our state partners and most recently yesterday, having the D. C City Council approved a new win for us in the district, So I continue to see momentum around our value proposition being able to respond.

On to the needs of our state customers and meet our Medicaid members, where they are as we continue to focus on health equity improved outcomes and if we are seeing those issues that we know are very important to our state partners.

Thank you next question please.

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

Good morning. Thanks for the question I wanted to ask on medical cost trend I think the MCR was flat year over year, excluding the accounting adjustment last quarter. John I think you had talked about medical cost trend being elevated in the back half of the year, but it sounded like that might have come in a little bit better than your expectations. So what did.

Do you see play out by line of business and as we think about your outlook for next year, how are you thinking.

Utilization will trend into 2023, and if I could just add a quick clarification on the accounting adjustment could you provide more details on what costs moved out of benefit expense and I guess importantly, whether future periods will be impacted by this change. Thank you.

Thank you for the for the questions Nathan So let me let me do the easy one first and that was the accounting adjustment. So during the third quarter CMS provided clarifying guidance on the types of cost that can be included in our quality improvement cost and therefore considered benefit expense versus those that needed to be.

Classified as SG&A.

Our GAAP presentations have historically always mirrored the CMS definitions and requirements. So when CMS clarified those definitions, we realigned our reporting accordingly, and so just to be clear the impact for the third quarter.

Was to improve MLR by about a half of 1%.

Would then make the negative impact on SG&A about one half of 1% with no impact on the bottom line clearly a re class for the full year. It will be about a 20 basis point impact on each of those and then in terms of.

Always always tried to be fully transparent. So we want to ensure everyone was aware of the nuances in this reporting and the and what we will see by the end of the year of about a 20 basis point benefit to MLR for this.

Clarification that CMS provided that we aligned with.

So hopefully that helps from that perspective, and then in terms of the trends in costs and utilization in general.

As you did you say that you pointed out without the reclassification, our MLR would have been flat, which is actually a nice improvement.

Of the mix on a mix adjusted basis since our government membership now is a higher percent of our fully insured membership than it was a year ago. So third quarter did come in better than expected.

But the overall cost structure of the health system is still a bit higher than what it would've been had COVID-19 never occurred.

I think the most important element of all of this.

Is that our trends continue to be in line with our expectations in each of our lines of businesses. So associated with lines of businesses Medicaid is doing slightly better than historical levels. Medicare is very much in line, we're seeing outpatient a bit higher than inpatient a bit lower helping offset that have a more nor.

<unk> trend.

And then commercial has been very consistent with our last several quarters, where outpatient continues to be higher.

But even more so than the benefit that we're seeing in inflation.

And so it's been all part of the process and all part of the guidance. So we're obviously not going to comment on 2023 at this point in time, but hopefully that answers all your questions.

Next question please.

Next we'll go to the line of Steven Valiquette from Barclays. Please go ahead.

Great. Thanks, good morning, everybody.

I guess just regarding the potential migration in 23 of an eligible Medicaid members into commercial and exchange plans.

Yes, I'm curious whether or not there's been any evolution in your key states that might allow <unk> to more directly funnel here, one and eligible Medicaid members into your own exchange plans.

Could this be more of a controlled process for the industry now versus where it stood a year ago.

So just describe the Medicaid market environment for 'twenty three is really just kind of a big jump ball.

For all MCU is to try to grab the ineligible Medicaid members next year. Thanks.

Well, Steve. Thanks for your question I think just a couple of I'd say clarifications as we go through this process. We've been working very very closely with our states and across our enterprise and a few things that I think are important.

We shared with you in the past one.

We've had a long time to plan for this in a long time to discuss this with each of our specific states in each state will have a bit of a different process, but where we can we're sharing data that the states allow us to do that we're also working with community organizations to make sure that first and foremost that everyone who is eligible for coverage retains eligibility for coverage and I think that's probably.

Where we started this whole process is ensure that those just because of administrative things et cetera that we ensure that they have the right eligibility for the right program for those that are not going to be eligible for Medicaid again, we're working across our commercial business as well as our Medicaid business to provide I think.

Education, and seamless transition could you start just a little bit of FX for our business. If you think about our 14 commercial states Medicaid membership in those states grew roughly $7 5 million beneficiaries in those states.

As part of our exchange footprint now cover pretty much all of the counties and our footprint of 14 States and also have incredibly strong market share not only in the exchange, but also in our commercial benefits business. So we think theres an opportunity obviously at our brand recognition our dedication to this membership our community involvement and the work we are.

<unk> again with community partners educating our commercial business.

To be quite frankly, well positioned and don't see it as a jump ball. We think we are actually quite well positioned in those states.

In terms of our own Medicaid.

Membership of approximately $2 7 million members millions of those members came in as a result of the Phe and obviously, we know those members well they know us well they recognize our brand and so again based on the state rules and regulations will be working very closely to help that transition so I feel like.

Given the time, we had to plan the guidance from the administration our work with the states that actually there's going to be a much more organized process and I would call. It just a jump ball, but the real opportunity for those who lead in the market.

To have an opportunity to move those members and keep coverage, which again is our primary goal here. So again, thanks for the question.

And we look forward to continuing to update everyone on our progress there. Thank you next question.

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

Hi, good morning, Thanks for taking my question.

Just wanted to ask about.

The negotiating environment with health systems Theres been some conversation in the market about financial pressures across health system, leading to increased value based care adoption are you seeing that play out across your negotiations and your contracting team and do you expect that to ultimately have a positive impact for you all over the next year or so.

Yes. Thanks for the question Rob a couple of things one I think it's been well documented that our contracts are on a three year in duration. So we negotiate again about a third of them. Each year. So that just gives you a little context started discussions clearly there is more cost pressure in the system, but overall I would say our deals are coming in within.

Normal range and we continually are.

Proactively managing that contract and our products obviously to offer affordability.

Continuing to look at our clinical strategies.

Sure we can maintain our long term trends while also as we shared with you maintain our underwriting discipline.

Nice start for a review of those costs now ultimately its affordability, that's paramount for our customers, particularly in this economic environment, we take that very very seriously specifically to your question about value based contracts with our providers we are <unk>.

And having those discussions and quite frankly, we've made a lot of progress on our value based contracts.

We've shared with you roughly 60% of our total contracts are in value based and our goal is to move a lot more of those at least a third by 2025.

Two downside risk I'm really pleased to share that we've made really good progress even in this last year and in the last quarter and now where.

Where we were in sort of level low double digits now in high teens and downside risks, so making great progress against our goal to get some more downside risk in our contracts as well as value based care. So back to your question. We do think that there is an opportunity to continue to move more of these to value based care. We are seeing progress not just in the hospital.

But across the provider broader provider care continuum and the other thing that I think is important.

Trying to be a good partner with our care providers is we're also looking at how to reduce the administrative burden that they face. So how do we accelerate the work we're doing on data sharing.

Reduced some of the I'll call administrative care review processes that may not have the highest value.

And I think those are big opportunities for us as well. In addition to just trying to increase rates and we've seen progress there and we're committed to continuing to work with care providers. So that obviously that we have a good long term partnership with them, but overall, we're not seeing anything outside of our normal range is right now and have been very successful with these strategies.

Thanks very much for the question next question. Please.

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

Thanks, very much my question again I want to go back to your earlier comment today around kidney health and virtual health care you talked about.

$6 million.

It provided you talked about improving outcomes and costs, but I'm really interested in when we think about 'twenty. Three are you offering a product in the marketplace, where you have a lower premium where your primary care Doctor is first of all so just that that would be my first question and then secondly is there a way to quantify when we think about the potential cost benefit.

Of utilizing virtual primary care.

So thanks for the question, Lisa I'm going to ask Morgan to add some commentary, but just an overview. Yes. We are so first Sydney is our front door to health care. So we are really embedded all of our capabilities in Sydney.

And what I shared with you a couple of things one that virtual primary care is one of the elements of our care delivery strategy.

Morgan talk about the product offerings that we have there as well, but we're also seeing it and you saw some of the early data around an opportunity to help us manage chronic and a much more efficient way and so we're seeing a lot of uptake in that and it's also embedded into what our customers are selecting so we're adding a lot more capability inside of Sydney. So.

A couple of very important just quick facts, but let me turn it over to Morgan to share with you a little bit about the product strategy, which is an element of our affordability offerings to the market right and thanks, Gail and thanks, Lisa for the question. When you when you think about the commercial group business, you've got generational cohorts four of them with Boomers X Y and Z that are part of the actual.

The makeup and of course the way they engage certainly is indeed different various modalities are very important to us and as such we have products that we're launching that have a virtual first component where one can elect a primary care physician that would be digital.

Digital connection as opposed to a physical connection but it also allows for the opportunity to move into the physical world within the value based constructs that Gail described in our value based network strategies to keep a tight closed loop integration so to speak on how this works one in particular that we've already launched for January versus in our Nevada market, which is a combination.

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A partnership with a single <unk>.

Entity, but layered with a digital fronts first front end.

The economics of that arrangement are quite attractive in the market and we're expecting nice pull through as the enrollment period concludes but.

This is the beginning of it we've been adding the virtual components to all of our commercial self funded business and risk business over the past year and a half and as such we'll continue to build products. Some anchored around those assets. Thanks again for the question Yeah. Thanks, Morgan and Lisa just started two important concepts that I want to reiterate one that we've embedded.

Virtual capabilities for our customers across the board and we're also aligning those with our high performance networks and when you talk about best cost in the marketplace and what's really driving a lot of our growth its that affordability and again, it's not just virtual for virtual by itself, but it's aligned to our high performance network strategy.

And then second as Morgan said, when I would say early days, but we have been beginning to launch a number of virtual only products, but again they have tied to physical assets are high performance network. So again really trying to drive best cost and quality and outcomes for our members.

Next question. Please thank you.

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

Great. Thanks, I guess I want to go back to a comment that John made in prepared comments about the impact of a recession I guess the company historically.

That kind of a balanced business mix and commercial Medicaid and how the two businesses kind of offset each other during a recession. So I wanted to I guess first you Didnt mentioned a recession either.

As a tailwind I'm sorry, the headwinds so I assume does that mean that you don't assume a recession that the guidance or just a modest one I have no impact and then what is that going to mean that if there's a severe recession, how should we think about how that impacts the company like elevates given your business mix.

Yes, thanks for the question Kevin.

Address that and I think that Theres a few things one we are mindful of the economic environment under which and John and the headwinds and tailwind. So we talked about one specific now in Medicaid. He also did reference the broader economic environment that we're planning for across a whole series of scenarios, but I wanted to I wanted to take you back in terms of our business <unk>.

We are a much more diversified business than we have been at any other time in our company's history, and just putting some facts around that today that.

25% of our premium roughly is in our commercial business, whereas that number was 70% in 2008 and so as you think about that the diversity of our businesses and in strong we've been able to perform in both good and bad economic times.

Certainly in stronger economic times, the commercial business continues to grow but we haven't seen any impact in terms of our commercial business today, and we're still seeing strong growth in ads inside of our fee based business.

But clearly our focus is on as you just heard in the last question affordable products driving a differentiated value for our consumers.

We've been able to demonstrate that just a quick fact that we talk a lot about it in our own business our growth as you've seen in the fee base with some of our most discerning customers. We have been consolidating business from multi carrier to single carrier over the last several years.

We added another eight additional clients for January of this year that consolidate with US. So these are just a couple of proof points in terms of the I would say the resiliency right now of our commercial business and then obviously in more difficult times.

Medicaid businesses tend to grow.

And take on some of that we're also in a very different environment than we were in the last recession in that in that recession.

We didn't have the ACI and the opportunity for individuals to go in in a subsidized manner and as you heard from US. We also now have full coverage in our counties and ACA exchange business.

And then we think the Medicare business, where we have zero premium plans is also quite resilient. So across our book certainly we're mindful of an economic downturn, we're planning for it in our businesses, we've been investing heavily in digital and trying to ensure that we can maintain our own cost structure. So those are the kinds of things and playbooks that we have inside of our business. So it's.

Not that we're not planning and thinking about that business, but we do feel we have a much more resilient business in a much more diversified business that one business line isn't dominating our company as it had in the past so and also I would ask I would add that Caroline and times, obviously adds we have a big roadmap for Carolina to add additional op.

<unk> to impact the affordability of our health plan business and take on more risk.

A couple of the examples I shared this morning between aim and mine excess now we've got a.

I think a long runway there and that again is all about driving affordability. So I guess in short yes, we are planning for it yes, we're being prudent and diligent.

And second we know that affordability and differentiated value is going to be critical in a market where customers are strained and those are the kinds of products that we're putting in the market and we feel we've got a nice.

A nice breadth of those right now much more southern we've ever had so thanks very much for the question next question. Please.

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

Hi, Good morning had a quick.

Clarification for John and then and then maybe a quick one for Felicia John just on the.

The re class of the quality improvement incentives to G&A, just wondering if theres any rebate implications retroactively from that and then for Felicia.

As we look at the 2023 Medicare benefits offering I mean, one of the key places where it really looks like.

<unk> stands out as an special supplemental benefits for chronically ill just in your individual.

EMEA offering your funding level, they're really looks substantially higher than many of your competitors and I was just wondering why the focus on that benefit specifically and what percent of your individual MA will will avail themselves of that particular benefit.

Yes. Thank you Gary I'll answer the first part of your question then turn it over Felicia for your second question, but in terms of the impact on rebates.

It is de Minimis.

The vast majority of the reclassification impact at the commercial line of business and while we do have occasional MLR rebates and commercial theyre not nearly as prevalent as they are in some of our Medicaid at this point in time. So there was really de Minimis. That's why I said theres virtually no bottom line impact Felicia.

Sure and good morning, Gary when I think about our Medicare advantage business, we have been always very focused on.

On a portfolio that takes a look at individuals who are complex and chronic and our dual special needs plans have always been an area, where we look to grow today I think we represent probably the third largest footprint with respect to dual eligible individuals and within our footprint or second we believe that we have the capabilities.

As we sit within our Medicaid Medicare business and certainly as you take a look at Caroline to be able to deliver a value proposition to these individuals to differentiate it. So when we take a look at how we are.

Lately priced and competitive in the marketplace is certainly based on our strategy around playing to those stress and being able to partner and look to do.

Those individuals with those individuals in a way that's differentiating so I think our competitive cost structure in the way that we think about our adult products certainly gives us the ability to address their specific needs.

Thank you next question please.

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

Hey, I just wanted to go back to Carolina for a second any.

Any way to frame what percent of your post acute spend for MAA today is being delegated to my next CIS or any of your other assets and then kind of what are the targets for that business over time, just any way to quantify and put some numbers around it I think I may have underappreciated the tail around this.

Yeah. Thanks for the question in terms of percentages specific numbers on that we're not going to sort of get into that but the goal here is for our post acute offering via mine access to cover all of our Medicare advantage business from a post acute care perspective, we started on this journey in the middle of this year launching in July .

We've seen really good success. We also had another integration in September we will complete all of the Medicare advantage markets and early 'twenty three and so you can assume more broadly that as it relates to post acute care management.

For the Medicare business, we will be covering the management of all population yes.

Yes, Thanks, Pete and a number that we do share more broadly as the percentage of spend that carillon manages for <unk> health and that has continued to increase and it's around 21%. So just to give you a little bit of perspective, and it's obviously a number that we we continue to have a bigger impact on next question. Please.

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

Hi, Thanks, I wanted to come back to the comments around commercial renewal.

John's prepared you talked about being even more confident about Jan one and July one which was successful I wondered if you could put a finer point on the factors that drive that confidence.

And then to what extent do those same factors bent.

Benefit growth beyond renewal and or help your catcher's Mitt for Katherine.

Catching Medicaid from re determination.

Thank you Evan asked Morgan to address your question.

Thanks, Dave.

No.

Express confidence I think the July played out as we indicated exactly as we expected.

The renewals that we needed we obtained and of course, there was some attrition to book that was certainly planned that same phenomenon, we're seeing in and where the very beginnings of it for January one I think the confidence.

It was alluded to earlier is in the actual position and which were pricing. The business. You know, we sort of gotten the spot last year pricing early for 'twenty, one or 'twenty, two and then things reveal differently in the fall that sort of shaping up as planned as we see right now so the confidence in the numbers in the market are there.

When we think about this concept of a catcher's mitt with Medicaid redetermination, there as well.

Business that stays on the Medicaid side, Theres business Thats going to move to the commercial side be it group or individual Gail alluded. The fact that we've done a really nice job of expanding our footprint to cover roughly 95% of the population of the geographies. We serve commercial from our commercial individual ACA perspective, and then we have very strong penetration in the commercial risk and non <unk>.

<unk> business would also be part of that catcher's Mitt so to speak for the group side. So all in we're confident in the results from July B, how we're lining up for January and then lastly on that the catcher's Mitt based on proven performance and share is going to serve well serve us well.

Thank you for that question. Thank you Morgan and we have time for one more question.

Our final question comes from Stephen Baxter from Wells Fargo. Please go ahead.

Yes, hi, Thanks for fitting me in just one.

Wanted to ask one follow up on the breast business I was hoping you could give us a sense of what the.

Membership trends were in the quarter or are you starting to see those slow a little bit of maybe the economy gets a little bit more uncertain I guess basically what I'm trying to get a sense of whether we can attribute all of the sequential decline to the attrition on the seven one renewals or whether the impact was larger or smaller than that and maybe masked by some of the same group trends. Thank you, yes, thanks for that.

Question I think in total I think I shared this in the start of the recession response, we really haven't seen a lot of change and in group and actually it's been up a little bit so I wouldn't necessarily call. It a trend, but it's been running fairly stable and I think as you think about.

Employers are theyre holding on to their employees they've got a number of jobs still open. So we're not seeing any impact yet across any of our commercial business on the attrition side and actually are seeing some net adds so thank you very much for the question.

Thank you operator in closing we're pleased with the broad based momentum across our businesses and are confident that our ongoing execution of our strategy positions us to continue delivering against the financial targets. We shared with you at our Investor Conference last year, we will keep executing with excellence and discipline to deliver enhanced value to all of our <unk>.

<unk>. Thank you for your interest in elements health and have a great rest of week.

Ladies and gentlemen, a recording of this conference will be available for replay. After 11 am today through November 18th 2022, you may access the replay system at anytime by dialing 80081355 to five and international participants can dial 20336933.

<unk>. This concludes our conference for today. Thank you for your participation and for using Verizon conferencing you may now disconnect.