Q2 2023 Molina Healthcare Inc Earnings Call
Good day and welcome to the Molina Healthcare second quarter 2023 earnings Conference call.
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I would now like to turn the conference over to Joe Kruszewski Senior Vice President of Investor Relations. Please go ahead, good morning, and welcome to Molina Healthcare second quarter 2023 earnings call.
Joining me today are <unk>, president and CEO , Joe <unk> and our CFO Marc.
A press release announcing our second quarter earnings was distributed after the market closed yesterday and is available on our Investor Relations website.
Shortly after the conclusion of this call a replay will be available for 30 days.
To access the replay are in the earnings release.
For those who listen to the rebroadcast of this presentation. We remind you that the remarks made are as of today Thursday July 27th 2023 and have not been updated subsequent to the initial earnings call.
On this call we will refer to certain non-GAAP measures.
Reconciliation of these measures with the most directly comparable GAAP measures can be found in our second quarter 2023 earnings release.
During our call, we will be making certain forward looking statements, including but not limited to statements regarding our 2023 that Medicaid redetermination.
RFP awards and related revenue growth.
Acquisition M&A activity, our long term growth strategy, and our embedded earnings power and margins.
Yeah.
Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations.
We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as the risk factors listed in our Form 10-Q, and form 8-K filings with the SEC.
After the completion of our prepared remarks, we will open the call to take your questions.
I will now turn the call over to our Chief Executive Officer Joseph.
Joe.
Thank you Joe and good morning.
We will provide updates on our financial results for the second quarter 2023.
Our full year 2023 guidance in the context of our second quarter results.
Medicaid Redetermination.
Our growth initiatives and our strategy for sustaining profitable growth, including our 2024 premium revenue growth drivers.
Let me begin with the second quarter highlights.
Last night, we reported adjusted earnings per diluted share for the second quarter of $5 65.
Or 24% year over year growth, an $8 billion of premium revenue.
Our 87, 5% consolidated MCR in the second quarter demonstrates continued strong operating performance in medical cost management and was at the low end of our long term target range.
We produced a five 3% adjusted pre tax margin or three 9% after tax a very strong result that was above the high end of our long term target range.
Year to date, our consolidated MCR is 87, 3% and our adjusted pre tax margin is five 4%.
We know that investment income produced higher than expected results due to the increasing yield environment.
In the second quarter, we continued to generate excellent margins in our Medicaid business with an MCR of 88, 3%, bringing our year to date MCR $2 88, 4%.
This result was in line with our full year guidance and long term target range.
As expected the medical cost impact of Redetermination was negligible. Although we are in the very early stages of that process.
In Medicare our reported MCR was 89, 2%, which is above the high end of our long term target range.
We are experiencing some cost pressure in professional and outpatient services and higher first year mcr's associated with growth.
With a year to date Medicare MCR of 88, 6% the book of business continues to produce attractive margins.
In marketplace, our reported MCR was 73, 7% for the quarter at 71, 2% year to date.
This result reflects the successful implementation of our pricing metallic mix and membership continuity strategies to restore this business to mid single digit target margins.
In summary, our second quarter results build on our strong start to the year Medicare.
Medicaid our flagship business representing over 80% of revenue continues to produce strong predictable operating results and cash flows.
Our high acuity Medicare niche serving low income members continues to grow organically and our marketplace business is now well positioned to achieve target margins.
Turning now to our 2023 guidance.
Based on our strong second quarter results, we are increasing our full year 2023 adjusted earnings per share guidance by <unk> 50 per share to at least $20 75.
Or 16% growth year over year, consistent with our long term earnings per share growth target of 15% to 18%.
Our earnings per share guidance is now $1 per diluted share higher than our initial guidance issued in February .
Our pre tax margins are exceeding our expectations.
The Medicaid MCR is right on target.
Medicare slightly behind target and marketplace substantially better.
We note that these target ratios produced best in industry margins.
Then of course, the interest rate environment has allowed us to produce investment income that has provided a short term earnings boost.
Now a few words on Medicaid redetermination.
During the second quarter, all but four of our states began disappoint me members with the remaining states initiating this enrollment on July one.
Our Medicaid membership declined by 93000 members during the quarter, which was well within our expectations.
Although the medical cost profile with members, who have left is slightly more favorable than the portfolio average the impact on our overall Medicaid MCR was negligible.
And within our expectations.
Yeah.
We continue our outreach to members to minimize procedural this enrollment.
We also continued to work with our state partners to ensure rates remain actuarially sound to account for any potential shifts in acuity.
To date all of our states have expressed a willingness to adjust rates as needed to account for any changes in acuity or trend.
Mark will provide more color on redetermination during his remarks.
Turning now to an update on our growth strategy.
At our May Investor Conference, we laid out our strategy for sustained profitable growth.
We plan to grow premiums at 13% to 15% through a combination of growth in our current footprint strip.
Strategic initiatives and accretive acquisitions.
We also established a 2026 premium revenue target of $46 billion.
Yeah.
We already have significant momentum toward achieving these growth goals.
Our five recent state RFP wins drive more than $5 billion in incremental premium revenue.
A portion of this incremental revenue is included in our 2023 guidance attributable to our Iowa contract, which.
Which we successfully launched July one with approximately 200000 members consistent with our expectations.
Most of the remainder emerges in our 2020 for revenue outlook and a small component in 2025.
Yeah.
We are also executing on the M&A component of our growth strategy.
<unk> with our strategy of acquiring cabotage government sponsored assets.
In June we announced the acquisition of Bright Health Care's, California Medicare business.
For an attractive purchase price of approximately 28% of expected 2023 premium revenue.
Brights Medicare business there is approximately 125000.
P D D SNP and C. SNP members across 23 counties in California, with 60% membership overlap with Molina Medicaid footprint.
We expect the transaction to add approximately $1 $8 billion of premium revenue deliver $1 of adjusted earnings per share at full run rate.
But no earnings contribution in the first full year of ownership.
We expect the transaction to close by the first quarter of 2024.
Closing is subject to the solvency and continued operation as a going concern a bright health group throughout the pre closing period as well as federal and state regulatory approvals and other closing conditions.
Based on known building blocks, we now have line of sight to approximately $38 billion of premium revenue in 2024 or 19% growth before executing on additional strategic initiatives.
Our new store embedded earnings is now $5 50 per share providing meaningful visibility into our future earnings growth potential.
We see additional embedded earnings upside if and when to several remaining Covid era corridors are eliminated.
Two short months ago at our Investor Day, we reaffirmed our long term financial targets. The centerpiece of which is the long term earnings per share annual growth rate of 15% to 18%.
Our performance this quarter supports that outlook.
The revenue base and new store earnings profile continue to build with highly accretive new contract wins and M&A.
Our second quarter and year to date operating results provide a very solid earnings base off of which to grow.
And we have seen nothing in the early stages of the Medicaid Redetermination process that changes our view of the earnings trajectory of the business.
With that I will turn the call over to Mark for some additional color on our financials.
Mark.
Thanks, Joe and good morning, everyone.
Today I will discuss some additional details of our second quarter performance the balance sheet. Some thoughts on our 'twenty three guidance, including an update on Redetermination and our 24 premium revenue outlook.
Beginning with our second quarter results.
Our consolidated MCR for the second quarter was 87, 5%, reflecting continued strong medical cost management.
In Medicaid are reported MCR was $88 three a strong result that was in line with our expectations and long term target range.
The major medical cost categories were largely largely in line with our expectation and normal quarter to quarter trend fluctuations and COVID-19 related costs have largely subsided.
Second quarter Medicaid membership is down 93000 from the first quarter largely attributable to the expected initial impact of re determinations.
In Medicare our reported MCR was $89, two which is above our long term target range.
During the quarter, we saw increased utilization of outpatient and professional services as well as the continuing expected impact from strong growth in our D SNP and NYPD products due to the normal lag in new member margins.
We make note of two key dynamics of our year to date Medicare performance and implications for 2024 bits.
First our MMP block of business, representing half of our Medicare premium is not tied to annual Medicare bid process.
And second we were conservative in our trend assumptions in our 2020 for bid process.
In marketplace, our reported MCR was 73, 7%.
This strong result reflects our pricing strategy to return this business to target margins prior year risk adjustment true up benefitting the quarter as well as normal seasonal patterns for utilization.
Recall, our pricing strategy increased our premium yield by approximately 9% this year.
And with three quarters of our book and renewing members and two thirds in silver metallic products, our risk scores should be appropriately valued.
We feel well positioned to achieve our mid single digit target margins in this business for the year.
Our adjusted G&A ratio for the quarter was seven four and includes the expected new business implementation spending ahead of new contract wins and setting in July and next year.
Turning now to our balance sheet.
Our capital Foundation remains strong.
We harvested approximately $150 million of subsidiary dividends in the quarter and our parent company cash balance was approximately half a billion.
We expect to fund the acquisition of Bright health care is Medicare business in the first quarter of 2024 with cash on hand.
Debt at the end of the quarter was unchanged at just one six times trailing 12 month EBITDA.
With our debt to cap ratio at 40%.
Net of parent company cash this ratio has fallen to one three times and 35%, reflecting our low leverage position and ample cash and capital capacity for additional growth and investment.
Turning to reserves.
Our reserve approach remains consistent with prior quarters, and we continue to be confident in the strength of our reserve position Dave.
Days and claims payable at the end of the quarter was <unk> 47.
Now some additional color on our 'twenty three guidance.
We increased our 23 adjusted earnings guidance by <unk> 50.
So at least $20 75 per share.
This increase is driven by second quarter operating and investment income performance above our expectations.
And higher expected investment income in the second half of the year.
Partially offset by some continued conservatism.
As Joe mentioned, our current new store embedded earnings or $5 50 per share.
Comprised of $4 per share for our recent new contract wins in California.
Our Nebraska, and Indiana plus.
Plus $1 50 per share for the acquisitions of age well and my choice, Wisconsin and now the recently announced acquisition of Brighthouse Medicare business, all achieving their full run rate accretion.
Elimination of the remaining Kubodera risk corridors would provide upside to the $5 50 of new store of embedded earnings.
Turning to re determinations.
While the Redetermination process differs from state to state and its quite complex at this early stage, we have not observed any emerging trends that would change our membership or financial outlooks.
We have built robust tracking and monitoring systems to maximize retention of members that meet the eligibility criteria and to also properly understand any financial impact of Redetermination.
Some early observations include the following.
Starting with membership.
Our outreach protocols have been successful in helping eligible members remain in the Medicaid program.
Each state has implemented an ex parte membership renewal program from state to state, we see automatic re enrolment rates through these ex parte programs ranging from 20% to 70% of members reviewed.
Data suggests and states are verified that two thirds of those just enrolled had been procedural rather than do the verification of eligibility.
Many of these members potentially remained fully in Medicaid eligible and will have a high likelihood of reconnecting to the Medicaid program.
Members have 90 to 120 days to reconnect depending on state policies.
Instead states, representing a third of our revenue are now initiating this enrollments in July .
Based on our experience to date.
Our current outlook on the impact of Redeterminations on our business remains consistent with our previously stated expectations.
Through the end of the first quarter. We estimated we had gained approximately 800000 Medicaid members organically since the start of the pandemic.
We continued to expect to retain roughly half of the members gained with no assumption for marketplace recapture.
We expect to premium impact of members just enrolling to be approximately $1.6 billion.
And at portfolio average margins the earnings impact to be approximately one dollar per share.
Split one third in 2000, 2003, and two third's in 2004.
Lastly, some additional color on our 2000 2004 premium revenue outlook.
As Joe mentioned, we have a line of sight to the building blocks that are expected to deliver approximately $38 billion in projected revenue in 2024.
Or 19% growth off our twenty-three premium guidance of $32 billion.
These building blocks include.
1.1 billion of organic growth and our current footprint.
Plus $4 billion from our recent state contract winds.
And approximately 2.3 billion of acquisition related premium.
Consisting of the full year of my choice, Wisconsin.
And the recently announced California Medicare acquisition.
Partially offsetting these gross drivers is one $4 billion for the impact of Redeterminations and known pharmacy carve outs.
In summary.
We are very pleased with our second quarter performance and the momentum we have established toward achieving our growth targets.
This concludes our prepared remarks.
Operator, we are now ready to take questions.
Thank you we will now begin the question and answer session.
Ask a question in my Pro Star number one on your telephone keypad.
We do ask you can pick up your handset before pressing the keys.
To withdraw your question. Please first dong them too.
So there is first question comes from Joshua asking my phone research. Please go ahead.
Hi, Thanks, I appreciate all the color on the Redeterminations, that's what I'll start so could you just sorta speak to the discussions that you're having with the states I know, it's early and you know four of them literally started this month, but just the conversations around rates and and the impact from Reverification as you mentioned this uhm slight mix.
That you're seeing but could you just walk US you would sort of the timing of potential date adjustments and yeah. How you think that plays out over time, and then is there a scenario where you can accrue higher rates based on discussions with the states or are we going to need to see something in writing or something you know formally passed at the state level before.
You can match your rates to the change in acuity.
Sure Josh I'll start it and then I'll take it to Mark for some color first of all.
The rate cycle in terms of the our portfolio of states and how great cycles.
Emerge actually couldn't be better positioned for how the region termination process is going to unfold.
25% of our revenue has rates that renew between April and July another 25%.
In the early fall.
And 50% on January 1st which gives us.
Mmm, good opportunity to have great visibility into any potential impact redeterminations and engage in those discussions with the state which are already occurring.
Now as you know and I'll note.
The impact of acuity shifts as a normal rating criteria rating criteria includes incredible medical costs baseline of trend off the baseline benefit changes plus or minus and any potential acuity shift. So the fact that there's an acuity shift that's speculated to occur is actually part of the dialogue, we're already having the states.
Now only a handful of states actually.
Implemented rates between April and July and I handed over to Mark and he can give you some color and how those discussions went hey, good morning, Josh. So in July we had five states representing about 10% of our revenue move into a new pricing cycle.
About half of those states.
Led with a proactive concession for what's going on with Redetermination. The other half said G. We have no data yet, but it's David develops we will either retro or mid cycle make an adjustment I think the overarching theme here. It is still so early.
Even here in late July to be looking at data driven conclusions on Redetermination. So all states have made the commitment that rates will be actuarially sound and just about all states have said that mid cycle they'll make a mid cycle adjustment or a retro adjustment to do a catch up if needed.
And of course, we're in there talking with states. So there are normal rate cycles, we're getting things proactively where we need it.
The other part of your question, our accounting policies require that we have specific documentation on rates.
So we are booked on as they actually get confirmed by the states.
Okay. So bottomline half are reflecting this already in some sort of perspective, we <unk>, we see it coming and the other half are gonna make your home at some point.
Of the states in July that is correct. So far yeah. Okay. Thank you.
Thank you and our next question comes from just the ones that go off research. Please go ahead.
Good morning, just a couple of questions on numbers first on the exchanges can you tell us what the potential benefit was or what the actual benefit was to second quarter.
Terms of the 2022 final risk adjustment screw up and then you said there that you're confident in mid single digits target margins. Your M O. While it looks to me like it's down 10% plus and the first and second quarter last year was flat.
So.
It looks like you are on target to do well better than 5%.
Am I missing something there or is the back here I figured it'd be kind of flat year over year.
Goodness.
Just in its job then I'll kick it to mark for some color the marketplace business, our strategy keep it small silver and stable.
Plus starting at 9% price increase severe clearly has is on track for mid single digit margins in fact, our guidance contemplates about just over 6% pretax margin for the full year now to your question while you're at 71, two first half that must mean you are at 85% of the second half two factors one.
We're taking on special enrollment period membership as the year goes on throughout the year progresses more higher mix of your membership is special enrollment membership, which carries a higher initial M O R and second a greater proportion of our book as in higher deductible products, which makes the seasonality toward the back half more dramatic.
It hasn't been in the past 71 per cent first have 85% second half 78.
Percent for the year, Mark do you want to talk about the <unk> sure I saw some analysts right on this topic and some of them were thrown around some pretty big numbers as much as $66 million in positive development of December 31, just on risk adjustment and what those analysts myths is that about half of that benefit little more.
Is tied up in margins for.
For those of you the follow the accounting when we hang up an actuarial liability for risk adjustment. We've tried to identify the liability, but we also book a margin associated with it in case, we're wrong more to the point, we also book a margin for.
Risk adjustment data validation of rugby.
So that's 66 potential benefit that folks were looking at is roughly cut in half a little bit more than cut in half just by the retention of margins that don't fall to the bottom of the line.
So then you're working with a little bit less than half of that the other thing is as these risk adjustment liabilities. Ultimately emerge. Most of you are aware that the service called weekly, which anonymously combines the inputs from everybody. So that we can all get some insight as we move along as a result quarter to quarter work.
Crewing and getting pretty dialed in on the ultimate liability. So that's a big number we're potentially talking about more than cut in half.
And largely recognized in first quarter with a little bit in the second quarter.
The only other thing I would say on the topic is this is normal development of risk adjustment kinda like Ivy and are you always broke it but you would expect it.
Roll off slightly favorable so I wouldn't call this necessarily an anomaly, but it is spread between the first and second quarter and it's in our numbers.
Addressing the last thing I would say I'm gonna have to get the return to missing a digit margins Israeli as a result of that disciplined strategy that has worked and was executed perfectly for the year, 6% pre tax for the full year, not because of accounting adjustments because of the pricing discipline in the positioning of the appointment.
Thank you.
Great detail.
I'll can I squeeze the one on investment income drove what's the expectation for the full year and then you said some of this is temporary.
What should we think about normal investment income cause we figure out the 2026.
Well the way we look at it.
First of all you pick on the yield curve would determine for the most part what that would look like but what we tried to remind folks is that.
A R $8 billion portfolio half as an intermediate.
<unk> Securities.
There won't be immediate with responsible to interest rate changes and the other half in cash which will be immediately responsible to interest rate changes. That's the first back and make your yoga are prepared for the rest of the year. We certainly are forecasting lower interest rates for the back half of the year on our cash balance, which also will be reduced between.
Mid year, and and if you're due to the payment of some significant government payables that we need to get paid mark any more cards.
Got it right half of the portfolios cash we made close to 5% on that cash in the second quarter now is anybody's guess, what the fed does here.
But our balance sheet is obviously very responsive to changes in fed short term rates.
So five per cent on that cash in the second quarter, but it's anybody's guess, where these rates go third and fourth quarter.
And as Joe mentioned I'm also forecasting a slight decline in cash balance as we pay out some payables and some other trips on our balance sheet.
Thanks.
Thank you and our next question comes from Stephen Baxter Wells Fargo. Please go ahead.
Yeah, Hey, I appreciate all the color on Redeterminations in the procedural terminations. They were seeing out there I guess I wanted to ask on the ex parte reviews and success getting some members re enroll I'd love to get a sense of what percentage of members getting terminated for procedural reasons are actually getting his ex parte reviews as it all members that are terminator for those.
The reasons or some kind of subset.
And then as your expectation that going forward more of these reviews won't be happening ahead of Disenrollment. My understanding was that's generally how it's supposed to work. So I'm surprised there's so much focus on it now carrying on the backend. Thank you.
<unk> reframe reframe, the numbers and I'll kick it to Mark.
<unk>.
Our states have all if executed ex parte processes.
The automatic renewal rates have range from 20% to 70%, which is actually quite high.
On terminations.
At least two thirds of determinations have been procedural in some cases up to 75% with venues and this is the important point on the procedural terminations.
The number of reconnects are the members that will reconnect to the process within the 90 to 120 day Grace period is actually expect it to be quite high since the procedural termination rate was also quite high.
Now we haven't seen that yet because this process just started but we believe throughout the third order into the fourth we're going to see significant reconnection activity, which will carry with it retroactive premium back to the initial data this enrollment.
Dark some color on the on the detailed numbers absolutely. So ex parte, 20% to 70% of folks reviewed just to be clear that's in advance of any loss of membership. It's obviously a way to avoid folks losing their eligibility.
There's a few resources out there that are published views on this.
At 40% of members when they go through eligibility verification are losing their eligibility 60% are retaining eligibility, it's estimated that 50% of the 60% that retain.
Get it through ex parte. So, it's obviously very powerful and CMS is encouraging states to step it up and do more ex parte.
Finally, as Joe mentioned with two thirds of the folks losing eligibility due to procedural reasons. This reconnect is really important states are giving between 90 and 120 days for folks that lose eligibility to become aware of it refile and get back on roles and if they do it within 90 to 120 day.
Raise their eligibility goes retro to the day they lost it so it'll cover any claims in the interim but also the premium for US goes retro back to the day. They lost their eligibility so very powerful on these reconnect it's too early here in July for us to really see good data on reconnect.
Most of our markets started in June which means reconnects will just start coming in the next month or two but a really powerful part of these enrollments.
That's just one quick follow up if I. If I can you mentioned the medical cost profile on the early Disenrollment slightly favorable I guess at this stage how are you thinking about what that could look like for the reconnects. Thank you.
The didn't catch the last.
Last part of your question, but yes on the members that are decent rolling the medical loss ratio is slightly more favorable than.
Average as expected all contemplated within the 88.5% medical care ratio that we've projected for the Medicaid business for the full year.
We have seen nothing that suggests that we will not be able to hit that and bear in mind as we mentioned many other times. We also have and many of our states either a corridor or a minimum MLR that carries with it rather significant liability that we've already recorded.
Any medical costs inflection happens in the back half of the year would be first absorbed by any court or a minimum MLR liability before impacting our earnings Mark.
Just to add to that leavers are slightly lower on MLR, we're expecting a lot of reconnect how will reconnect come back on MLR well, there's a theory out there that reconnects many of them will only become aware of their need to reconnect because they have another claim where another doc visit which means when they're coming back on they may come.
With the claim but they were also likely to come with two to three months of premium revenue So I'm expecting.
Pretty much a reversion to our mean as we see these reconnect.
Not a lot of volatility there.
Okay. Thank you.
Thank you and our next question for that it comes from Asia Right. You said credit Suisse. Please sir.
Hi, everybody, maybe just quickly a couple of other aspects reverification process.
I Wonder where he can see the data states or publishing about how many members are getting this enrolled in the how much a process. This enrollment I know you've got a lot of outreach efforts is your own experience at this point different than the aggregate numbers. We're seeing states are you able to engage more effectively.
And I'd also wonder.
I know these people.
<unk> with the health system clinics E R's and hospitals pharmacies et cetera, do you have any data on how often a member engages with one of those locations that might've ended up being a catalyst to get renewed.
Renewed uhm proactively.
Well I think I'm. The first part of your question first of all state mixer is really important.
As we said in our prepared remarks some states.
Moved very aggressively initially some states more cautiously some states even pause three of our states pause to let the administrative processes catch up with the with the flow of work. So I think state mix is really really important as you judge any one company or any one state against sorted the market average, but we have seen.
Nothing in the process that is outside of our expectations as we said in terms of.
Experience, we believe that a member will be reminded that they need to be on Medicaid. If it wanted to have to go to the doctor or the emergency room or for some procedure and as Mark said, maybe they'll come back with the claim but they are also come back with three or four months of retro a premium and that means the reversion to the mean to the portfolio.
Average MCR is supported by that thesis.
Hey, Jay the only other thing I'd add is so many of our members are associated with family members and the incidents of one family member over the first couple of months needing medical care of some kind is high which means the whole family gets renewed.
So that's really helpful fact, as we think about these reconnect.
Okay, maybe just would follow up on that and your comments about the Brian help acquisition you mentioned it once you've got a solvency contingency in there is that related to the California plan, you're buying or is that related to all of bright health and.
Would there be any opportunity if there is any issues for you to support the California plan is you're waiting to get the regulatory approvals.
No that comment did not did not relate to the properties that we acquired of the properties. We acquired will carry with it the the amount of regulatory capital needed to run the plan. They are underperforming I'm margin, but really good line of sight membership and revenue that comment was merely to state that the <unk>.
<unk> <unk>.
The only concern and financial solvency of the parent company would obviously be critical to their ability to close the transaction. That's all that referred to the properties have in tax revenue and will be delivered with the required amount of capital.
Okay. Thanks, a lot.
Thank you and our next question today comes from Calvin's furniture with J P. Morgan. Please go ahead.
Yeah. Thanks for the question I.
I know, it's pretty early on the marketplace side of things, but just curious what kind of sort of trends. We're seeing in terms of applications are enrollment in June and July that you can speak to and then maybe just one follow up on the right business you know the.
Sure, it's Arab embedded earnings.
No contribution next year, but can you give a sense for what sort of timeline as to reaching run rate on that business.
<unk> comment on the bright acquisition first and then we'll comment about the marketplace.
This is the first Medicare acquisition, we've done and Ah Medicare as you know works on annual cycle for star ratings for risk adjustment for for rates et cetera. The business had his own profit improvement plan in place. So the answer to your question is unknown at the time, how much profit improvement will that business has.
Have during the curve trying to close we don't know we are still Ah confident that whatever is delivered to us at the time of closing, we will be able to get that to our target margins.
By the end of the second year. So what we said no earnings contribution early because we don't know exactly what the financial status. The margin status of the plan that will be delivered to us will be at the time for closing so Ah Ah breakeven initially.
And then we will build a target margin a two year period, and we're very confident in the one dollar estimate that we've given you on.
On the marketplace question, you'll appreciate with special enrollment period, we're constantly picking up members month to month, that's a pretty routine phenomenon here what will be different going forward is will start to pick up people that came off the Medicaid rolls now we've got good visibility and special enrollment period month to month.
Who's coming in from Medicaid Who's coming in from our Medicaid plans who's coming in from other Medicaid plans. Those numbers are still quite the mittimus within our special enrollment period gains, but I would expect them to pick up dramatically in the months ahead remember June is still the first month that most folks came off so July August September I would expect to see.
The marketplace numbers start to creep up and we're able to track those who's coming for Medicaid and what plants and just as a reminder, our membership forecasts do not include the retention of member Medicaid membership losses into our marketplace product. We didn't have a good estimate of what that would look like we still do that would be.
Upside to our membership rejection.
Great. Thanks.
Thank you and our next question today comes from Scott <unk> Stevens.
Stevens. Please go ahead.
Hi, good morning.
Actually I just wanted to stick on the marketplace topic and just interested in some of your early thoughts around positioning or 2024, given that and if you are going to be back at target margins sharing this year I know that you know you're very sensitive to managing the exposure on this business given how volatile it's been on the margins side.
But definitely looks like there is pretty heartening pricing environment for individual and small group occurring for 2024, <unk> continued opportunity on the catcher's Mitt.
Side for herpes and 24 as well so really just sort of thinking about where you're you're sort of philosophy is right now on that growth first margin question for the exchanges in 2024.
We've got our position on margins versus growth marketplace has not changed we will position to business to earn mid single digit target margins and then allow it to grow at whatever rate can produce those margins <unk>.
<unk> silver and stable now we've just put out a revenue estimate for next year and outlook of $38 billion or 19% growth year over year, which includes only <unk>.
A modest amount moderate amount of projected growth and marketplace. So we do plan to allocate more capital to marketplace next year, but the growth we anticipate by the prices, we filed will be measured and moderate.
We actually don't need to allocate more capital to marketplace in order to produce high teens growth rates in the business 19 per cent premium growth year over year, with only modest and moderate growth and marketplace. Since Medicaid is doing so well.
Okay got it and then just for the follow up interested if you could maybe just start walkers through what's now factored into the guidance for Medicare MLR for the back half of the year and then just I guess, obviously, you're not giving 24 guidance Euro bought some early thoughts on you know some suggestions.
On on how we should think about Medicare MLR sort of modeling for 24 obvious you took that elevated this year and you know looking out to a pretty challenging right environment next year, and then you've got the bright asset coming online as well at breakeven show just sort of your your thinking here on started Medicare MLR I get started trajectory.
Me in the back half and it's 24 thanks.
Sure I I for 2024 <unk>.
First of all we are we believe we were conservative and our trend estimates that we included in our Medicare bids for 2024 second point is recall only about half our business actually relies on the Medicare of getting processed the other half is the M. M. P business, where we get rates are better not tied to that process.
When it comes to star ratings and risk adjustment and all those other features and factors again. The fact that we're in the half of the businesses M. M. P. As helpful to that process and when it comes to stars.
We have plenty of value added benefits the actuarial value of value added benefits as significant agitated with competitors. So we believe that we can maintain margins.
By pulling back some of the and Shillary benefits still have a very competitively priced product and a very.
Competitively position product from benefit perspective to continue to grow the business.
And just to build on that I feel good that we had reasonable line of sight into Q2 as we put in our pricing for next year. Scott just on your question on the rest of 23 were conservative guys within our guidance is mid to low 88.
For the rest of the year.
And that's within the guidance we have given.
Okay. Thank you.
Thank you and our next question comes from Sir James Cantor Fitzgerald. Please go right.
Thank you.
Yeah. Some of them can you profiled waivers that allow you to be a little bit more hands on and communicating updated contact information I'm wondering if you're noticing any difference in the state with the procedure all.
And unable to contact terminations and then it didn't file a waiver like a Florida when birthday open the door for more collaboration between health plans and.
And state on that does that does that make a difference in your discussions with Florida around.
How to reach out crackling add two eligible.
Well, Sarah Okay, we're gonna comment or any particular state, but we are protocols that we started building a year ago.
Remember outreach in every state was different some states allowed significant involvement from Mcl's. Some states less so some states allow you to actually help the member Ah reestablish eligibility by filling out forms. Some states did now as you know CMS stepped in.
And and sort of suggested through policy statements that space shuttle out M. C. A has to be more involved in the re verification process. So I assure you that we are locked in to every single state in which we do business.
With the state regulatory authorities and are working hand in glove with them to make sure that everybody that should be on Medicaid is and people that shouldn't be thrown off Medicaid aren't.
State by state and yes, it has had an impact.
On our outreach efforts and gives us really good line of sight and good visibility into the fact that if a member should be on Medicaid, we're pretty confident between the states efforts.
And our efforts it will be able to keep them in the system.
Alright, and then just to follow up on on Scott's question around the Medicare and if I think of that in context of the book that you're acquiring from bright.
And your your guidance of break even in year. One are you assuming that if there is any industry wide.
Utilization inflation on Medicare that that was captured in there 2024 beds.
Without getting into specifics I will answer the question. This way our due diligence process through a clean room process allowed us visibility into their bid.
Through an independent third party and we are confident that.
That the.
Transparency that was provided in that process gives us confidence.
Was rational include it all <unk>.
<unk> it should be included in a bid and as I said their profit improvement plan is going to be the key factor how much of that profit improvement today actually achieved between signing close in terms of what we inherit is actually going to determine whether what the.
<unk>.
Earnings picture it looks like at the point of closing.
Thank you.
Thank you and our next question for it comes from Michael Huh Morgan Stanley . Please go ahead.
Thank you just quickly first I'm ready to termination Mark and then you mentioned he said made price of concessions and ready for me to determination from July just wanted to clarify where those adjustments ready embedded in your current twenty-three guidance or does that represent upsize. Your guide and are you able to provide a six sunshine magnitude of those making session.
<unk>.
Well a couple of things those couple of states that we already had read concessions in the July 1st rates, a very small part of our revenue.
And also done somewhat academically as the data hadn't developed in those states quite yet.
All of that is incorporated in the guidance I'd, giving you, but again just a small component I think I mentioned five states started their new fiscal years July 1st representing just 10% of revenue in the states. They gave those concessions where a subset within that so not really a big deal but in guidance.
Got it thank you and just to dive deeper into <unk> curious what specific type of outpatient audition.
Driving the pressure to this corner was it pent up demand hits me could you walk us through the progression of the utilization year to date.
How much of it might've been <unk> and on the.
I think there's about $27 million or unfavorable peaked in the corner curious if you could help us breaking out between M. A commercial medicine. Thank you.
Okay can you repeat the question to Mark but on the on the Medicare M O R.
It was outpatient mostly ambulatory surgeries.
Our population really doesn't have a lot of the hips knees enjoying that you'd see in a more standard Medicare advantage population, but we're also seeing P. C. P visits and the typical routine preventive screenings.
Back I wouldn't call it pent up demand, but returning to normal the types of services Medicare patients and members normally get ambulatory surgeries P. C. P visits.
Preventive screenings and care, a little bit of drug usage, but not a lot and keep in mind, we're only operating and I hate the rash on my rationalize you get 120 basis points above the top end of our range. The Medicare broke as well positioned to earn a 4.5% pretax margin. This year. So we're in good shape. Their mark you wanted to talk about the P. P D.
Michael What's your question about the prior year development.
Yes, yes, yes, so about 27 nine mmm.
You got it exactly right so.
In General overall development was favorable we take great confidence in quarter after quarter or development is favorable the prior year portion as you point out negative by a small amount typically we would expect that to develop positively but whenever there's a particular provide.
A contract settlement or something going on it can create some noise, but in particular what happened did this quarter was there's something some of you may be familiar with California, SP 510, which was a specific court ruling that held health plans liable for certain COVID-19 expenses.
We recognize that charge as did some of our other competitors of this quarter.
And that created a little bit of the noise you're seeing.
Got it thank you.
Thank you and our next question today comes from Stevens on what kind of phone Sparklers. Please go ahead.
Great. Thanks, Good morning, So I guess, giving your comments earlier on the call to address all the investor debate as to whether or not the Medicare them, a large would be adversely impacted by.
Lower utilization members coming out the rules during redeterminations on us risk of higher Medicaid MLR on the remaining Medicaid members really just the conclusion around all that is you know what is your level of concern around is higher Medicare them, all our risk at this point if any.
I'll put this to bed from your perspective.
Also as you can remind us is there any preliminary by as you could point to for your 2024 Medicaid MLR.
To be either you know better in line or worse versus what you guided for Medicaid MLR for twenty-three.
Well.
Stephen since we haven't changed our outlook for the Redetermination process 800000 members up 400000 down a billion six in premium one third this year two thirds next.
And and $88 five per cent Medicaid MCR for the year.
Since we haven't changed our determination and we're holding firm on our Medicaid outlook.
Medicate MLR I'll look for the year, that's all been contemplated so we're good shape. There we see nothing that causes us to change that point of view.
The the the fact that the Mcr's of leavers is slightly more favorable than the portfolio average is not a surprise and it's maybe not as dramatic as one might think the other point to make it bear in mind, and we don't disclose year by year, how much of this we have but most of our states have some form of either minimum MLR or some type of <unk>.
<unk> program.
That we are willing to.
Cause we operate very efficiently. We historically have paid into these mechanisms any intro year impact from medical medical margin, whether it's trend or whether it's yield would be first absorbed by the significant liabilities. We have already recorded for these conventions.
That gives us great confidence that the 88.5% is a very good estimate for the year all contemplated within the $20.75 a year Mark you Wanna talk about maybe some of the bridging items connecture yeah into next year, specifically around Medicaid mlr's it'll be partly a function of these pricings and recycles.
That we're having most of which are in front of US 50% of our revenue comes up for a January 1st fiscal year that those pricing discussions obviously actuarially sound policies require that states recognize anything that goes on with determination and then finally as Joe mentioned even into next year.
Those continuing corridor as in minimum Mlr's continued to give us a great comfort on our projected margins. So not looking at a lot of volatility into next year.
Okay. Thanks.
Thank you and all those questions where it comes from Kevin Fischbeck Bank of America. Please go ahead.
Great. Thanks, I Wanna go back to a question a couple of times and I'm not sure. If you uhm answered. It is there a way to quantify how much the states who have built in something for rates.
Putting in is it something like 20 basis points is at 200 basis points. It like how should we think about how the states are thinking about the types of <unk> that needs to be.
Yep. Thanks for the question Kevin.
To give specific numbers, because it's different state to state, but the real reason I'm hesitant to give the numbers is two things one for the most part they were done academically not on data. They were done prospectively academically. So means they were guessing no better than all the rest of us were three months ago.
But in the presence of seven or eight adjustments up and down for all kinds of other reasons. It get lost commingled into the Grand scheme of things, we have to come back to the overall concept of actuarial soundness and if those rates develop in a place that just aren't appropriate we'll be back with our states to make sure that they are.
Okay that makes sense, then I guess, maybe just on trend generally speaking.
It seems like a lot of companies are talking about M, a trend being higher but not seeing it and and commercial or Medicaid is there is there a reason why you look at this and say that makes sense why it's not broader like M. A has been below trend, but I guess Medicare it's kind of been below trend too. So why do you think that we're seeing and above.
Richard Turner, Medicare advantage, but not within Medicaid.
Yeah, It's it's really hard to say first of all our Medicare a book Ah.
Sent in Medicare or 75%.
And marketplace, all well within expectations and I would just say that the mix of the book of business in the profile of a book of business better said is probably reasons for some of the differential as competitors report their results.
I guess when you think about it within your own book of business.
Medicaid come in well during Covid and Medicare came in well during Covid and know Medicare snapping back that Medicaid is not is there a reason why not.
Not.
Snapping back.
Answer to that I'll be 81 per cent of our polka businesses Medicaid the trend is behaving exactly within our expectations and why one is behaving slightly hotter.
More warm than the other it's hard to tell.
Okay alright, thank you.
Okay. Thank you and our next question today comes from Nathan routes Goldman Sucks [laughter].
[laughter].
Great. Good morning, and thank you for the question.
Just as it relates to the exchange opportunity from remember that go through the Redetermination process you know it sounds like you haven't seen.
Much of anything on that front, yet, but I guess you know in the outreach you're you're doing with members. You know have you had any kind of early success with potentially directing those members to a market place plan, who might not be eligible for Medicaid.
While the process again, it's early in the process is in full gear, we have a robust distribution channels internally call center employees or licensed agents and know how to do this and a warm transfer process is enacted added.
<unk> all we're saying is because it's so early we have not seen a huge uptick in the number of marketplace members were getting out of Medicare we track.
What we obtain and marketplace out of our own Medicaid plans, but we also track what we get marketplace from other Medicaid plans, because it's really the process. All we're saying is that monthly figure has not increased dramatically, but we expect it will as this process gets more traction I think that's right to build on that remember two thirds of these folks that are coming up.
What you know potentially impact could be.
Yeah, right now I do <unk>.
The way to look at it is Medicare.
Prescriptions as well known and well documented some states already included in their formularies, others don't and that one that conversation comes up and it's a conversation between actuaries in terms of the pharmacy component of the rate and whether it covers the $12000 a year that it's going to cost to dispatch one of these these.
These prescriptions.
Prescriptions.
Thank you and ladies and gentlemen, our final question today comes from Georgia Butcher Bank. Please go ahead.
Hey, good morning, guys and thanks for speaking to sneak them in jail I know, it's a small part of the business, but I guess is there a way to big picture thinking about like the magnitude will change in the value of the benefit and I made for 24 as you guys trying to balance the kind of the challenging read environment changes little risk model, we kind of like the need to preserve the margin profile the business with a designer.
Sort of a bunch of all the business everybody kind of talks about the kind of like they're calling like the the the drawing download benefits all but just trying to get a sense of magnitude. If there's a way to quantify that are kind of talk about directional.
George we couldn't hear the first part of your question you were talking about Medicare advantage.
Yeah, No I understand and now we're not going to get.
Again to publish so it'll be a percentage of actuarial value of the product is represented by a silver benefits, but it's significant our products are very competitive with all the types of benefits vision and dental.
Those cash card benefits travel benefits gym memberships all those things are included with the product at our competitive intelligence analysis suggests that we can have a general premium product.
With the competitive benefits if in <unk>.
<unk> star ratings aren't necessarily.
Benchmark with the rest of the market.
We're not gonna size that but we're pretty confident that we can pulling benefits marginally still out very very robust product with respect to and silvery benefits and still be competitive.
The only other thing I would add Georgia, when we think about benefit design. There are a number of items switched for a competitive shopper are must haves and there's a bunch of other things, which are part of the benefit load without a nice to have but don't necessarily influenced the buying decision you can imagine how we're thinking about changing benefit design, but we and our decisions probably won't be much different than the broader.
Markets, So I'm expecting a pretty even competitive dynamic next year.
[noise].
With no other calls that concludes our call today. Thank you everyone.