Q2 2023 Elevance Health Inc Earnings Call

Ladies and gentlemen, thank you for standing by and welcome to the Elevance Health Second Quarter Earnings Conference call. At this time, all participants are in a listen-only mode.

Later, we will conduct a question and answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star 1 on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star then 2. These instructions will be repeated prior to the question and answer portion of this call.

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

Good morning and welcome to Elavance Health second quarter 2023 earnings call. This is Steve Tenell, Vice President of Investor Relations and with us this morning on the earnings call are Gail Boudreau, President and CEO , John Galena, our CFO , Peter Hightian, President of Carillon, and

Morgan Kendrick, President of our Commercial and Specialty Health Benefits Division, and Felicia Norwood, President of our Government Health Benefits Division. Gail will begin the call with a brief discussion of the quarter and recent progress against our strategic initiatives. Then we'll discuss our financial results and outlook in greater detail.

After our prepared remarks, the team will be available for Q&A. During the call, we'll reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, elvanthealth.com. We will also be making some forward-looking statements on this call. Members are cautioned that these statements are subject to certain risks and uncertainties.

many of which are difficult to predict and generally beyond the control of Alivance Health. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.

Thanks, Steve, and good morning, everyone. Today we are pleased to share that Elavance Health delivered strong second-quarter results driven by solid execution and continued progress towards our strategy of becoming a lifetime trusted health partner focused on the whole health needs of the consumers we are privileged to serve.

Second quarter gap earnings per share was $7.79 and adjusted earnings per share was $9.04, reflecting double-digit growth year over year. As a result of the strong performance in the first half of the year and momentum across Elevance Health.

We are increasing our adjusted earnings per share outlook for the year to be greater than $32.85.

The balance and resilience of our diverse businesses provides confidence in our near-term outlook while the earnings power of our health benefits and carillon businesses position us to deliver on our long-term growth commitments.

With respect to the second quarter, our health benefits business delivered particularly strong results as we continued to optimize our products, pricing, and operations. We are successfully executing against the planned margin recovery of our commercial writ...

and Medicare Advantage businesses back toward pre-pandemic levels. And we are pleased with the performance of our Medicaid business.

With Medicaid eligibility redeterminations now underway,

Our teams are working tirelessly to promote continuity of coverage for consumers through an omnichannel approach, working closely with our state partners.

Our Medicaid and commercial colleagues are collaborating to educate members and communities on the process through in-person and online events, ensuring members know how to renew their Medicaid coverage when eligible, or enroll in other forms of coverage, including our own individual ACA plans.

To date, we have contacted more than 1.5 million of our Medicaid members.

Meanwhile, our web-based digital decision support tool is seeing healthy utilization.

The tool assesses eligibility for a wide variety of federal and state programs beyond health insurance.

to support consumers' whole health journey.

including the Federal Supplemental Nutrition Assistance Program.

state-based programs that assist with food insecurity, housing and child care programs, and more, with links that can route consumers to websites where they can enroll in these programs.

More than half of the people using our support tool who qualify for commercial or Medicare coverage are clicking through embedded links to shop for plans. And more than 60% of consumers eligible for Medicaid are clicking through to their state site for recertification.

This body of work is especially important since many of the people who have lost access to Medicaid so far are losing it for administrative reasons.

We expect many of these consumers will re-enroll in Medicaid over time.

Transitions of coverage are not typically immediate, but emerging data points suggest consumers losing Medicaid are starting to transition onto ACA exchange plans.

It's still early in the process and our expectations for coverage transitions remain unchanged.

Our deep local roots and diversified product portfolio positions us uniquely well to meet consumers needs regardless of age or socioeconomic status.

its strategy of integrating physical, behavioral, social, and pharmacy services to deliver whole health affordably, with ongoing investments and capabilities focused on serving people across their entire healthcare journey, connecting them to the care and wellness of their patients.

support and resources they need.

Carolann's services delivered solid organic growth, led by the expansion of post-acute care management solutions with our Medicare health plans.

while Carol On Behavioral Health extended its leadership position through multiple external business wins with new and existing customers.

New business awards and successful execution in these fast-growing, high-cost areas of trend underscore the value Carillon provides to health plans and the expanding earnings power and attractive growth profile of the Carillon services business. Carillon Rx also continued to grow nicely.

while investing in key value drivers, specifically specialty pharmacy and advanced home delivery.

Revenue grew nearly 20% year over year, and we posted solid operating earnings while absorbing investments in support of our long-term strategy.

The integration of the BioPlus specialty pharmacy is now tracking ahead of schedule, and we expect to begin migrating scripts early next year. Additionally, we remain on track to launch advanced home delivery by the end of 2023.

Together, these capabilities will create additional shareholder value while allowing us to deliver even better consumer experiences in specialty and maintenance pharmacy.

Expanding and more deeply integrating value-based care across the care continuum is foundational to our enterprise strategy.

We are making significant progress in many key areas, including maternal health. We have continued to expand our obstetrics practice consultants and quality incentive programs to additional markets given outstanding early results.

These programs have helped improve timeliness to and adequacy of prenatal care and increased postpartum visit compliance, contributing to a reduction in preterm births of 12% and low birth weight deliveries of 20%.

in participating Medicaid populations.

These programs have driven cost savings per delivery and first year mom and baby costs of 5 to 10%. And we are now offering them in 24 Medicaid and 11 commercial markets across the country.

We're also working with care provider partners to enable acute care in the home, a patient-centered care alternative to traditional care in the hospital that improves cost, quality, and patient experiences.

For select patients, acute care at home is safe, improves patient satisfaction, and provides high-value care, resulting in approximately a 20% reduction in cost.

a 25% decrease in readmissions, and a 50% reduction in time spent in bed.

We have partnerships with a number of major health systems in our markets with strong results and have significant interest from other health systems to expand this work. Connectivity with care provider partners is crucial to supporting our value-based care strategy and to enabling personalized, hybrid and virtual care.

We are continuing to expand bi-directional data exchanges between our systems and care providers' EMRs.

Across 24 markets, we are now connected with over 1,700 hospitals.

In addition to enabling physicians to practice value-based care more effectively, these arrangements have simplified common business practices.

resulting in more than 60% fewer requests for clinical information and more than 80% less provider appeals.

This has not only enhanced operating efficiency for our clinicians and care provider partners, it has also accelerated care approval processes for consumers.

Automation remains an area of focus and opportunity across Elevance Health, and deep datasets like ours are foundational for generative artificial intelligence.

Our data is centralized and cleansed, and we are in the process of scaling digital solutions for greater impact and testing the application of new technologies.

We're harnessing our adaptive artificial intelligence solution to promote identification and access to whole health services during physical health procedures like surgery.

Our approach allows us to cast a broad net to perform initial screenings for depression and other social drivers of health to ensure we are addressing our members' whole health needs.

Our digital Chronic Concierge Care Program is a cloud-based care management platform that connects the patient's entire care management team to triage, monitor, and engage with patients through convenient digital channels. Fully digital enrollment, engagement, and support.

Alongside key behavioral health components, provides members with highly personalized, proactive, croissieres-like experiences, while reducing the overall cost of care for members with chronic conditions.

We're also using large language models to assist our call center agents improving their efficiency, accuracy and quality.

We're excited about these opportunities and the positive impact they will have on consumers, care provider partners, and the operating efficiency of Elevance Health.

Guided by our enterprise strategy, we are fueled by a passion for making a positive difference in the world. Accordingly, environmental, social, and governance frameworks are embedded in our enterprise strategy.

We continue to lead our sector with respect to ESG ratings from three of the most prominent corporate governance research ratings and analytics firms. And we were pleased that USA Today recently ranked Elevance Health fifth out of 400 organizations.

and its inaugural America's Climate Leaders, based on core emissions reductions year over year and core greenhouse gas reduction. Before I turn the call over to John , I'd like to thank our more than 100,000 associates for the work that they do every day.

On behalf of the members we are privileged to serve, their dedication is what allows us to advance our strategy and deliver strong operating results in service of our bold purpose to improve the health of humanity. Collectively, our passion to improve lives and communities is unwavering.

per share of $7.79 and adjusted earnings per share of $9.04.

We were pleased to deliver another quarter of double digit growth in revenue, operating income, and adjusted earnings per share, driven by the focused execution of our strategy.

Our results exceeded our expectations and the balance and resilience of our diverse set of businesses provides confidence in our outlook.

As a result, we have increased our adjusted earnings per share guidance to be greater than $32.85 in 2023, reflecting strong growth consistent with our long-term targeted compound annual growth rate.

We ended the second quarter with 48 million members, up 938,000 year over year.

During the quarter, medical membership declined by 135,000 members as the majority of our Medicaid states initiated eligibility redeterminations.

While we are still very early in the redetermination process...

At this time, we are seeing many Medicaid members losing coverage for administrative reasons.

Many of these consumers will likely re-enroll in Medicaid in the near to intermediate term. In fact, many Medicaid beneficiaries who lose coverage for administrative reasons have 30 to 90 days to re-enroll, depending on the state, with coverage retroactive to their termination date.

Meanwhile, we are seeing encouraging early indications that Medicaid beneficiaries losing coverage are transitioning into ACA exchange plans.

But transitions of coverage are not always immediate, and our expectation is that commercial membership growth will reaccelerate in the back half of this year and into 2024.

Overall, we believe our prior outlook for coverage transitions remains appropriate. We continue to expect by the end of the initial redetermination cycle that 40 to 45% of net new beneficiaries on Medicaid as a result of the suspension of redeterminations during a public health emergency.

will stay on Medicaid. But most importantly, we are well positioned to provide people who lose Medicaid coverage with alternative plan offerings.

We believe it is essential that these individuals have access to quality health care coverage, and we are positioned to meet their needs.

With respect to our membership outlook, please note that a new entrant into one of our state Medicaid programs will result in a loss of approximately 140,000 members in that state in the third quarter. For more information, visit www.fema.gov

This was known as of last year and was factored into our 2023 planning and initial membership guidance.

Second quarter operating revenue of $43.4 billion increased $4.9 billion or approximately 12.7% year over year.

Growth was driven by premium rate increases to cover overall trend in our health benefits businesses along with higher premium revenue driven by membership growth in Medicaid and Medicare.

Our services business, Carillon, continues to produce strong results with double digit top line growth in Carillon Rx and Carillon services as we continue to execute on our strategy of becoming a lifetime trusted health partner.

Execution of our strategy is diversifying our revenue streams, creating greater earnings power and consistency, and enabling us to deliver strong growth regardless of the prevailing economic environment.

The consolidated benefit expense ratio for the second quarter was 86.4%, a meaningful improvement year over year, driven by premium rate adjustments in our commercial risk-based business to better reflect the post-pandemic medical cost structure.

offset in part by a charge we took in the second quarter associated with a court ruling in a certain state holding health plans liable for certain COVID costs retroactive to the beginning of the pandemic.

We strongly disagree with this ruling and it is currently on appeal, but we've recorded the potential charge in the meantime.

With respect to our current performance, we of course are closely monitoring utilization and trend factors, which remain consistent with our expectations overall and within each line of business.

In the context of our upwardly revised guidance for adjusted earnings per share, we are reiterating our initial outlook for our full year consolidated benefit expense ratio.

Elavance Health's adjusted operating expense ratio was 11% in the second quarter, down 10 basis points year over year.

The decrease was driven by expense leverage associated with strong growth in operating revenue, partially offset by additional operating expenses in support of growth as we continue to execute our enterprise strategy.

Operating gain for the enterprise grew 12% year over year in the second quarter, led by our health benefits business, which delivered double-digit top-line growth and strong margin improvement. Operating margin for our health benefits business expanded by 50 basis points year over year.

for Carillon RX and Carillon Services.

Carillon RX operating earnings include investments in support of our strategy.

including scaling our recently acquired specialty pharmacy and the build-out of our advanced home delivery business, which is set to launch later this year.

Caroline Rx also benefited from a favorable out of period item in the second quarter of 2022, which had the effect of depressing its year on year operating earnings growth rate this quarter.

Carillon Services had a strong second quarter led by organic growth in Carillon post-acute management.

Turning to our balance sheet, we ended the second quarter with a debt to capital ratio of 39.6% in line with our expectations and consistent with our target range.

During the quarter, we repurchased 1.4 million shares of our common stock at a weighted average share price of $457.34.

for approximately $646 million.

Year to date, we have repurchased 2.7 million shares for $1.3 billion, pacing ahead of a full year outlook of approximately $2 billion.

We expect to remain opportunistic given recent weakness in our share price and the attractive valuation levels offered by the market.

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

Days in claims payable stood at 46.5 days at the end of the second quarter, an increase of 0.5 days sequentially, and a decrease of 1.3 days year over year.

As we disclosed in the second quarter of last year, the timing of certain provider pass-through payments and corresponding reserves had the effect of increasing days and claims payable by approximately 1.8 days in the prior year quarter.

disclosed in the second quarter of last year, the timing of certain provider pass-through payments and corresponding reserves had the effect of increasing days and claims payable by approximately 1.8 days in the prior year quarter. Excluding that dynamic,

Days in claims payable would have increased by 0.5 days year over year, and medical claims payable would have grown by 11.9% compared with growth and premium revenue of 10.6%. As a reminder, we continue to expect days in claims payable to be in the low 40 range long term.

Aim we've in sourced a lot of critical services around genetic testing and things like oncology. So a lot of energy around that and then of course the.

Behavioral health physical health opportunity and and assuming full risk on that as a tremendous opportunity as well and interestingly enough. We are half where we're having a lot of success internally that is actually translating in our external pipeline and specifically with the blues as we talk about the blues and they see us having a lot of confidence.

And good performance internally and elements. They are interested in some of those same solutions. So I would say at the top of the list. When you look at our pipeline and the growth in our pipeline.

The home solutions.

Through mine access now called Carillon post acute care solutions.

It is getting a lot of visibility the post acute care offering that we just launched in our Medicare business internally is also driving a lot of excitement in the pipeline and I would also say that there is a decent amount of interest in some of the innovations around payment integrity. So I think a lot of opportunity not only still internally.

But that will translate as it relates to the blues as it relates to advanced home delivery and the launch of Carillon Rx pharmacy, and what was the second part of your question again really really excited about this initiative and as we've talked about overall for our pharmacy strategy. It's the in sourced the strategic levers.

That really matter and and we're doing that both with obviously, what we're doing in specialty and in sourcing this activity, but I wouldn't look at this is there's only in sourcing mail I would look at it more broadly in terms of what we're trying to do to get closer to the member and differentiate in terms of our experience overall.

Overall with our consumers.

Think of the capabilities that we're deploying number one this is going to be connected to Sydney or consumer engagement platform, there's going to be a convenient quick sketch scheduling of medications. If you think about access to pharmacists and how critical that is we're going to have access to a pharmacist 24, seven so that's a big differentiator.

And then importantly, I think a lot of people know that the experience with mail isn't necessarily always smooth and so we're going to have an easy view of where delivery stands an uber like experienced quite frankly, I'm, sorry, you know where your pharmaceutical stand in terms of their.

Their delivery so a lot in that regard in terms of really differentiating ourselves on experience and we're excited about that and as Gail said, we're ready to launch that headed into 2024, yeah. Thank you. Thank you Pete as you can hear from the excitement I think from Pete and all the things we're doing at both Carolina services in Carolina Rex, There's a lot there's a lot going on to really build our.

And I think execute on it and I guess I would just punctuate to things that Pete talked about one the behavioral health area, we really see ourselves as a leader in the crisis management area as well as some we're seeing a lot of internal or external Valladolid Valley did the validity of that strategy and I think I'm starting to pull through.

Not just in its historic government business, but also on the commercial side, where they're integrating physical and behavioral in particular, which is a core part of our whole health strategy and then on the pharmacy side again, we're really trying to make sure that the value and strategic levers are coming through and you heard that and what he talked about so thanks for the question Lance next question. Please.

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

Thanks, Good morning.

First just wanted to follow up on <unk> question, just see if you can give us a little color youre, saying trend is above normal and you price for it we appreciate that color just any.

Kind of.

Incremental that you can give us on how much higher and what you've seen in <unk> might be helpful. And then my question is just take that to the margin side.

Could you tell us how margins are running versus the expectations coming into the year. I know you had expected improvement in Medicare commercial and obviously some volatility in Medicaid can you tell us how those are running and specifically anything on Medicare beyond Puerto Rico issue.

Discussed in the second quarter would be helpful. Thanks.

Or how that's trending.

Yeah. Thank you for the question, Justin and I'm happy to provide the follow up.

You know it.

I'll start out by reiterating we did raise our EPS guidance and and proactively reaffirmed MLR guidance for the year. So I think that actually has a forward view of trend inherent in it.

Yeah, but having said that I'm not so sure that we're really seeing anything that much differently than some other folks have been saying.

We've been expecting the cost to health care to be elevated compared to the baseline as if COVID-19 never existed.

I'm not going to provide a specific point estimate, but only to say that we've we've seen it we price for it and we've included and factored it into our into our our expectations.

And.

This is the second time this year, we've we've raised guidance and are reaffirming the MLR outlook. So I think we're in pretty good position associated with the margins.

Commercial is doing very well I'll start out with health benefits in total that's our health benefits segment margin improved 50 basis points year over year.

And are on track to hit the guidance of greater than a improvement of 30 to 60 basis points I do want to note in my prepared comments I had a comment about a court ruling that we disagree with that we took a charge.

Without that charge.

The margin improvement would have been higher than the high end of the 30 to 60 basis point improvement year over year, So health benefits margins are going quite well.

Commercial repricing effort Medicaid is very much in line with expectations and Medicare advantage is actually relatively in line with expectations. Aside from the one geography that had been pointed out that really is not all that material or significant do their overall results abella vans health.

But it's a it's an area that we're focused on and it'll obviously be improvement opportunities for 2024. So all in we are very pleased with our performance and very bullish on our expectations for the rest of the year.

Yeah, Thanks, John and thanks for the question Justin I, you know I think it's important we've been very consistent all year, we haven't changed our view of how we see our MLR and feel very comfortable as John said in the guidance that we gave and where we're heading on margin. So thanks again for the question and opportunity to comment next question. Please.

Next we'll go to the line of Michael Huff from Morgan Stanley . Please go ahead.

Hi, Thank you regarding Medicaid Redetermination fully appreciate and understand it's too early to really extrapolate any current results, but thus far number one how does the acuity mix shift tracking relative to your expectations number two how do you view different enrollment so far Florida looks positive, but the recent Texas data.

Does that concern you at all and number three but the number of states going through mid year rate renewals are you seeing acuity adjustments and he's draft rates and what that represent upside to your guidance. Thank you.

I'm going to ask Felicia Norwood, who leads our government business to comment on Medicaid.

So Michael good morning, I appreciate the opportunity to talk about Redetermination, where our teams have certainly spent quite a bit of time trying to make sure that individuals who are eligible for Medicaid continue to maintain their eligibility. So it is still very early and it's important that we don't draw conclusions.

Based on a few months and because the redetermination cycle, it's going to extend well into 2024.

And with that said I will say, what we have seen so far is certainly relative consistent with our expectations.

Be it with a great deal of variability as you go from state to state at the end of the day. However, we still believe that the guidance that we provided is certainly appropriate.

CMS Scape states guidelines to really do this over a 14 month period, but at the end of the day states are taking their own approach and some of those have certainly front loaded or a celebrated the redetermination process based on members that they believe are no longer eligible.

If we take a look at this today, we do expect that many of these members will return to Medicaid, What's we continue our outreach and they're able to provide the documentation to the states that they need so when we look at where we are today.

Those members could come back over a 30 to 90 day period, and we are very much focused on advocacy with our community based organizations our care provider partners. The federally qualified health centers all of those entities that impact our members every single day.

With that said I will say that some of the front loading that occurred.

It's happened in some of the states, where we don't have you know, Alabama health in terms of a blue state platform and so we haven't fully seen the appreciation of our cats or snack, but we are fully prepared in collaboration with our commercial partners to be able to do that.

In terms of your question with respect to rates, we are always fully engage with our state partners in terms of the rate setting process. At this point, we have visibility into almost all of our rates for 2023 and many of them 424, what we're seeing so far is in line.

With our expectation states are certainly taking acuity into the rate setting process that.

That we see and certainly they have the ability to work collaboratively with us if we see things that they don't see but our early reads on acuity for our kind of leverage versus stay.

It's in line with the expectations that we've seen so far so at this point, we feel good about where we are from a rate perspective for 2023, the collaboration with our state partners remained strong shifts in acuity or now our standard input into the rate setting process. So we've been very.

Much pleased with how that's going with our state partners and we will continue to work very strongly to make sure that individuals who are truly eligible for Medicaid continued to have access to coverage.

And those who are that they are able to have coverage through one of our exchange our commercial based products. So thank you for the question, yes, So Michael as you've heard from Felicia there, there's a lot there and there's incredible work across their enterprise going into this but overall, it's aligned very closely with the expectations. We set so thank you for the question.

Next we'll go to the line of Josh Raskin from Nephron Research. Please go ahead.

Hi, Thanks, Hi, good morning, the margin pressure in Carolina and year over year I found the preference is attributed to higher medical cost trends and the non recurrence of an out of pocket out of period favorable adjustment last year could you just explain the higher medical cost and maybe what specific line items that is if that's behavioral or RF.

X or something.

Yes. Thanks for the question, Josh its Pete Hi tie in here first of all in terms of Caroline's overall Caroline services overall.

Performance from an operating perspective, we're very pleased.

Op gain so a nice improvement year over year, and just to be clear as it relates to our margin profile for the year, we're very confident in achieving the 25 to 50 basis points guidance that we gave in terms of margin improvement over the year.

In terms of in terms of the variation there.

A lot of this has to do with seasonality and that seasonality continues to evolve we were sort of seeing differences. There. This year, what's different than previous years as we're driving a lot more business through the government business. So as I talked about in my earlier comments in terms of the post acute care initiative with our Medicare teams as well as the durable medical equipment.

Opportunity. These are examples of things, where we're driving a lot more business through through the government business and that's translating into earnings really being weighted to the back half of the year. So that's that's sort of the differences in terms of the the.

The one time issue.

I think you're probably referencing a pharmacy and in the case of pharmacy again speak about how we're performing there. We're very pleased overall with how that's going in terms of our margin performance.

You know the six to six 5% range in terms of margin performance for the year and guidance that we gave we still feel very very comfortable with that.

The one time issue that occurred in terms of the year over year difference Q2.

22 versus versus this year was a one time.

Favorable positive impact that we experienced in pharmacy last year that were not seeing this year, but overall pharmacy is performing very very well and we feel very comfortable with the 665% guidance for the year.

Next question. Please thank you.

Next we'll go to the line of George Hill from Deutsche Bank. Please go ahead.

Yeah. Good morning, guys as it relates to Medicare advantage I'm wondering if we can kind of revisit an old topic, which is the changes to the risk model that CMS announced at the beginning of April I guess as you guys have had more time to kind of digest. The proposed risk model changes can you talk a little bit about how it makes you guys think about 24, just as some of your peers have kind of talked about.

The risk model kind of driving meaningful changes to kind of both benefit design in the bid process would love any update you can provide around that.

Good morning, George Felicia Norwood, you know when we take a look at the risk model changes for 2024. They certainly were an integral part of our strategy as we thought about our bid process, but let me start by saying that we feel good about our bids for 2024.

I believe when we step back and take a look at where we are we continue to recognize the importance of stability in our offerings to thing here and I think that we have submitted bids that take into consideration both the risk model changes as well as the importance of having those benefits that are critical.

Seniors as we go forward.

It's always going to be a very highly competitive environment in Medicare advantage, we always expect that but from our perspective. This is something that we'd have the opportunity to be very thoughtful about and as we put our bids together each year, we're always taking a very balanced approach between our aspirations for growth as well as with respect to margins.

And I think that we have landed in a place where we're gonna be offering attracted plans for our seniors that provide sustainable economics for us for the long term. So thank you very much for the question.

Next question please.

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

Thanks, very much and good morning, I just wanted to go back to a comment that John made and that's around and higher costs if cause we'd never happened and so one I just want to understand is there a pent up demand because of Covid. It is that the reason for that comment and then secondly, you know both at your analyst day, and I think at another conference.

Called out T. L. P. One is running higher can you maybe just put that into perspective for us is to you know.

How much that can add to it to a medical cost trend and does that benefit your pharmacy side of your benefits business as you see that higher utilization.

Thanks for the question Lisa and good morning.

Associated with.

With trends and.

Covid existing versus not existing in what the baseline might've been.

It's really not a lot of pent up demand or deferred care. There certainly can be small pockets of that but in general.

The health care system was a it was pretty much open for business quite significantly in 2022.

There may have been some staffing shortages that impacted that ever so slightly but not all that significantly we don't believe and we just think that it's really it's an overall increase in cost structure.

You know Covid is not gone it's still exist. It's just no longer the big significant driving force that it had been for the past several years and so as we look at things in total.

We see a higher cost structure in general and then associated with the G. L. P. One drugs you know that is one element of a multitude of developments as part of our overall trend conversation and as I said trend overall is consistent with our expectations. So we feel very good about that and can there be an upside on that.

On Carolina, our actual certainly a small one but not.

Not enough to really change the trajectory at this point. So thank you for the questions next question. Please.

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

Great. Thanks, I just want to go back to re determinations, and how youre thinking about that I think you said that you expect it to keep about 40% to 45% of the Medicare.

Medicaid Redetermination growth, which I think is something close to about a 4% CAGR since 2019, which seems a little high to me given that.

Total employment is up about $3 million over that time period. So can you maybe refresh how youre thinking about keeping those people why they'll stay on and you know and then maybe the other 55%. If you can kind of give an update on anything youre seeing there about.

Now those people re enroll and through the year, how we should expect them to come on you mentioned some delays is there is there a way to think about.

You know Q2, just enrollment when do they show up on either employer coverage or the exchanges.

Yeah. Thanks, Kevin I appreciate the question, yeah associated with the 40% to 45%.

Yeah, I'm not positive about the CAGR, you're looking at from 19 in exactly what's in the baseline and what all the thought processes are versus.

Qualifications and eligibility requirements, but as we do our review and our work and are certainly access a lot of independent studies as well, we feel very comfortable that we believe that 40% to 45% will stay on and you know and that's a that's really a projection for what will be the ultimate result.

A year from now after the entire Redetermination process occurs and and things shake out so.

I think it's a very reasonable expectation and we feel very good about it.

And then in terms of the overall coverage patterns everything I was one thing to do.

Point out that might be inherent in your question is as we look at the second quarter of 2023.

Actually many of our states Medicaid states that are not blue states.

Actually went a little bit earlier on in the beginning of the Redetermination. So everybody will start a redetermination by now.

But when you look at who started in the April may time frame. It for US it was more heavily weighted to the states that are not our blue states. So we still feel very good about our overall catchers met and the fact that we think 20% to 25% of these folks will ultimately end up on employer sponsored plans, 20% to 25%.

Ultimately end up in an indoor individually ICA product, 40% to 45% will stay on Medicaid.

And that's what we're are we tracking to and we actually have some insights into the you know the.

The states that are starting in June .

Looks very promising that our thought processes.

Is oh.

He is going to be validated so.

Thank you for the question yeah. Thanks, So the only thing I'd add to that as you know is again, there's a timing lag here, but we feel our expectations are very much aligned and we are seeing particularly on the individual exchange that early states that our applications are up at a much higher rate than they were prior to Redetermination, which you would expect.

And given our commercial market share in our Blue states, so very well positioned in the market for those that will ultimately.

Not keep Medicaid coverage, but again as I shared in my early remarks, we're working really hard to make sure that everyone who's going through this process and in conjunction with our state partners understand the options that are available to us in that and that's been very positive. We're seeing a lot of really good uptake and we are actually contacting.

We're having great success rates in contacting individuals where we have the information. So those are very encouraging early signs to us and again, we'll continue to update as we get through this process because many of the states are really just in the in the throes of it certainly our blue states, but thanks very much for the question next question. Please.

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

Oh, hi, thanks.

I was hoping first you could just maybe touch on the EPS split expected for <unk> versus <unk>.

And then my main question is just sort of taking the discussion we're having on the cost structure.

For medical costs in 2023, just interested in how youre thinking about that rolling forward into 2024, we're already starting to capture a lot of early data points on commercial premium pricing and it looks like the environment is it's hard to make quite a bit in terms of pricing trends and so just interested in how you're sort of thinking.

Sort of pricing for cost trends for 24. Thanks.

Yeah. Thanks for the question and good morning, you know in terms of our EPS guidance as you know, we raised it who are $32.85 or greater than $32.85.

And I think that would assume that.

A little bit more than 56% of our earnings will have occurred in the first half of the year. So when you look at the last six months of the year, we were actually pretty comfortable with what the current consensus estimates have associated with third quarter and with the the seasonality that the current consensus estimates are have inherent in it.

And that is at the third quarter will be a bit more profitable than the fourth quarter, which is very consistent with the typical seasonality of our business.

And then for 'twenty four as you know, it's just really premature to go into our 2024 conversation at this time, we'll provide a lot more insights on that at the end of the year, a little bit more in the third quarter and a lot more at the end of the year and have a more robust conversation about 2024 at that time.

Thanks again for that question and again on just your pricing question. We've had a very consistent approach to pricing and we're going to keep that discipline. As we project are four would be a class. So I don't think anything has changed there there's not a whole lot more that's new but when very disciplined about our projection and how we see that and that's how we price too. So thanks for the question and next question.

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

Yeah. Thanks. Good morning, this was touched on a little bit with your comment, though that commercial membership growth should reaccelerate in the back half of 'twenty three ended at 24.

Curious, if you could remind us whether or not that's due almost all to the potential tailwind from re determinations or are there. Other factors there just sort of a more favorable market dynamics related to low unemployment or any potential expectation about market share gains for all of that.

24 that might help your commercial membership grew up a celebration outlook. Thanks sure I'll ask Morgan Kendrick, who leads our commercial business, maybe to comment a little bit about commercial and what we're seeing in the marketplace. Yeah. Thanks for the question Steve Morgan here I wanted to address you know I would say that our expectations for membership growth are in line with what we projected and discussed it.

Instances one of the things that's interesting, though is you know we're wrapping up the our national cycle and so that's almost complete one thing, notably this year. It felt like the receipts were coming in slower or later in the actual decisions were made longer which isn't terribly inconsistent with what we see during an economic shift if he thinks of things.

Where the affordability really matters, our local market right now, we're just now getting into <unk>.

When we think about our business and through <unk> and then one one all of which look promising we've we've gotten into some of the bigger lower market wins for next year and we're pleased with how the assets are resonating and when I go back and speak to National We've had just an unbelievable run for the past several years, that's not different this year, but we've talked many times about each one of these.

Cycles have nuances there are three things that I think are important to note number one this cycle for us when we think about our largest employers it'll be.

End of the year and into next year.

There was a very very large cohort of in force business. So this was a very strong retention year for our company.

That's been quite successful, which again reinforces how the assets are being are resonating with some of the most discerning buyers and the country. Secondly, our win share continues at the rate that we've seen albeit on a lower pipeline and smaller case count, but then lastly, I think the notable conclusion of the notable dot piece that we've shared in the past several years, we're continuing to see strong growth internally.

Where employers are consolidating their benefit partners from one vendor from multiple vendors to one so that is continuing with us. So all in we feel good about our continuing trajectory in the business and as noted earlier, our pricing activities to continue with our forward view of trend. So we're quite optimistic at this point.

Again for the question. Thanks, Morgan and again, just reiterating something that Morgan just said I think is important is the consolidation trend where we become single source has been accelerating in the last few years and we continue to see that that's a notable trend this year and I think what's important is we're also seeing it not just in medical coverage, but beginning to consolidate.

<unk> with Carolyn services as well so that's a that's a very positive trend for the strategy around the whole health that we laid out.

Your next question I think this will be our last question.

Our final question comes from Nathan Rich from Goldman Sachs. Please go ahead.

Great. Thanks for the question I wanted to ask on the Carolina Rx margins I think they were down sequentially from the first quarter could you maybe just elaborate a bit more on what drove.

That margin step down I know you had bioplast rolling in but do you still expect margins to be flattish for the full year and then on Biosimilars. How is the pricing of Biosimilar humira come in relative to expectations and does that is that a significant swing factor it kind of in the outlook for that segment.

Yeah Nathan Thanks for the question this is Pete.

Again, when we think about our operating performance and Carolina Rx I'll, just say upfront, we're confident in our pharmacy business and if you exclude vial plus we will come in at that six to six 5% range. So flattish.

As we talked about and Gail mentioned in her prepared remarks, we're continuing to invest in things like bio plus an advanced on delivery.

<unk> bio plus our original guidance did not include bio plus and so that as we talked about that that's had a bit of dilution, but again outside of I O plus <unk>, we're very confident in coming in into the six to six 5% range as it relates to your question on Humira and Biosimilars again, as we've said.

We're very excited about our biosimilars coming into the marketplace and how that's going to drive overall cost and affordability down the road.

And Carolina racks have been very very focused on on driving lowest net cost.

We obviously well aware of what occurred in July in terms of the launches and we've been staying very very close to that and as we've said before we have historically supported biosimilars alongside a reference brand.

On Humira we.

We do expect them to include a biosimilar or biosimilars and a similar formulary position as Humira. This year, we're not going to go into more specifics in terms of timing, where specifically what we're going to do but we will do that and I would finally say that with the addition of bio plus in our portfolio.

I think we're now in a much better position to directly manage specialty pharmacy more holistically. So I appreciate your questions.

Thank you Pete now I'd like to close by saying. Thank you. We're pleased with our performance year to date, and we're confident that the ongoing execution of our strategy positions us well for the balance of 2023 and in the years to come.

Through a steadfast focus on whole health and our diverse and expanding suite of products and solutions will continue to meet the needs of clients consumers and communities. We serve advancing our strategy of becoming a lifetime trusted health partner. Thank you all for your interest in elegance health and have a great rest of the week.

Ladies and gentlemen, a recording of this conference will be available for replay after 11 am today through August 18 2023.

May access the replay system at anytime by dialing 800.

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