Q2 2023 Humana Inc Earnings Call
[music].
Okay.
Morning, and thank you for standing by and welcome to the second quarter 2000, and twenty-three Humana, Inc. Earnings Conference call. At this time all participants are in a listen only mode. After the speaker's presentation there'll be a question and answer session to ask a question during the session you'll need to press star one on your telephone.
So you will then hear an automated message advising you. Your hands is raised to withdraw your question Press Star one again.
Please be advised that today's conference is being recorded I would now like to hand, the conference over to Lisa Stoner Vice President of Investor Relations. Please go ahead.
Thank you and good morning in a moment, Bruce Broussard, Humana's, President and Chief Executive Officer, and Susan Diamond Chief Financial Officer will discuss our second quarter 2023 results and our financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question and answer session.
And with industry analyst, Joe Ventura, Our Chief legal officer will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks, and the related Q&A with analysts. This call is being recorded for replay purposes that replay will be available on the <unk>.
Relations page of Humana's website, Humana Dot com later today.
Before we begin our discussion I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially.
Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our second quarter 2023 earnings press release as they relate to forward looking statements along with other risks discussed in our SEC filings, we undertake no obligation to publicly address.
Update any forward looking statements in future filings or communications regarding our business or results today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site.
All participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release finally, any references to earnings per share.
EPS made during this conference call refer to diluted earnings per common share with that I'll turn the call over to Bruce Broussard. Thank you Lisa and good morning, everyone and thank you for joining us.
Today Humana reported financial results for the second quarter of 2023 with adjusted earnings per share of $8 94.
In line with our expectations.
Results for the quarter include the impact of the higher than anticipated Medicare advantage. It organization recently disclosed.
It has stabilized and is tracking in line with our updated expectations and.
And were supported by in line just slightly positive results from all other lines of business.
We reaffirmed our full year 2023, adjusted EPS guidance of at least $28 25.
Which is <unk>.
Increased by 25.
With our first quarter earnings release and reflects a 12% increase over 2022.
In addition, we are pleased to raise our guidance for full year individual MA membership growth by an additional 50000 members.
We now anticipate adding approximately 825000 members in 2023, reflecting an impressive 18% growth rate.
Our ability to deliver on our targeted earnings growth rate in 2023, while also achieving significant membership growth is supported by our continued focus on making disciplined investments driving productivity and delivering consistent quality include.
Including Starz and net promoter score.
In a moment Susan will provide additional details on our second quarter performance and full year expectations, including a deeper dive into utilization trends.
But first I'd like to take a few minutes to reinforce the strength of Humana <unk>.
Including our differentiated capabilities that enable our leading platform are highlighting the continued advancement of our integrated care delivery strategy.
I will start with the strength of our MA platform.
The industry, leading individual MA growth, we've achieved in 2023 creates significant momentum as we move into 2024 and advance towards our 2025 adjusted EPS target of $37 there.
The growth we've seen in 2023 far exceeds initial expectations and as previously shared represents high quality growth supported by better than expected retention and a greater proportion of our new sales coming from competitors than initially planned.
We anticipate capturing 40% of the industry growth in 2023, increasing our overall market share by 170 basis points to just over 20% at year end as part of the growth we have seen a substantial increase in agents as a percentage of total sales.
While full year sales are anticipated to be 44% higher in 2023 that in 2022 agents sales are expected to be 75% higher year over year, representing a significant contributor to our successful sales performance.
The improvement in sales to agents further speaks to the quality of our growth as retention for agents runs approximately 5% to 8% better as compared to our overall new membership base at their first re enrollment cycle.
Further agents initially run a higher benefit expense ratio than average new member as the MA program is structured such that they plan to only receives demographic related risk adjustment payments for these individuals for the initial 18 months, which does not align with their health status and related risks.
Resulting in a larger margin expansion opportunity on these members over time.
Our leading membership growth achieved in 2023 strong fundamentals and best in class quality positions us well to substantial to sustainable grow or at or above the industry rate.
As we look ahead to 2024, we believe the MA industry will continue to see strong growth.
<unk> by MAA as compelling value proposition compared to original Medicare providing incremental benefits valued at approximately 2400 hours annually.
Throughout the 2020 for MA bid preparation process, we were conscious of the disruption in shopping and is likely to occur in the market due to the benefit reductions expected in the industry as a result of the negative rate environment and the stars headwind for the certain competitors.
As a result of this disruption we believe humana has the opportunity for another robust year of membership growth.
Our 2024 product strategy was informed by extensive consumer and broker research and in depth analytics regarding what Medicare eligible consumers prefer.
We are focused on preserving benefits identified as most important continuing to provide differentiated offerings that focus on improving health outcomes and selectively enhancing our products with improvements such as increasing the number of members in 2024 that will be on a zero premium plan.
We are also prioritizing maintaining product value for tools those eligible for Medicare and Medicaid given the unique health care and social needs of this vulnerable population.
Input from our clinical analytics and health equity teams helped inform product design choices that will continue to support the needs of our diverse customer population.
Importantly, we will enter 2020 for selling season, and a position of strength supported by momentum from our compelling 2023 growth in our continued industry leading quality.
This strength is bolstered by strong relationships with our broker partners as well as ongoing efforts to diversify our channel mix.
This diversification includes the growth of our internal payer agnostic channel, which was reinforced by our acquisition of <unk> last August .
Leverage our best in class sales process and technology to quickly and efficiently integrate IFC, leading to a significant year over year channel growth with selling agents, increasing by 26% and the MAA application volume more than doubling.
We also take pride in that consistent recognition, we received from organizations such as U S News and World report and Forrester for excellent customer experience and member centric approach.
All in we are excited about the opportunity ahead.
Turning to Medicaid our track record of organic success in this space continues and we are pleased to have recently announced that Humana has been recommended by the Oklahoma Healthcare authority to deliver health care coverage to Medicaid beneficiaries across the states, which is anticipated to start.
Early to mid 2024.
After successfully implementing the Ohio and Louisiana contracts in early 2023, we look forward to beginning to serve members in both Indiana and Oklahoma in 2024, bringing our total Medicaid footprint to nine states and approaching approximately one 5 million members.
By year end 2024.
Now moving to our center well care delivery capabilities.
We continue to expand our center world.
Primary care platform now operating 250, <unk> centers, serving 272000 patients.
Engaging and retaining patients is critical to driving improved health outcomes and advancing towards our $3 million contribution margin target in each center.
We've seen improvement in both of these areas with retention, improving 220 basis points year over year, while the percentage of patients that have been seen at least once as of June 30 increased from 78% in 2022% to 87% in 2023.
Further we remain on track to in the year at the high end of our previously communicated annual center growth of 30% to 50 through a combination of de novo build and programmatic M&A.
And I am pleased with our progress our primary care organization is making to advance our clinical capabilities driving operational efficiency and implementing other actions that we believe will largely mitigate the ultimate impact of risk adjustment model changes that will be phased in over the next three years.
In home, we continue to accelerate our value based strategy now covering approximately 830000 member of our MA members under a value based payment model covering home health Dnb and infusion services and expect to expand this in 2024.
And beyond as we are on track towards our goal of covering 40% of our MA members with a value based model by 2025.
We are seeing solid results from this model in North Carolina, Virginia, where the model was implemented in late 2022 Center well home Health Hospital admissions rates are approximately 210 basis points lower than other providers.
In addition, our home business also now manages <unk> spend under a value based payment model, where an additional $4 5 million Humana MA members to delivering incremental value to our insurance segment.
We expect positive enterprise value creation from the value based home health model in 2023 and remain on target to drive a $110 million to $150 million of annual enterprise value creation by 2025.
Within Central Pharmacy, we continued to advance our clinical capabilities and are seeing a year over year increase in adherence measures, we've seen an increase in adherence to hypertension.
Leave it to EMEA diabetes medications, ranging from 20 to 30 basis points year over year, which helps stars and clinical outcome measures.
Across these three categories, we continue to see that Humana members, who utilize central pharmacy have fewer inpatient admits per thousand as compared to non center, while pharmacy users.
In addition, our central specialty pharmacy demonstrates improved patient outcomes by driving longer therapy, durations and higher adherence levels.
As an example patients in the oncology center of excellence have a one eight times longer duration, and a 200 basis points better adherence than patients not engaged with the centers of excellence.
Expansion of our center, while assets complement the integration of our individual health service businesses in local markets, which will create further value for our shareholders and for our customers.
Before turning it over to Susan I'd like to give a brief update on the integration work. We currently have underway.
Our belief is we can deliver greater member and patient satisfaction retention and clinical outcomes for these members. This is based on our ability to further integrate clinical and operational workflows, while delivering a more seamless experience for our common members and patients.
As an example, we estimate drug cost review plan benefits and screened for patient assistance programs for members and our wholly owned centers.
In addition, our center, while home health and primary care teams review high risk patients and collaborate on more comprehensive care plan.
<unk> health related concerns that go beyond the original home health orders great.
<unk> greatly reducing risk of complications and unnecessary ER visits and avoidable admissions.
The primary care physician, social worker and home health nurse work in coordination with the health plan to take advantage of planned benefits to address health related social needs like food housing and security transportation needs and social isolation.
We will continue to innovate and advance towards a more integrated clinical model that leverages, our collective Humana and center well capabilities to deliver improved experiences and health outcomes for our members.
We are encouraged by the early results of our integration work and are actively expanding our focused markets from two in 2022 to more than 20 by year end.
Look forward to sharing more on this important important work going forward.
In closing I'd reiterate that humana's fundamentals are strong and we are confident in our ability to navigate through the near term impacts of our higher than expected Ma utilization.
Continuing to advance our strategy.
And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025 or.
Our confidence in our ability to deliver on this compelling earnings growth target is supported by our impressive 2023 membership growth.
Strong MA positioning in 2024, consistent quality scores and continued growth in integration and center well.
All of which is complemented by our continued focus on productivity and disciplined capital deployment.
With that I'll turn the call over to Susan.
Thank you Bruce and good morning, everyone. Today, we reported second quarter 2023, adjusted earnings per share of $8 94.
Consistent with internal expectations.
Results for the quarter are inclusive of the higher than anticipated utilization in our Medicare advantage business, we discussed last month, which as Bruce shared has stabilized and is tracking in line with our updated estimates.
We'll provide additional detail on emerging trends in a moment.
The higher than anticipated utilization in the quarter was offset by better than expected favorable prior year development, a more positive mid year, Medicare risk adjustment payment and slightly favorable investment income as well as other business outperformance, particularly in our Medicaid business.
Our performance to date reflects the strength of the enterprise highlights our ability to successfully navigate near term uncertainty and importantly includes better than anticipated individual Medicare advantage membership growth.
We now expect to add approximately 825000 members in 2023, reflecting an impressive 18% growth rate fueling our ability to continue to deliver compelling earnings growth in the future.
Further for the full year, we have reaffirmed our adjusted EPS guidance of at least $28 25.
It was increased by 25 cents with our first quarter earnings release and reflects a 12% increase over 2022, putting us on a solid path to our 2025 adjusted EPS target of $37.
I will now provide additional details on our second quarter performance and full year outlook, beginning with our insurance segment.
As highlighted in our 8-K filing last month beginning in early May we noted the emergence of higher than anticipated non inpatient utilization trends in our Medicare advantage business at the same time, we began seeing higher than anticipated inpatient utilization diverging from historical seasonality patterns.
These trends continued in early June .
Based off of this intra quarter information when we file the 8-K on June 16th we made the assumption that we would continue to experience moderately higher than expected trend for the remainder of the year.
We were pleased to see that our gene paid claims data received in July reflected positive restatements for the first quarter as well as stabilizing outpatient utilization levels in April and May.
While July claims data is not yet complete early view support our year to date booking levels.
With respect to inpatient activity the higher than initially anticipated utilization has continued and consistent with our June update.
All in we view the utilization data received in recent weeks as incrementally positive as compared to the assumptions utilized NRG and update that.
That said, we continue to point you to the top end of our full year, ensuring segment benefit ratio guidance range of 86, 3% to 87, 3% and we'll continue to monitor emerging trends.
This guidance also contemplates the individual Medicare advantage membership growth post the annual election period, which has included a higher than expected proportion of Asians.
As Bruce discussed agents initially run a higher benefit expense ratio than the average new member, which negatively impacts the current year benefit ratio, but results in a larger margin expansion opportunity on these members over time.
As previously noted we anticipate that the higher than originally expected benefit ratio in 2023 will be offset by a variety of factors, including higher than expected favorable prior year development additional administrative expense reductions higher than previously anticipated investment income and other business outperformance.
<unk>.
And while we would typically not comment on 2020 for this early in the year. Given the question is in the market regarding pricing, resulting from the higher than expected utilization in 2023, I would reiterate that our Medicare advantage pricing contemplated the rate environment emerging utilization trends and related offsets as well as the competitive lead.
Scape and resulting growth opportunity.
As we sit here today, we remain confident that our 2024 pricing combined with the strength scale and agility of the organization will allow us to deliver earnings growth that keeps us on a reasonable trajectory to our 2025 adjusted EPS target of $37.
As a result, our intent is to target adjusted EPS growth within our historical long term target range of 11% to 15% in 2024.
We look forward to sharing more on 2024 later this year.
Turning to Medicaid the business continues to outperform with second quarter results exceeding expectations driven by favorable membership results combined with disciplined medical cost management initiatives and lower than expected utilization.
Redetermination, which began in the second quarter are tracking slightly favorable to our initial expectations.
In addition, the Louisiana in Ohio contracts, which were both implemented in the first quarter are performing as anticipated.
At this time, we continue to expect an increase of 25000 to 100000 Medicaid members for the full year as the membership gains in Louisiana in Ohio will be largely offset by membership losses, resulting from redetermination.
Membership in our Standalone PDP business is tracking favorable to expectations driven by better than anticipated retention. As a result, we have improved our full year guidance from down approximately 800000 to down approximately 700000.
Now turning to center around the segment has continued to build on its solid start to the year performing modestly better than expected in the second quarter.
Our primary care organization continues to report better than expected patient growth year to date, adding 10000 patients or nearly 52% growth in our de Novo centers and 12000 patients in our more mature wholly owned centers, representing 7% growth year to date.
We now anticipate full year patient panel growth of approximately 27000 to 30000 as compared to our original estimate of 20 to 25000 patients more than doubling the patient growth achieved in 2022.
In addition, our primary care organization continues to improve the operating performance and our wholly owned centers and we're pleased to report that we estimate we will increase the number of centers that are contribution margin positive from 110 at the end of 2022 to approximately 125 at year end 2023.
A 14% increase year over year.
In addition, we expect to increase the number of centers that have reached our $3 million contribution margin target from 31 in 2022 to approximately 40 at the end of 2023 and compelling 30% increase year over year.
While we do expect the risk model revision to have an impact on our center contribution margin performance in 2024 as Bruce shared we are focused on advancing our clinical capabilities driving operational efficiencies and implementing other actions that we believe will largely mitigate the ultimate impact of the risk adjustment model changes.
It will be phased in over the next three years.
In the home total same store, new startup care admissions and our core fee for service home health business were up five 8% year over year as of June 30th in line with our expectations of mid single digit growth.
In addition in the quarter, we saw episodic admission growth of approximately 10% year over year, which is inclusive of the acquisition of trilogy health completed in April .
While new started mission growth is strong we continue to experience pressure on re certifications due to utilization management programs of Medicare advantage payers and.
And as expected our cost per visit continues to run approximately 2% higher year over year with continued nursing labor pressure.
From a quality perspective, we have seen significant improvement in star ratings for central home health over the last year, increasing the percent of our branches with a four five star or above rating from 18% in January 2022% to 50% today.
Further as Bruce highlighted we're seeing positive results as we continue expansion of our value based home model tracking towards our goal of covering 40% of our Medicare advantage membership by 2025, while also expanding the standalone components in certain markets to accelerate value creation.
Finally, our pharmacy business performed well in the quarter benefiting from higher than expected individual Medicare advantage membership growth as well as favorable drug mix as anticipated year to date mail order penetration for our Medicare membership is 40 basis points lower than prior year as a result of retail pharmacy, Copays now largely being on.
Par with mail order benefits.
We continue to provide awareness and education of the benefits of mail order for a large block of new members to drive increased penetration throughout the year.
Investment income slightly outperformed expectations in the quarter and we now anticipate that investment income will increase by approximately $500 million year over year up from our original expectation of a $450 million year over year increase.
From a capital deployment perspective, we initiated open market repurchases in March and have completed approximately $800 million and repurchases to date, taking advantage of the recent dislocation in the stock price relative to our confidence in the long term earnings outlook of our business.
European by our strong Medicare advantage platform and the continued build out and integration of our central assets.
We now expect share repurchases of approximately $1 5 billion in 2023 up from our original expectations of $1 million with our strong cash flows and decreasing debt to cap ratio. We've accelerated these share repurchases, while maintaining sufficient capital for normal course M&A activity.
Lastly, with respect to earnings seasonality, we expect the percentage of third quarter earnings to be approximately 25%.
In addition, we expect the third quarter insurance segment benefit expense ratio to be 87% consistent with current consensus estimates before increasing in the fourth quarter consistent with historical seasonality patterns.
Before closing I want to Echo Bruce's sentiment that humana's fundamentals are strong and we are pleased with our ability to grow individual MA membership by 18% in 2023, while guiding to a robust 12% year over year and adjusted EPS.
We are confident in our ability to leverage the strength and scale of the enterprise to navigate through the near term impacts of the higher than expected Medicare advantage utilization, while continuing to advance our strategy.
And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025.
With that we will open the lines up for your questions and fairness to those waiting in the queue. We ask that you limit yourself to one question operator, please introduce the first caller.
Thank you as a reminder to ask a question. Please press star one on your telephone and wait for your name to be too.
To be announced to withdraw your name.
Please press star one again.
One moment, while we queue. The first question.
Yeah.
Our first question comes from Stephen.
Baxter with Wells Fargo. Your line is open.
Yeah, Hi, Thanks, I appreciate all the color a lot to digest there. So the commentary on 2024 beds was very helpful. It sounds like at least to my hearing that has the higher trend that you see MMA persist for the balance of the year. You believe your bids would fully reflect that just making sure. We have that point right and then obviously in June you didn't talk about some pretty significant.
<unk> operating cost offsets that you're expecting to allow you to deliver on EPS. This year. Despite the higher MLR I guess, how would we think about these potential cost offsets into next year are those still largely an opportunity for you if you need them as an offset.
Yes.
Sure Hi, Steven.
So to your first question in terms of 2024, we are assuming that the higher trend that we've seen in 2023 will continue into 2024. So that is contemplated in our current commentary.
I would say that as we said in our gene commentary, we did when we saw the emerging trends, we did not fully embed and make a change reflective of the higher churn we were estimating at that time in our bid and there is a variety of reasons for that as we said.
The emerging trend would continue to persist there will be other assumptions that you would want to revisit in terms of what it is risk adjustment offsets did your view of claim trend incrementally in 2020 for change in light of that higher trend. So for a variety of reasons. We were clear that we did not fully embed that into the 24 also recognizing that we do continue to believe there is a disproportionate growth opt.
<unk> 24, and we wanted to make sure that we were positioned to take advantage of that were to occur.
We continue to evaluate the trends relative to what we saw in June as we said today.
We are more confident in our estimates going into 2024 and able to evaluate our pricing actions now that we've seen stabilizing trends. So that's certainly a positive. We've also done a lot of work over the last number of weeks to assess and what is that impact on 'twenty four and how do we feel about other available levers and assumptions and based on everything we know today, we wanted to.
Affirm in our commentary that we do feel confident in our ability to deliver an EPS progression in 'twenty four is consistent with our historical range. Knowing that that was a question that was raised in June based on our intra quarter commentary. So we do feel comfortable with that.
In terms of 2023 as we described there are a number of offsets to the higher trend. We're seeing this year some favorable prior year development investment income and certainly administrative expense reductions some of those things will certainly carry forward into next year admin. As an example will be a continued positive relative to what we would've expected at the time of pricing as well as likely invest.
Income.
The prior period development, we would view as more one time this year and so not necessarily carrying forward into next year, but based on everything we have visibility to right now as we said we feel comfortable that in 2024, we will be able to deliver that earnings progression and EPS progression and consistent with our historical targeted range.
Thank you one moment for our next question.
Our next question will come from a J rice with credit Suisse. Your line is open.
Thanks, Hi, everybody.
Thanks for the comments about the retention would be.
AGN population it seems like to me.
Key factor in the next couple of years hitting ultimately your 'twenty five target is the retention all all of these members you've gotten this year and then whether the progression you normally see.
Profitability plays out could you just sort of remind us historically, what the trend is.
On retention it would be on.
How the profits that Bob overtime.
Do you think there's any reason on this population you've added this year.
Either of those metrics might be different than normal.
Good morning, Hey, Jay I'll take the first part and maybe Susan can take that.
Profit trajectory on the retention area I think as we've talked on a number of calls over the last few years, we've spent a lot of <unk>.
Effort in improving the retention and we really look at it in a few areas first is just in the benefit design that is an important area, where people will focus on and as both this year as a demonstration of that but I think in previous years, where we've really been able to design our benefits for the segments that we want to continue to grow in <unk>.
Retain in that I think is an important area, where we will continue going forward and as we've mentioned on a number of occasions, we feel very confident about our positioning for 2020 for the second is in the area.
Our experience and our customer experience both.
In the services area and then obviously in any of their claims management area that we haven't as you can see from our net promoter score and the continued accolades that we get from third parties that we have are leading the industry and all of those areas.
We are seeing also refer back to the brokers, where they feel confident in both recommending us as a result of our benefits, but also recommending us as a result of our service side because they have told us on a few occasions that their.
Confidence is less than some of our competitors as a result of.
Recommending a plan and then ultimately not being able to service that plan.
So I would just end.
By saying our benefit design is really important and that's more segment specific and then secondarily the.
Service experience, we provide and the ability to continue to do that both in a positive way from the customer point of view, but also from an efficiently.
Okay.
Hi, Jay to add to what Bruce on the retention. We have commented historically that we do see typically higher dis enrollment rates in the earlier years of tenure in particular, you're wanting to you. So the longer we retain that book as you said should provide some incremental benefit so.
Lastly, the 2023 high growth and if we're able to see high growth again in 'twenty four as we continue to.
See that blocked mature hopefully in the outer years, you will start to see some of that incremental improvement as we retain that book longer as Bruce commented in his comments about the agents that is I would say incrementally positive because we do see that earlier 10 years. They do retain at a higher rate if we get them at their initial eligibility verses subsequently so that I would say.
Incrementally positive as well relative to our historical on the profit progression. What we've typically said is it takes about three years for either an agent or eight other new member to reach mature contribution margin agents start much lower obviously because of the risk adjustment and reimbursement dynamics, there and so there is a larger opportunity for expansion.
And over that three year timeframe, but we consider in the aggregate the new member cohorts, who take about three years. So for the agent block, it's usually disproportionately in the second year of retention because they need about 18 months of Medicare claims activity before they convert to full diagnosis based risk adjustments. So we should see.
Positive impact from that in 2025 for the higher agents, we get in 'twenty, three and then incrementally from there as well.
Okay. Thanks, a lot.
Okay.
Okay. Our next question will come from.
Justin Lake with Wolfe Research your line is open.
Thanks, Good morning.
First just Bruce.
I appreciate your commentary on 2024, and expressing a strong strong industry growth and you to outperform it can you give us a little more color there in terms of the.
Maybe relative to the let's say, 7%, 8%. We think the industry is going to grow this year. How do you think it grows next year and then any early commentary on 2025 stars I know you've gotten a bunch of data there I know the <unk>.
Does it still not perfect, but any thoughts on how your 2025 star performance is shaping up going into October would be helpful too. Thanks.
Hi.
In regards to just the <unk>.
Industry growth rate adjusted I would say, we still feel confident that it's going to be like historical years, we say the demographics continue and the aging side, we see the value proposition continuing to to maintain a fairly healthy difference between MAA in.
And Medicare fee for service and then third we do see segments like the duals as being Underpenetrated and we believe that as we progress and to higher penetration into the industry will continue to see other segments being highly penetrated you've seen this year and in our results that agents are starting to become more and more part.
To that and so we do see.
The growth continuing and we are confident that we will say that for the foreseeable future relative to stars as an early.
We haven't got all our results, but we feel pretty good about where we stand.
As a result of what we say preliminarily, obviously, we haven't seen the comparative measurements and how you how you how you stack up with the industry, but I would say that we feel pretty good about.
Our existing analysis.
Thanks for the color.
Thank you.
Our next question will come from.
Nathan Rich with Goldman Sachs. Your line is open.
Hi, good morning, Thanks, a lot further questions.
I wanted to ask about how you believe your kind of benefits will compare to the market overall, obviously youre coming off of a year, where you significantly increased benefits for 'twenty three what does that look like for 2024.
And I know, it's early but it would be helpful to get your sense of how youre thinking about margins for the insurance segment in 2024, given the moving pieces with utilization the risking.
Risk model changes Redetermination.
Any kind of early view would be great. Thank you.
I'll take the benefit side and I'll, let Susan discuss the margin side on the benefits.
I mentioned, we have really been thoughtful around how do we.
Adjust the benefits appropriately considering the funding that's in the marketplace.
As a result of the reduction.
From the latest rate notice.
So we've tried to really do some.
African amount of research around where are the priorities for for the Medicare beneficiaries and why do they value most by particular segments, whether thats in the military whether that's duals, whether that's <unk>.
Et cetera and.
And we feel really good about that that research and feel that we are going to come out with a value proposition that is going to meet the mark.
For the for each of those segments, considering the funding funding side and as you can see.
In our commentary we made a comment about that we did increase zero.
Premium plans this year and coverage more we felt that that was a really important benefit that people are looking for an addition, and our duals population. We continue to ensure that we're providing.
<unk> amount of support for supplemental benefits because we do find that lifestyle is an important part of them to continue to improve their health outcomes relative to our competitors.
We've gotten an early view on it.
The most positive view and we feel we're in a good a good position and I just wanted to remind everyone last year, we werent the cheapest in every market.
What we find with our brand our relationships with our brokers our quality scores are experience.
In our stars scores, specifically, we find that we compete when we are within.
Shouting distance between the various different plans. So we don't have to lead the industry. In every benefit we have to be closed and what we see when we do that as a result of our stability of R. R. R. R platform that we are able to take.
A significant amount of the market share there so benefits are important.
But I would just emphasize we've never.
Ben.
Ourself on being the cheapest we want to be in the range, where it's competitive and people are having to make a decision.
Between a few plans, but we always went out as a result of the quality and the.
The ability to service our members.
And one thing I would add to that too as you think about 'twenty four as Bruce mentioned some of the competitors do you have incremental pressure from Starz and so what we've consistently heard is there will likely be some area of focus for certain competitors deals is a great example, where a few have indicated that they will put their focus and potentially make some investment there what's interesting about that is as we commented.
In 2003, we for a number of years have lagged the industry in non dealer growth, but outperformed on duals, which allowed us on the overall average to be in line or better than the industry. The non dual population is a much larger population and so the ground we made up in 'twenty, three and our ability to outpace the market and non juul grows we were particularly excited about and want to make sure that.
We maintained into 2024 and I think based on what we're hearing and seeing we feel very optimistic about how we're positioned and we've also seen and heard positive feedback from the brokers, which we previewed some of our 2024 changes with as well. So all of that speaks to some optimism for 24 on your question about 'twenty for margins, it's really too early to give that type of <unk>.
Commentary typically will give you a little bit more commentary on our third quarter call as I said in my comments. We did think it was important though in light of the emerging experience and commentary this year to give confidence over where we thought we would be from an overall perspective, and our confidence that we will deliver against our historical range to make sure that that wasn't your question, but there are a number of things that will have to.
As we think about 'twenty for detailed estimates the level of membership growth certainly in 2024 is a big one as we've said we do think there is an opportunity for potential disproportionate growth and show the composition of that between aging switchers as well as our attention will be an important consideration and then obviously as we continue to evaluate these emerge.
<unk> trends and whether they sustain or further moderate will be an important input as well. So certainly look forward to sharing more but wanted to reinforce our confidence in our ability to deliver progression in 24, consistent with our historical targeted growth rate.
Thank you our next question.
Comes from Scott Fidel with Stephens Your line is open.
Alright, thanks, good morning.
Would be interested if you could give us an update on how you're approaching coverage of the Alzheimer's drugs in the emerging therapies. Therefore for 2024, and then just some preliminary thoughts on sort of how you may be factoring that into your beds and then to expected cost for 2024.
Sure.
So we will certainly follow sort of CMS coverage determinations in terms of what and when and for what they will use that we have to cover.
<unk> went into our thinking for 2024, we did have a point of view that we would have some costs related to the continued launch of Alzheimers treatments. So we do have pricing in our beds I would say based on the team's latest assessments, we felt comfortable with what we've priced for 2024.
There's been a lot of questions about whether the drugs been tripped a significant cost policy based on our estimates you would have to hit about one dollar P. M. P. M of sort of expense at the plan level to be able to trip that and right. Now we don't think we will get to that level across the industry and spend but certainly something to continue to watch I'm sorry to say we have contemplated in 2000.
We're pricing and based on what we're seeing so far we feel comfortable that that's not a material headwind.
Thank you our next question.
It comes from Steve Valiquette with Barclays. Your line is open.
Great. Thanks, Good morning, So I guess just regarding the elevated Medicare cost trends for the second quarter, and then thinking about some of the potential moderation in the back half of 'twenty three.
Can you just remind us whether or not theres any major levers you can and have proactively pulled mid year. It's just better contain the elevated Medicare costs for the back half of the year either on prior authorization policies or this other coverage factors.
The 23 trends really more just serendipitous at this stage, we just have to wait essentially until 'twenty four to make any material changes too.
The other better control costs or adjust pricing benefit design et cetera. Thanks.
Sure Hi, Steve I would say at this point in terms of what we're seeing in the second half trends. We are assuming that those trends continue and do not moderate there is some seasonality differences and just workday seasonality year over year and that we certainly take into account, but from a normalized basis, we are anticipating that those trends continue and <unk>.
Not mitigated by any actions or levers, we might take I would say on the broader medical cost trend I would say, there's probably not a lot but at least to date that we would identify that we wouldn't be able to do in response that could mitigate that.
General side, which we have commented on which is we think more human and specific there are a few things. We are looking at in terms of coverage to make sure that we've got the appropriate controls in place, but I would say that would not be a material factor in thinking about how we're thinking about the trend for the year.
The main lever that I would say that we're relying on internally to offset some of the elevated trend in the back half of the year is more administrative expense savings. We have asked the organization to find additional opportunities and thats largely informed by some of the ongoing productivity work that we've been doing it highlights that there are some additional opportunities and I would say relative to.
What we considered in our original plan for the year, there was extra admin savings there'll be disproportionately benefiting the back half of the year, whereas the first half of the year. The elevated trend had the benefit of things like prior year development that we would say it was going to disproportionately benefit the first half versus the back half.
Thank you.
Our next question comes from Michael Hall, with Morgan Stanley . Your line is open.
Thank you I appreciate all the commentary on top of them from 'twenty four 'twenty five I'll. Just quickly first you did you mentioned you expect to maintain the same level of non duals growth rate in 2024 as you saw in 'twenty three and then quickly on 25 is it fair to say.
Basically whatever assets and 24th cost from even if it does run slightly odd.
One is you are able to capture that.
Nextgen bids than $37 still well on track for 25, and I would imagine maybe even stronger if you're able to capture more growth market share and 24.
Being a larger base so that may lives that our fees at year, one to year two profitability ramp.
Yes.
Youre thinking is consistent with what we're thinking on a few things I think first as we've as we look at it.
We've adjusted our our benefits in 2024, we continue to Orient zero premium plans, we've seen agents.
Be oriented to that so that is an area, where we continue to say that age ins.
That percentage than we are.
Anticipating probably a good level of growth now I won't get into the percentage between.
<unk>.
And non agent there, but we do anticipate that and as Susan articulated. We also save margin expansion happening in the book that's coming in 2023 to 2024 and continuing onto 2025. So we do have this ability to have a step.
Improvement in each of those areas.
Sure.
And then when you went away do you think about just the market in general and the growth of being able to do this we're very optimistic about the growth as I mentioned before with Jonathan Justin on the growth of it.
And do you have anything that you would like to add to that yes, I would say on the question about the non dual growth I do think the ground. We made in 2003 that we will continue into 'twenty four and frankly based on some of the preliminary information we're hearing from competitors and the focus on duals, maybe it will be even a little bit better position if that wasn't as much of a focus for some others. So I do think that's positive on the pricing.
For 'twenty. Thanks, Rob as you said, we always if there is some residual trend where we are able to offset that in 'twenty four with something thats nonrecurring, we would always have the pricing lever if we should need it but our hope and plan would be to find durable offsets that would continue and prevent us from having to take further pricing action, but that is certainly always an option.
In terms of the progression and to your point the higher growth certainly is positive and supporting our trajectory to the 25 I will say that one thing we will have to continue to evaluate though is the impact of the risk model Recalibration and then obviously the rate book and 25, and we know that we'll have those cuts phased in over three years and so our goal would be to try to offset as much of that as we can.
And minimize further beneficiary impacts, although theres likely to be some so that's the one I would say caveat is we will have to evaluate that as it comes out and in the overall puts and takes that we always have to consider in 2005 pricing and balancing continued strong membership growth, but also delivering the EPS progression that's needed to hit the $37 and then continue to perform.
It has strong durable rate beyond them.
Thank you and our next question comes from Gary Taylor from Cowen Your line is open.
Hi, Good morning, most of my Big picture questions answered. So I'll just dive into a couple details. One wondering if you could just talk about the source of the stronger.
<unk> been outpatient ambulatory or perhaps just kind of final in patient acuity.
And then secondly, Susan you mentioned the sweep revenue.
<unk> being higher than it usually is just wondered if you.
You could speak to the materiality of that I don't think I've ever heard you talk about that much before.
Sure Hi, Gary on the PID I don't know that we've historically given a lot of detailed drivers and I would say its theres not a single sort of primary driver of that that I would call out some more broad base I would say one item is that we do we talked about last year that we took a more conservative posture to year end reserving and so.
That certainly would unwind over the course of the first half of the year is that pre is.
Those claims ultimately mature I would say as we've looked at the experience we have acknowledged and seen that just internally our seasonality models, we think overstated, our sort of expectation of claims trend in the fourth quarter, particularly in the month of December and maybe didn't fully account for sort of workday differences or the impact of holiday differences in the day on the weekday.
So I would say we've seen similar consistently that that December 2022 was more conservative than we would've thought at year end and we saw some of that emerge and released through the first half of the year.
In terms of Q2 revenue as I said in my comments part of the reason the MLR was a little bit more favorable relative to the commentary. We gave intra quarter was the fact that we did see some positive mid year risk adjustment payment, which would have been booked in the second quarter I think from an overall perspective from an annual basis, you wouldn't consider it material and in the apps.
So some of this higher trend probably wouldn't be something we're even called out but given the previous commentary on MLR wanted to provide some transparency to the fact that there were some puts and takes but I'll stop offset that higher pressure and we were pleased to see some slightly higher midyear payment, which again is probably to some degree reflected the higher trend is there.
Additional that was probably emerging partly last year in that book as well.
Thank you.
We have a question from.
Joshua Raskin with Nephron research your line is open.
Hi, Thanks, Good morning, I guess I'm, just trying to understand that buildup to the 2020 for EPS growth in line with your 11% to 15% long term targets I understand youre growing 18% membership.
This year and that will mature a little bit next year, but I would assume if youre pricing for benefit changes to take market share when competitors are vulnerable and I totally get the strategy plus the impact of the risk model changes and it would be hard to expand margins on the rest of the book So what am I missing what are the positive drivers to EPS for next year.
Well certainly Josh as we thought about 24, our intent all along would have been to deliver against that needed progression to get to a reasonable trajectory to deliver on the $37 25. So that would have always been the intent I think as we've seen some of the higher claims emerge this year and we further evaluate.
That as well as how the estimates are developing for next year today thought it was important to convey confidence that we will we still continue to believe that we can deliver in that range. So I would say that was the intent all along and as the enterprise book has performed and we thought about the membership growth opportunity because we were already advantage coming into 'twenty four in terms of obviously, how well we were.
Our position in 'twenty, three and the lack of the stars headwind for us going into next year, we always had a point of view that relative to others. We would have less benefit action to take and still be really well positioned and also still deliver on the immediate earnings and EPS progression. So that's always been the plan and we felt really good about that going into our planning that.
Higher outpatient and overall trend is that the new development that we've spent a lot of time working through the last number of weeks to make sure that we continue to be confident that we're still in a similar position and have the ability to navigate through that which we which we do believe hey, Josh maybe a few other things if you remember the Investor day, we broke down our earnings growth in a few areas, where our core business.
So it is going to grow.
In addition, where we are going to grow from productivity and from and from capital deployment and capital deployment and productivity were close to 4% of our growth with the growth of the core business picking up.
The 10% or so.
We see this year is we're going to our next year, we anticipate growing probably a little more on the productivity side as a result of just some of the initiatives that we see that are really showing some some good results on us continuing to scrutinize where.
Where we feel that we're not spending that appropriately there.
And then on top of that you mentioned a little bit about the <unk>.
The rate notice we price for the right notice I mean, we incorporated that in the price. So as we look at the <unk>.
The benefits that they will not be as rich as they've been in the past as a result of us having to reflect the impact of the rate notice and that is a third and we as Susan was articulating in the previous question we have two.
Two more years that we'll have to incorporate in there. So I would say that to answer your question specifically we are seeing.
Yeah.
Benefit of our growth this year showing up in 2024, and we anticipate that same benefit grow.
Coming up in 2025 as a result of both 23 growth in 'twenty four our focus on productivity gain.
Then, 2% and our capital deployment being being there than our other businesses are showing good results too.
Yeah.
Thank you.
We have a question from David Windley with Jefferies. Your line is open.
Hi, Thanks. Good morning, Thanks for squeezing me in I wanted to ask a question on trend on a couple of different axes. One is kind of the geographic breadth of the higher trend that you've seen does it have any regionalisation to it and then secondly is it concentrated mostly in the non dual population or is this.
Also.
Present are apparent in the duals population I'm kind of thinking about.
As your as you set up for growth in 'twenty four.
Do you have preferences about where that growth might come from either by by type of member or by region of the country.
Hey, David.
Started to your first question on the medical cost trend I would say it is not concentrated it's pretty broad based the one thing we have commented on though which again, we think is more <unk> specific the dental higher dental trends those are a bit more concentrated and that's more reflective of just where some of the product offerings, we call. It <unk>.
<unk> plans, where there's just an overall dollar of of funding that the beneficiaries can use towards those dental benefits that tended to be more of an offering in state of Florida markets and so you do see some concentration on just that one dental element, but the broader medical cost trend I would say, we haven't seen any real concentrations.
On the more population based dual non deal I would say again generally broad based although I would say in general the duals are performing better relative to non duals, they're still seeing some pressure, but the risk adjustment and the revenue dynamics offset some of that and so I'd say the non duals are performing a little bit worse than the deals I would say.
And what we've said before we continue to see though is the broader medical cost pressure is more non risk based concentrated versus risk providers. The risk providers are not seeing as much of it which in our minds makes it a bit more sense because in general they do a better job managing some of that out.
Patient spend just by definition and so we are seeing on the.
The broader medical costs more in the non risk space, the dental again because of where its located that actually is disproportionately risk space and so we do get some offset there just because of the geographies there were typically offering that coverage.
Thank you.
And our last question comes from Kevin Fischbeck with Bank of America. Your line is open.
Great. Thanks, just wanted to kind of clarify I mean, I guess when you guys provided that initial $37 number for 2008. Five you would think you are going to grow below average this year and given just how stronger growing this year and I guess it looks like another year of above average growth for next year are you going to be at your membership your initial membership thoughts for 2025.
<unk> next year, so that you don't really need to grow membership and twenty-five at all to kind of put you on track for that $37 number.
And then I guess.
Think about that.
A lot of concern about trend.
Trend or whether you need to reprice and what that could mean for growth in a given year. It sounds to me like what Youre, saying based upon I guess, we've seen over two thirds of the industry report can talk about higher trend too. It doesn't sound like you think anything Youre seeing here is company specific that if there is a need to reprice to elevated credit industry.
Need not a humana specific need that would impact your competitive positioning at all I just wanted to make sure I understand that dynamic as we think about how you might need to reprice or think about repricing over the next couple of years to hire trend. Thanks.
Hi, Kevin Yes, so on the membership we are certainly outpacing what we would have anticipated underlying that $37 target. We as you said, we were anticipating lower than slightly lower than industry growth in 2003, anticipating it would take us two years to get back to the industry growth rates of that really strong growth. This year is certainly positive and our hope is that we.
Have a repeat performance about in 24, so that would all be positive and we should certainly outperform the members that membership growth that was contemplated our goal, though as we said is we're not going to take our foot off the gas. So we will continue to strive to position ourselves for to sustain industry growth rate or better on a sustainable basis going forward given the.
The beneficial impact of that from a lifetime value perspective, and important in supporting a durable strong continued EPS growth trajectory as well.
The trend question as you said other than <unk>, which we've talked about as being more humana's specific and where you will see us having made some benefit adjustments in 'twenty, four and maybe potentially some additional 25% as we continue to watch that emerge the broader medical cost trend. We do believe is consistent with what everyone else has been saying I do think there is some.
Maybe timing differences in when different companies thought into what degree they reflected in 2000 and for pricing and so I think ultimately, though if there is any residual price action that we feel we want to take in light of what we're seeing in 2025 to your point, we would not expect that to put us in an outlier position relative to others, although it.
May be that some others have already taken more than we have in and it's just a matter of catching up but we would say that it is an industry issue and ultimately to the degree it needs to be priced four would not create any competitive advantage or disadvantage because it seems fairly consistent across the competitor set.
Thank you and there are no other one I think.
I'd like to turn the call back to <unk> go ahead, Mr. Bruce Broussard for any closing comments.
Alright.
Again, I would love.
Thank you everyone for your support and your participation today and like always we want to thank our 70000.
Teammates and being able to for us to be as successful as we are and being able to report the earnings we have so.
So thank you and have a great day.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
Okay.
Okay.
Yes.
Okay.
Thank you.
Okay.
Okay.