Q4 2023 Humana Inc Earnings Call
Okay.
Good day, and thank you for standing by.
Welcome to Humana fourth quarter 2023 earnings call.
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I would now like to hand, the conference over to your host today, Lisa Stoner Vice President of Investor Relations. Please go ahead.
Thank you and good morning, I hope everyone had a chance to review our press release and prepared remarks. This morning, both of which are available on our website. We will begin today with brief remarks from Bruce Broussard, Humana's, President and Chief Executive Officer, and Jim wrapped in humanity, President and Chief operating officer before we begin our disc.
Lisa Gill: And I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the securities and exchange can.
Jim: I said in our fourth quarter 2023 earnings press release as they relate to forward looking statements along with other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward looking statements in future filings or communications regarding our business or results today's press release, our historical financial news really.
Lisa Gill: And our filings with the SEC are all also available on our Investor Relations site.
Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP.
Lisa Gill: So that's the explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's financial press release.
Lisa Gill: Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes that replay will be available on the investor Relations page of Humana's website Humana Com later today.
That I will turn the call over to Bruce Broussard.
Bruce D. Broussard: Thank you Lisa and good morning, everyone and thank you for joining us.
Bruce D. Broussard: We're going to dedicate the majority of our time today to Q&A.
Bruce D. Broussard: Wanted to first highlight a few key messages that we hope you take away from our discussion today.
Bruce D. Broussard: As shared in our prepared prepared remarks, which we posted this morning, along with our earnings release I'd like to start by stating the obvious we.
Lisa: We are disappointed.
Lisa: Weighted to <unk>.
Lisa Gill: <unk> today.
Lisa Gill: The Medicare advantage sector is navigating a complex and dynamic period of change as we are all working through significant regulatory changes.
Lisa Gill: Also absorbing unprecedented increases in medical cost trends.
Lisa Gill: The increase in utilization that emerged late in the fourth quarter.
Inefficient deviation from an already elevated.
Lisa Gill: Also impacting the industry.
Lisa Gill: We take our commitments seriously and are disappointed we are where we are unable to fully offset these higher cost trends.
Despite our best efforts to identify mitigation opportunities throughout the year.
Lisa Gill: On the new near term impacts of the higher utilization of our disappointing our confidence in the long term attractiveness of this sector and our position with them has not changed.
Lisa Gill: We provided you with our initial outlook for 2024 of approximately $16 and adjusted EPS.
Lisa Gill: The recency and magnitude of the uptick in the utilization trends, we are prudently assume that the higher costs seen in the fourth quarter persist throughout 2024.
Lisa Gill: Based on our review of our initial claims data we believe that the seasonal factors are not driving the increase.
Lisa Gill: We are committed to updating you on our progress in understanding and addressing this changed throughout the year.
Lisa Gill: Importantly, the MMA program was designed to be dynamic and respond to changes in medical trend.
Lisa Gill: Looking to 2025, we are evaluating MAA pricing actions and expect earnings growth in other lines of business as well as our ongoing productivity and trend mitigation initiatives to quickly restore our margins and resume our path of compelling earnings growth.
Lisa Gill: Our current expectation is to deliver 6% to $10 of adjusted EPS growth in 2025.
Lisa Gill: Notably any outperformance we achieved in 2024 will be additive to this initial outlook.
Jim: Before turning to Q&A I'd like to provide Jim <unk>, our president and COO and opportunities to provide a few comments on our update this morning Jim.
Jim <unk>: Thanks Bruce.
Jim <unk>: I am stepping into this role here at Humana at a time that is clearly challenging but for humana and for the industry.
Jim <unk>: Despite those challenges it's Ben.
Jim <unk>: Very positive first few weeks I've had the opportunity to work with a team that's quite focused that is clarity of thought and objectives and no shortage of effort trying to address these challenges.
Lisa Gill: Despite the pressures we're facing right now I remain as optimistic about this opportunity today as I was three months ago, when I agreed to step into this role.
Lisa Gill: It's early in my tenure, but I do want to share just a few thoughts with the investment community.
Ben: I have been impressed by the leadership demonstrated by this team there is a clear sense of urgency and responding to the utilization trends impacting impacting the industry.
Lisa Gill: The entire management team has been working tirelessly to understand the underlying issues that we've discussed today and I am confident in the approach that the team has taken with respect to assumptions around the utilization pressures. We are facing I also share the conviction of the rest of the management team regarding the need to prioritize margin recovery in 2025.
Lisa Gill: Got it.
Lisa Gill: And the significant multi year opportunity that is in front of us.
Lisa Gill: We operate in one of the fastest growing sectors in healthcare Humana is uniquely positioned to bring significant value to our members.
Lisa Gill: I'm confident in our ability to drive long term value for the health care system and for our shareholders I look forward to meeting many of the participants on this call over the coming months as well as many of our talented employees and associates across the organization.
Speaker Change: Thank you Jim we will now turn to a question and answer session, where Bruce will be joined by Susan Diamond, Our Chief Financial Officer.
Bruce Smith: In fairness to those waiting in the queue. We do ask that you limit yourself to one question operator, please introduce the first caller.
Bruce Smith: Our first question comes from the line of Kevin Fischbeck with Bank of America.
Bruce Smith: Alright, great. Thanks, I guess I wanted to understand.
Bruce Smith: That process around the 2025.
Bruce Smith: EPS improvement.
Bruce Smith: It sounds like from.
Bruce Smith: From Jim's comments that.
Bruce Smith: Youre going to be prioritizing margin that year.
Bruce Smith: Do you think that this is an industry problem and therefore the industry will be.
Bruce Smith: Prioritizing margin. Similarly, so that you will actually be growing in 25 or is this a view that you're going to be growing below average and 25 to get to that.
Bruce Smith: And because you're talking about.
Lisa Gill: Feeling confident about the business should we be thinking about similar growth in 'twenty six 'twenty seven so you get to that $37 EPS number maybe on a two year lag is that the right way of thinking about it or is there reason to believe that that margin target you had for $37 is no longer the right margin target in the medium term.
Lisa Gill: Kevin why don't I take the industry side, and then I'll turn to Susan on them.
Susan Diamond: Margin question you had.
Susan Diamond: Okay.
Susan Diamond: I look at next year is a year that I think the whole industry.
Susan Diamond: Or possibly reprice I don't know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026 and therefore.
Susan Diamond: Look to the industry to have disciplined pricing as a result, as a result of this obviously for us as an organization over the last few years. We have tried to maintain that discipline you can say that in just our rankings in and pricing we've usually been.
Susan Diamond: And the third the fourth.
Susan Diamond: Ranking and so we've tried to maintain that but I do believe the industry will need to price appropriately.
Susan Diamond: Yeah, and Kevin as we thought about the commitment for 2025.
Kevin: There are inherent dependencies within that one as you know the rate notice, which we obviously don't have visibility to answer that would be one significant input which is why we felt the need to give a wider range at this stage.
Kevin: Big affinity is going to be just as you said the level of competitive action and need to take pricing as well and so that we will continue to watch peer commentary in terms of their results and they know that they spend but that is something that we will have to consider based on the pricing action. We ultimately take what impact might that have two near term membership growth.
Kevin: As we've said a couple of times over the course of the year, we do intend to be very targeted in terms of our pricing action. There are some plans and geographies that are seeing.
Kevin: More underperformance on others, and so you may see disproportionate impact in those areas.
Kevin: For both the recovery, but then also the membership which we feel are no regret moves to make sure that the financial performances as we would expect so 25 media repositioning here, where we may see lower than industry average growth depending on the level of competitor pricing actions, but we would feel that we wouldn't be repositioning for sustainable growth.
Kevin: On a go forward basis in terms of membership at a more sustainable margin over the long term.
Kevin: As it respects 26, and 27, you know obviously, we can't comment on that at this point, we wanted to be clear.
Lisa Gill: Given the significance of the impact of 24, what you can expect for 2005, we've committed to coming out later this year. Once you have the benefit of going through all of our pricing work in providing you with an update on that as well and certainly will keep you informed of emerging trends, but we'll certainly need to navigate through that and as we learn more over the course of the year will certainly be in thinking about the longer term.
Lisa Gill: And.
Christopher: We will keep you informed Christopher.
Christopher: Our next question comes from the line of Justin Lake with Wolfe Research.
Christopher: Thanks, Good morning.
Christopher: So to Kevin's point and kind of your answer it's clear.
Whenever you do from a membership perspective, it's going to be.
Christopher: Yes kind of dependent on what your peers do.
Christopher: More interested in trying to understand I mean by my estimation give or take you are probably slightly better than breakeven call. It zero to 1% margins in Medicare advantage is implied in your guidance for 2020.
Christopher: Four correct me, if I'm wrong, but.
Speaker Change: From there it looks like your debt six to $10.
Speaker Change: Would be.
Speaker Change: One maybe one 5%, which then comes down to cutting benefits about 10% to 15 Bucks.
Speaker Change: Again, correct me if my math is wrong here I guess.
<unk> is <unk>.
Speaker Change: How do we arrive at that number I look back over the last six or seven years, when things were good and senior sort benefits increased by $20 a year it looks like.
Lisa Gill: And then when we see what feels like a 100 year storm.
Lisa Gill: Why is 13 to $15. The most we can put through why not try to get back to a target margin or closer to our target margin and assume your if it's not company specific assumed that the industry is going to follow and if they don't.
Lisa Gill: Albeit.
Lisa Gill: Hey, Justin Yeah, those are all fair questions.
Lisa Gill: And I would say directionally the number mathematically you're right. So 24, you know what's you're estimating for the margin is certainly direction correct.
Lisa Gill: The six to 10, one thing is important to keep in mind that is what we're committing to you in terms of earnings and EPS improvement next year that would be on top of whatever rating actually might need to be taken for the rate book itself and right. Now we are assuming that the 25 rate notice will look similar to 2024 in that it will be negative given we have.
Justin Lake: Another one third of the <unk> model implementation. So our assumption in all of this is that we will have some further pricing action to take to address just the 2025 rates and the fact that they will be insufficient to cover normal course trend. So that would be additive to the degree that rate notice is different and positive then that could change our ability to.
Justin Lake: To extract more but as we said we need the benefit of the rate notice to fully assess that and are making what we think are reasonable assumptions at this stage.
The other thing to keep in mind is with a third of our book risk provider supported while we will certainly take benefit actions across that book as well at least a minimal impact to our earnings and so that six to $10. You can think of is really having to be realized over roughly two thirds of the books. So it does translate into a higher benefit reduction then your math would suggest.
Justin Lake: Yes.
Justin Lake: And then I do think it's important to just remind everyone about our commentary. This morning that to a degree 24 does in fact get better we would expect that to be additive to that six to $10 going into next year, because we do intend to price assuming this trend persist and so if we see positive development over the course of the year that would be additive and you would see further appreciation.
Justin Lake: Just given again as we said the recency of these trends, we just are going to need some more time to fully assess that and the likelihood that they will persist for that period of time, but our intention is to be very diligent about restoring margin.
Lisa Gill: And this is our best estimate at this time based on what we know with what we think are reasonable assumptions and just on that yes. We are trying to do is be thoughtful around the profitability of the company and we are committed to getting into restoring our margins I want to say that.
Lisa Gill: How.
Lisa Gill: Do we do that in one year or do we do that in multiple years is something that we're really addressing as we've looked at the price elasticity of our members who are really also trying to figure out where does it just fell off the cliff as opposed to losing some members are not growing as much.
Lisa Gill: So we are committed to pushing and ensuring that we are.
Lisa Gill: Going to move the margin and at the same time, we just don't want to fall off the cliff and Luiz.
Lisa Gill: Hundreds of thousands of members.
Justin Lake: As a result of that so it is just a question of timing as opposed to the question of trajectory.
Justin Lake: Okay.
Justin Lake: Thanks.
Justin Lake: Okay.
Justin Lake: Our next question comes from the line of Stephen Baxter with Wells Fargo.
Stephen Baxter: Yes, hi, thank you.
Stephen Baxter: Another quick one on the magnitude of improvement in 2025, and I think when we looked at what your earnings trajectory was maybe stepping back a couple of months ago. We would have already thought that you were going to improve earnings around $6 2025, it's a little hard to feel like the incremental actions youre taking related to pricing.
Stephen Baxter: We are really all that material, but would love to just get a little bit more color on that and then just also your approach to operating expenses in 2024 and 2025 like it does look like you have SG&A of $700 million in 2024, I guess I thought there might've been maybe more actions you could take to try to protect earnings in the short term as you work to reprice above.
Stephen Baxter: Just understand that a little better thank you.
Stephen Baxter: Hi, Thank you sure.
Lisa Gill: So I'll take the operating question I might need you to clarify your first question on pricing, but on the operating front, yes. So as you saw and as we've been describing all year as we saw initially higher outpatient trends starting in the second quarter, we were able to successfully mitigate that pressure that we stepped up to the third quarter through.
Lisa Gill: A multiple multiple levers, including administrative cost for their administrative cost reductions and you saw that in the operating cost ratio. We reported for 2023, which is certainly favorable relative to the commitment. We've made for 20 basis points of annual improvement. We certainly continue to work very hard to identify additional opportunities in our 24 guide reflects about 30 basis points.
Lisa Gill: The improvement versus the 'twenty commitment, so demonstrating again continuing to use that as a way to mitigate some of these trends. We do think there is additional opportunity, particularly leveraging technology AI and some other tools, but we recognize they probably have a longer timelines to get the full value realization and so we will continue to build the pipeline and you should.
Lisa Gill: I think to see better than the 20 basis point commitment over the next number of years and we'll certainly work hard over the course of the year to see what potential we have $3 24 and 25 on.
Lisa Gill: On the pricing question would you mind restating that just to make sure I understand what you're comparing to.
Lisa Gill: Yeah like I would've thought you would have two or three months ago been going from $31 to $37 of earnings are already kind of delivering $6 of incremental earnings so comparing that trajectory too.
Justin Lake: The trajectory now youre talking about kind of an incremental zero to four like that that perspective is kind of what I'm trying to get out is why couldnt you do more more quickly to kind of accelerate the trajectory.
Justin Lake: Yes, so I think.
Justin Lake: Obviously, what we're dealing with is this higher trend, which is significant and so when you think about over the course of 'twenty three since the time of pricing, it's about $3 billion of additional trend. That's emerged that were having to absorb in 'twenty four and again our assumption right. Now is that will continue and we will have to be absorbed in our 25 pricing and so that is where we will certainly take it.
Justin Lake: Much pricing action as we can we will have to see the rate environment. There is a limit to what you can do in one year and with that level of trend, which was never contemplated in the $31.
Justin Lake: Only so much margin expansion you can get once you actually covered the trend now over the long term as well as Bruce alluded to there are inherent mechanisms, where it will work its way into the rates. It takes a little bit longer for the benchmarks to reflect the higher rates. So that is certainly something we'll see in the future and to the degree any of this is attributable to higher acuity or.
Justin Lake: Sure.
Bruce Smith: Condition development et cetera, we should see that in risk adjustment overtime as well those are all things that will take more time to assess and we'll certainly consider but for right now with our assumptions for 2025 and that timeline, we will have to cover the trend and then again you as much as we can on the margin expansion as we committed to do that.
Bruce Smith: Our next.
Bruce Smith: <unk> comes from the line of Ann Hynes with Mizuho.
Ann Hynes: Yes, good morning, just thinking about the competitive environment, obviously, it appears very challenging and humana seems to focus on profitability versus growth and then in the scenario.
Ann Hynes: I think you mentioned in your prepared remarks, Bruce that you hope that your peers would also price for 2025, given the challenging utilization environment.
Ann Hynes: Joan.
Bruce Smith: <unk> stays like this how do you view growth versus margin over the long term and what do you mean a.
Bruce Smith: Prioritize profit and be willing to grow below market or do you think.
Joan: You can eventually grow within the market again.
Joan: The competitive environment doesn't change.
Joan: Yes.
Joan: Well.
Joan: I think it is a big assumption that competitive environment doesn't change in the outlook answer your question, specifically, but I do want to just reemphasize that.
Joan: We have seen over the years.
Joan: You saw it in 2022, we saw we saw this year there is one.
Joan: Usually one maybe two that gets really aggressive and then they fall away. The following year, we have seen that over a long period of time and as you look at our growth over an extended period of time, you will see these volatilities a year to year, but that's really not a result of our pricing. It's more a result of the industry pricing.
Joan: When you usually have been fairly.
Joan: Consider it in our pricing in the in the industry and have not been as aggressive as competitors and there'll be one.
Joan: Another one that.
Joan: It comes there we don't think that is sustainable we just don't we see the business as being much.
Joan: Tougher as a result of regulatory environment, we see that.
Joan: Things like what we saw this year relative to utilization and getting back to above covered levels. We just see it not being being is as easy to to to price to membership growth.
Joan: Okay.
I will say that from our vantage point is that similar to what we did in.
Joan: Part D is that we'll continue to focus on what is the sustainable profitable.
Joan: And the appropriate profitability within the industry, and we will price towards that and use our brand and our relationships with our value based providers, our quality scores and other mechanisms to compete but we do not feel that pricing is how you compete.
Joan: Price to be economically salad and your price to be to provide value to your customer but at the end of the day, we don't look at that as a competitive advantage. We look at our capabilities is a competitive advantage and we'll continue to focus on the capability and the differentiation in our capabilities.
Joan: Thanks.
Joan: Sure.
Joan: Our next question comes from the line of a J rice with UBS.
Joan: Hi, everyone.
Joan: Just trying to get at two things here.
Joan: Your comment about inpatient use.
Joan: Realization I think up to this point.
Joan: Enterra you'd attribute it a lot of the higher inpatient utilization you are seeing to that.
Joan: Cohort.
Joan: The growth cohort of 23.
Justin Lake: It sounds like maybe Thats broadened on what are you seeing late in the fourth quarter. What gives you. The what are you seeing seasonally that makes you think that continues.
Justin Lake: And by the way did you keep a lot of those 23 cohorts you did today is that where we're seeing some of the growth.
Justin Lake: And one of the competitors that dose people transitioned away from you.
Justin Lake: And if I could just ask.
Justin Lake: In a normal environment, where.
Justin Lake: And it may provide a carrier is priced below trend.
Justin Lake: The natural result has tended to be that you get very strong enrollment.
Justin Lake: We're not seeing at this time and I wonder conceptually.
Justin Lake: How you put that in context. The fact that you are saying you are under price for the 24 trend youre dealing with where does that usually results in big enrollment growth.
Justin Lake: Your enrollment expectations for 'twenty for quite modest how do we put that in perspective.
Justin Lake: Hey, Jay I'm sure I can answer that so on the first related inpatient you are correct. When we cite into inpatient pressure that we were seeing earlier in the year, we attributed that to the fact that we had a lot of new enrollment growth and <unk>.
Jay Smith: Have limited information from which to predict that.
Jay Smith: Level of medical cost utilization, so you know risk or there's one example, and we were seeing that relative to our expectations. The medical loss were slightly higher than we would've expected based on what.
Jay Smith: Indicating so you are correct about that.
Jay Smith: I would say what we saw in the fourth quarter, which is completely unrelated and different than that and very much more widespread.
Jay Smith: Particularly for the months of November and December and what we've seen so far is a an increase in short stay inpatient authorizations in particular.
Jay Smith: Are being upheld through our utilization management processes at a higher rate than you would typically expect as well.
Jay Smith: Given the positive seasonality you would typically see in the months of November December it was that much more surprising the absolute level of authorizations was up.
Jay Smith: Relative to what you would have expected for all those dynamics coincidentally and while the data is still very early as you know.
Justin Lake: On non inpatient we're relying on the claims paid claims to get some visibility we are seeing indications that starting in November. We are also seeing a decline in observations day. So that's something we will continue to analyze and understand better but quite frankly, we're going to need more time more claim development.
Justin Lake: We understand the underlying sort of admission diagnosis codes and other things to fully assess the nature of the uptick in inpatient and corresponding decline in observations and understand if there are in any way related and then how we think about that again on a go forward basis.
In terms of retention mix I would say a little bit too early for us to fully assess that and look it will certainly look at the AEP enrollment data I would say from what the teams looked at so far nothing of concern in terms of the retention mix versus those members, who dis enroll but generally I would say given the benefit reductions we did make in 'twenty four I would say.
Justin Lake: We expect individuals who.
Justin Lake: Have an intent to highly you lose those benefits were probably ones that we're looking at what other options might be available and to the degree. Another plan maintained a richer level of benefit certainly would expect that that that was some place we would see higher enrollment.
To your question about 24, so I would say it a little bit differently. While certainly this trend was not fully contemplated in our pricing I think.
Justin Lake: The entire industry would agree with that statement all of US saw unexpected trend after we filed our bid.
Justin Lake: In spite of that though did make more benefit adjustments than the industry and so if you remember we talked earlier in the year that when you look at the changes made we did make a higher level of benefit adjustments than others and in some cases, we were very surprised to see actual net incremental investment in 'twenty four despite the stars and V 28, and other headwinds.
Justin Lake: They were dealing with so we don't feel like this isn't an issue in terms of under pricing. It's just the occurrence of higher than expected trend late in the year. Unfortunately after benefits were filed.
Justin Lake: And again a lot to learn in terms of the persistency of that not only through 'twenty four 'twenty five that we will continue to evaluate as we do all of our 2025 pricing, but based on everything we know now our intent would be to assume those trends persist and make sure. It's covered in our 2025 pricing.
Lisa Gill: Okay. Thanks.
Yes.
Lisa Gill: Our next question comes from the line of Ben Hendrix with RBC capital markets.
Lisa Gill: Hey, Thank you very much I just wanted to get back to one more question on the six to 10 for 2025 I. Appreciate your comments on the overly competitive environment and difficulty in forecasting how.
Lisa Gill: Actors.
Lisa Gill: Scale that down in the future, but if you could.
Lisa Gill: Comment on.
Is there a level or a range of kind of headwind attrition that youre assuming.
Lisa Gill: In that six to 10.
Lisa Gill: And if so.
Lisa Gill: What are you expecting.
Lisa Gill: It kind of margin versus attrition to kind of offset by attrition to kind of get you to that range.
Lisa Gill: Yes, Ben So we won't comment specifically, obviously on expected membership growth at this stage, but just directionally can tell you that in the range of scenarios that team has reviewed and one of the reasons why it's a larger range as well as I said earlier is.
Lisa Gill: There's got to be an assumption around membership impact based on our changes as well as those of others across the industry and so you can think of that range accommodates.
I'm less optimistic more optimistic range with the less optimistic assuming we do lose.
Ben: Not a small number of members so.
Ben: Hundreds of thousands of members would be contemplating that low end of the range. Some of that is going to depend on as I said earlier as we look at certain counties and plans whether or not we think there is a path to the profitability levels. We would expect and there may be some cases, where we at this time, we feel that is not true where we might be disproportionate impact you.
Ben: You might remember years ago, we used to actually disclose sort of planned exits and how much impact there was strong membership growth. It is gonna be akin to that where if we do ultimately determine Ada exit counties or plans, we will probably disclose that discreetly in terms of the impact and I said, you can consider that sort of no regret moves as a way to restore margin, but our hope would be that we can find solutions.
Ben: That and may need to moderate benefits and still provide a compelling value proposition, but recognize some areas will have a disproportionate cut which will have a disproportionate impact on membership and certainly as we go through the bid process and and share updates with you. Later this year can you give you an updated perspective on where in that range, we might be depending on what we continue to learn.
Thank you.
Ben: Our next question will come from the line of Nathan Rich with Goldman Sachs.
Nathan Rich: Hi, Good morning can you hear me okay.
Hey, Ken.
Nathan Rich: Great. Thanks for the questions.
Susan Diamond: I think following up on a J 's question, Susan you've kind of talked about still evaluating some of the drivers of utilization as it relates to 'twenty four I guess, maybe could you talk about what you're looking at specifically I guess do you expect those dynamics you mentioned around the nature of hospital stay is to continue and are there any early.
Susan Diamond: Data points on January that would suggest the.
Susan Diamond: Higher trend that you saw kind of emerged late in <unk> is in seasonal and then just as a clarification.
Susan: Talked about restoring margins longer term I guess is your view of long term margins for the individual MA business changed just given the backdrop that the industry faces. Thank you.
Susan Diamond: Sure.
Susan Diamond: So in terms of the utilization drivers as I said earlier, they are definitely shorter stay events we.
Susan Diamond: We have looked very closely at the respiratory data and as we said in our commentary based on all the information we have is not respiratory driven.
Justin Lake: You guys might remember we called out Covid.
Justin Lake: And our third quarter call that we thought and if you remember at that time, we hadn't anticipated in the third quarter and our original thinking but had it in the fourth quarter and if you recall, what we said despite the fact that it peaked in the third quarter and May come down we left it in our fourth quarter forecast and so as we look at the fourth quarter results. While you certainly see an uptick third quarter to fourth quarter in respiratory.
Justin Lake: That was something we had anticipated and was actually slightly favorable to what we had expected we had planned for sort of a five year average on respiratory and it came in slightly lower so for us it was not a cause of the variance and the additional utilization is non respiratory related for that reason because we don't have any clear indicators that it is something that you can reasonably assume is there.
Justin Lake: And al or transitory, we're making the assumption that will it will persist throughout 2024.
Justin Lake: Looking at January data, which is very early.
Bruce Smith: We only have really you know some look into the first few weeks, we would say it is continuing to stay at the elevated levels that we saw in the fourth quarter. So and again I wouldn't have expected anything this quickly to change that pattern materially, but it does reinforce that at least for the near term that we can like we expect to see it.
Bruce Smith: Again, we will continue to evaluate the emerge you know the more mature claims data to try to get more information about the drivers one thing. We're certainly looking at is if you remember there are regulatory changes being implemented January one related to utilization management and are referred to the two midnight rule.
There was a lot of activity both on health plans and providers on preparing for that and so that is one thing we'll be looking at to see if potentially that has any.
Bruce Smith: Underlying cogs related to some of what we're seeing based on what we had expected for 'twenty four.
Bruce Smith: In terms of the long term margin outlook I would say we had if you remember at Investor Day, We had really moved away from setting a specific target for individual MA recognizing that we will work very hard to maximize the margin contribution across the enterprise, which becomes increasingly important as we continue to expand and scale the center what capabilities and so we remain very focused on.
Susan Diamond: That we will certainly expect as he said to restore margins to a reasonable level within the health plan.
Susan Diamond: Over a relatively short period of time, but you'll hear us continue to emphasize the opportunity to expand enterprise margin over just discreetly focusing on the health plan growth consistently going forward.
Susan Diamond: Our next question will come from the line of David Windley with Jefferies.
Susan Diamond: Hi, Thanks for taking my questions.
Susan Diamond: Continuing on the last one regarding utilization I guess in your scenario analysis Susan.
Susan Diamond: To what extent are you.
Susan Diamond: Taking into account the possibility that utilization could go higher again from here or what kind of boundaries of our historical norm could you.
Susan Diamond: Frame for us to.
Susan Diamond: To judge the likelihood or unlikelihood of that.
Susan Diamond: I'm also wondering in your pricing model for 2024.
Susan Diamond: To what extent did humana reduce benefits to offset the risk model change in pricing versus how much of that did you were you willing to absorb.
Susan Diamond: In MLR $4 24, and then finally was there a difference in this utilization between regular community MAA in duals. Thanks.
Susan Diamond: Hey, David.
Susan Diamond: Yes, I'll take that so on the utilization as we thought about 'twenty greencore.
David: As he said we haven't seen that these higher costs will continue throughout 2024, so think of it as your new baseline. We are then applied what you consider normal course trend on top of that in our estimates and so this late in the year. We obviously have visibility to CMS rate changes on unit cost and a variety of other specific inputs that are specifically accounted for if things like leap year.
David: So all of those things are accounted for and then embedded in what we consider that normalized trend is an assumption that we will see incremental utilization trends in 2024 on top of this higher baseline I would say internally that has been the biggest source of debate and to what degree you will see continued utilization trend on a outlier level of Utah.
Susan Diamond: Elevation trend in 2023, but again, we wanted to be as prudent as possible in terms of the assumptions. We made in the guidance. We provided today and so that has been included in our estimates and something we will continue to watch, but I would say, it's probably the biggest source of variability I can't sit here today and say, there's no way it can be higher right because if we do so we will just continue to watch it but I will say.
Justin Lake: Given the level of utilization.
Justin Lake: Planned for it would be I think surprising to see something of that magnitude on top of what we saw in 2023, but we'll have to continue to watch it.
Susan Diamond: As it reflect our 24 pricing we did obviously have the knowledge about the V 28 changes. There's certainly some estimation you have to make as part of that because you're having to predict sort of the progression of diagnosis goes into the future, but that was all baked into our 2024 pricing assumptions and one of the reasons you saw us make actual benefit reductions in 'twenty four.
Susan Diamond: Or because with that adjustment you know the reimbursement was going to be insufficient to cover the annual trend.
Susan Diamond: And so that is one of the reasons you saw that.
Susan Diamond: In terms of deals versus non duals with the pressure we've seen this year I would say in the more recent press earlier in the year I would say less on the deal thesis than none, but I would say some of this inpatient pressure, we are seeing more broadly and maybe even a little bit more on the <unk> versus non D. Snips, but again, there's a lot more run out we'll need to see particularly on the non inpatient side to ultimately.
Susan Diamond: Do some of that is both plan level and member level cohorts to understand exactly how the how the plans and cohorts are being impacted.
Susan Diamond: Thank you.
Susan Diamond: Okay.
Our next question will come from the line of Scott Fidel with Stephens.
Susan Diamond: Alright. Thanks.
Susan Diamond: First part just just might be helpful to tack on to Dave's question. Just can you actually share with us what you what you're estimating Medicare or Ma.
Susan Diamond: Sort of underlying medical cost trend was in 'twenty, three and then what youre predicting it to be.
Susan Diamond: For 'twenty four.
Susan Diamond: And then sort of.
Susan Diamond: The other question I wanted to ask you is just just back on the competition discussion.
Susan Diamond: Hopefully hopefully it can be a little transparent here and sort of the <unk> and.
Susan Diamond: How you see how extensive this competition is right now in the market I think there's a lot of focus on one large competitor who is sort of taking all the market share in the industry in 'twenty four.
Lisa Gill: Wondering sort of when you think about that intense competition how much of it is that one large competitor or how much more broad based as this beyond just that one competitor. Thank you.
Lisa Gill: Yeah.
Susan Diamond: Scott I'll take the competitor side and then let Susan take your other question.
Susan Diamond: Obviously this year.
Susan Diamond: There's one large competitor.
Susan Diamond: As you look at our sales and where we are compared to the to all the competitors with finished.
Susan Diamond: Behind that though.
Susan Diamond: A larger competitor but.
Susan Diamond: A very distant second.
Susan Diamond: And as I mentioned before as Scott and you've seen it over the years, we do see this behavior that theres, one that sort of stands out in and takes share for for the inappropriate reasons around price.
Susan Diamond: There are smaller players in the marketplace that maybe impact us in one one market or another but I wouldn't get overly upset about those we see those come and go we just see one one this year.
Susan Diamond: And we suspect that.
Susan Diamond: For all the reasons that we.
Susan Diamond: We've discussed this morning.
Susan Diamond: The firewall readjust in 2025.
Susan Diamond: And then second with respect to your churn question. So we have not historically shared absolutely trend percentages.
Susan Diamond: The one thing I will comment on just because we have provided a commentary throughout the year, we'd said earlier in the year as we were watching the non inpatient and the outpatient in particular, we mentioned that we were seeing high single digit trends throughout the year I will say once they got to the final full year numbers were slightly above in the double digit range. Unfortunately, so that continued as we tend to be high and sequentially uptick and so.
Lisa Gill: That I can be a little bit more specific given the commentary I would say in the aggregate, though what I would say I would think about it by looking at our MLR you can assume that the majority of our MLR variances, obviously attributed to the higher trend and so you saw obviously in the fourth quarter 190 basis point Miss in the quarter and the translation of that to the full year and then as you saw.
Susan Diamond: And our guide. This morning, you can see the 200 basis point year over year increase in MLR, which you can use to sort of get a rough estimate of how much the trend increase as that is the main driver of that change.
Justin Lake: Okay. Thank you.
Justin Lake: Our next question comes from the line of George Hill with Deutsche Bank.
Justin Lake: Yes.
Justin Lake: Good morning can you guys hear me okay.
Ken: Hey, Ken.
Okay, I guess first I kind of want to step back and ask you a couple of questions around margin.
Ken: And I guess I don't know if you guys are able to comment to the margin profile that you guys expect to price to for 2025, and then I would also ask coming from here going forward. What do you think is the right margin profile for.
Ken: The MAA planned business and how has this impacted by whether or not your competitors you think want to subsidize the other parts of their business, where they monetize beneficiaries either in care delivery and pharmacy versus monetizing the members at the plant level, just to kind of be variances and kind of how youre thinking about planned margin versus.
Ken: What I would call it the total value of the beneficiary.
Ken: Yes.
Ken: Just on the on the margin side I don't want to get into.
Ken: A specific number or maybe a little more of a philosophy, but we do want to restore margins, where they are profitable and contributing to to the to our business in the proper fashion and I would say historically that you can pick the years you've seen that.
Ken: But we do continue to reemphasize the enterprise earnings as an organization and we look at the value that we provide across the organization not only to our shareholders, but also to.
Ken: The individuals we serve and we do find that the.
Ken: The growth in the scalability and the integration of center well offers us that opportunity to continue to expand not only our services that we find are much more effective in clinical outcomes and satisfaction, but also the ability to continue to drive better and better value for the enterprise overall.
Ken: Get re priced into the into them.
Ken: And so the actual product itself.
We'll look at but it but we really make two separate decisions. One decision around is this the right both competitive and profit profile that we're looking into the to the plan and then in addition, we also look at is this the right.
Ken: Value that we provide.
On the on the center well side.
Ken: For our competitors and their pricing and getting subsidized.
Ken: Im not.
Ken: Probably.
Ken: Right now I'm not seeing a significant change there I'm seeing much more now because theres not theres. Some in sourcing that's going on but I would say that the material is.
Ken: Orientation is more around market share gain and membership growth and really using the plan for that so we don't see a disadvantage in the markets that we're competing in that our pricing as a result of something that's happening as a result of subsidization, we really view.
Ken: <unk> ability to continue to drive.
Ken: Membership growth and the total value of what we offer and that's around our brand our quality and in addition.
Ken: The relationships that we have with value based providers until that that will carry the day for the foreseeable future and maybe just talk to your system.
Ken: Got it.
Susan Diamond: Susan just maybe even a really quick follow up would be just how do you guys think about enterprise margins and how should investors think about enterprise margin versus plan level margin.
Susan Diamond: Yeah, and just real quick on your specific question on the 24, Justin made the comment earlier about the implied margin in 2020 for which we set a direction correct. So you're going to assume that the majority of the EPS improvement. We've community next year is going to be driven by individual MA and so you can sort of do that math and get a sense for the.
Justin Lake: It will end up after 24.
Justin Lake: Other things I would say to you is with the targets that growth targets across the industry.
Justin Lake: Would argue that in order to achieve those and the size and scale of these but youre getting youre going to have to expect both progression on the health plan and the services side of the business.
Justin Lake: Versus completely.
Justin Lake: Bringing down the hill clean for the sake of all of the other ancillary benefits. So I think that youll see progression on both the other thing I would point out is as we think about 2025 and the benefit of Justice would have to make we are being very intentional around which markets do you have further integration opportunity and where we haven't been a real assets, particularly primary care and I think you will see us prioritize those mark.
Ann Hynes: To ensure that we can drive disproportionate growth in those markets to a greater degree going forward and support that enterprise integration and margin expansion that we've been talking about.
Ann Hynes: We don't intend to set a specific target in terms of enterprise margin, but rather commit to the long term sort of EPS growth rate.
Ann Hynes: Certainly, we'll provide more clarity on that going forward recognizing.
Susan Diamond: We're approaching 2025, after which we'll have to give you. Some updated commentary on what you can expect going forward, which we would expect to do later this year.
Susan Diamond: Thank you.
Susan Diamond: Our next question comes from the line of Joshua Raskin with Nephron research.
Joshua Raskin: Hi, Thanks, good morning.
Joshua Raskin: I just wanted to get back into 2025 range at 22% to $26 per share and if you view that as a reasonable baseline for what Humana can earn on the current book of business with your current assets or are you, suggesting that there are additional years of growth and EPS above your long term target behind that.
Joshua Raskin: And then I guess more importantly, if that is the baseline that you guys are working on is the management team and the board, but more about the benefits of even larger scale of being part of a larger more diversified entity and maybe you could talk about what you think the benefits of that would be.
Joshua Raskin: Hey, Josh I would say that we don't look at the baseline for support.
Joshua Raskin: 2020.
Joshua Raskin: We don't look at 2025 to be the baseline we look at that there needs to be.
Joshua Raskin: Continued more improvement in that.
Susan Diamond: As a result of what we believe is a profitable the appropriate profitability for the organization and as Susan mentioned, we do want to get back to the earnings growth that the organization deserves as a result of the industry. We're in and in addition, as a result of the total addressable market.
Susan Diamond: And the expansion of that.
In regards to size and scale.
Susan Diamond: We constantly are asking questions like that strategically and.
Susan Diamond: We have and we feel continuously that our our ability to be best in class in the industry that we compete in is really where we drive towards and I think you've seen that in multiple different.
Multiple different levels.
Susan Diamond: And quality to our relationships with our with our providers to to just.
Susan Diamond: Our ability to have an integrated model that serves one population and we feel that thats a large advantage.
Susan Diamond: We also feel especially through our productivity efforts that we've had over the last number of years that our cost structure continues to prove itself out relative to the ability to improve our cost structure through a sustainable model.
Susan Diamond: But I do want to reemphasize the board and the management team.
Justin Lake: <unk> looked at what is in the best interest of the shareholders and we're not we will continuously to do that and NSA at some point in time. The question becomes a question that we need to take action on we will definitely take it or if it is ever.
Justin Lake: It comes in.
Justin Lake: As presented to us.
Justin Lake: But we do believe today being a specialty player and the fastest growing part of the industry.
Justin Lake: The best value for the shareholders.
Our next.
Justin Lake: Question comes from the line of Lance Wilkes with Bernstein.
Justin Lake: Yes.
Speaker Change: Can you talk a little bit about.
Speaker Change: Alright.
Speaker Change: Aspects of the forward looking pricing adjustments of one would be for the pricing assumptions for 'twenty four and the 200 basis points of increase in MLR is that also a 50 50 and patient driven variance to your prior expectations.
Speaker Change: Half of it not related to that or is there something different there and then from the inpatient experience you saw in November December.
Speaker Change: Can you talk a little bit about.
Speaker Change: Further should short stays are there particular.
Speaker Change: Types of.
Speaker Change: Members that youre seeing that disproportionately on in a little bit of.
Speaker Change: Why you weren't able to identify this a bit earlier.
Is this something that would naturally.
Speaker Change: Have some sort of.
Speaker Change: Front insights from probably wrong you are it seems like that thanks.
Speaker Change: Alright, yes, sure. So in terms of the MLR increase in 'twenty four I would say given the.
Speaker Change: The reason is in the magnitude of the increase in turns which were really the the larger more unexpected in the fourth quarter do you think about the revision to our forward outlook I would say, it's probably disproportionately inpatient driven.
Speaker Change: Listen I can certainly follow up.
Justin Lake: We'll go verify that and then get back to you if theres anything different but I would say probably more disproportionately inpatient driven given it was really the last two months of the year and then have to carry that forward through the entirety versus the non inpatient, which we're seeing upticks over the course of the year and.
Justin Lake: Anyway, that's my thinking there.
Justin Lake: On the November and December I would say on the NBC side again seeing it more broadly as we said in our commentary we are seeing less of that though in our Florida HMO market in particular, and we are seeing some differences in the resolve of our utilization management against this higher trend in different geographies. So that's something we are certainly looking at to see what we can learn from and if there is any.
It's an opportunity more broadly based on the outcomes, we're seeing in the Florida market.
In terms of your question of why are we maybe could we have predicted it I would say on the inpatient side as Bruce said earlier. These are really unprecedented levels of trend increase and I would say the pace at which they changed as well.
Bruce Smith: We do leverage authorization data on the inpatient side, we are actually using that to actually book reserves each month, we get.
Bruce Smith: Authorization data for over 999% of the inpatient event that occurs there is very accurate in predicting and receive it in more real time. The non inpatient is where we are relying on claims and generally rely on at least a 60 day lag because those claims is credible so within December paid claims much greater visibility to October in prior dates of service.
Bruce Smith: And based on that have to make some estimation for November and December which again, we've seen those higher trends that we've seen will continue for the duration of the fourth quarter, but we do levers all the information you can get in real time is something we continue to look at and we've been asked about over the course of the year, whether there is more we.
Bruce Smith: You shouldn't say surgical as an example, and we do continue to take ground to improve the level of authorization data, we give for some of those things as well.
Bruce Smith: Just not sufficiently high to be credible for purposes of looking claims and estimating that at this time, but I think certainly in light of what we've experienced this year, we're doing a lot of work to assess where there might be opportunities to improve analytic and forecasting models, whether we can leverage interoperability to get some greater visibility into provider utilization in a number of other things that we will continue.
Justin Lake: To prioritize to make sure that we can continue to improve all of our forecasting work recognizing its inherently difficult given the nature of the program.
Justin Lake: Our next question comes from the line of Whit Mayo with Leerink partners.
Justin Lake: Hey can you hear me.
Justin Lake: Yes.
Justin Lake: Yes, I'm sorry, it went.
Whit Mayo: It went blank for a second.
Bruce Smith: Thanks for the time, Bruce I am just curious looking at your partnerships with the various <unk> medical groups that I think you said cover a third of your book now obviously, we're seeing a lot of challenges in that market. They are feeling this utilization pain what are the conversations like that you are having there.
Bruce Smith: Any desire that they have in trying to carve out some of the risks theyre taking on certain benefits OTC flex cards is there any risk that you see that maybe you bring more of that back on your P&L at some point there could be a headwind and my other question is I'm just wondering now that you've shut down the commercial business is it possible that that's having any impact.
Correct on your network or rates that could impact your unit costs going forward.
Bruce Smith: Yeah. The latter question I'll answer.
Bruce Smith: The majority of our rates are predicated on Medicare rates and therefore, it is not that much of a negotiation there might be a market here or there.
Bruce Smith: We negotiate rates on but in some way, but I would say that Medicare rates really determines our payment mechanism. There on the commercial book of business and we were very thoughtful in analyzing that and understanding that and it has had no impact relative to our our relationships with our providers.
Bruce Smith: And our providers that are taking risk I do we do see a number of them having challenges as a result of this slide to be honest with you.
Bruce Smith: You'll probably see more we.
Have seen these challenges over the years we.
Bruce Smith: So that's a headwind for us because we will.
Bruce Smith: We'll adjust the benefits and that will flow to them in a positive fashion.
And we are seeing a number of our better performing.
Bruce Smith: Providers really taken V 28, and we're assisting them in what they can do to manage through the 28 and taken our learnings through the center well an offering there, but I wouldn't consider that to be a headwind for us going forward, but I do feel as we look forward that there will be some challenging times for the less sophisticated.
Bruce Smith: And that could be an opportunity for us as we think about center, well and what I would say as well and I had been saying this early in the year and more so now I do think that is.
Ann Hynes: As providers fully absorbed the impact of <unk> 28, as well as higher trend I imagine that there will be increased discussions and pressure for the industry to appropriately reflect those trends in the benefits as we said we got benefits more than anyone. So I think there may be some other payers.
Jay Smith: Payers, having related discussions with providers around some frustration over the level of benefit investment our primary care organization is having some of those very same conversations and I do think there'll be a push from the provider community as well for discipline and balance given that we have further implementation yet to go with respect to the 28 and so I think that will be a positive.
Susan Diamond: And hopefully bring the pricing discipline that we're all looking for and I think just building on Susan's comment there what we do see is and then some of the higher risk areas like.
Susan Diamond: Florida for example, we see the value that is offered to the much greater to the member than it is in other areas and therefore, we feel that the adjustment for the for the particular benefits in those marketplace has room much more room than say in the middle part of the country and so we do see benefit adjusted.
Susan Diamond: <unk> needed in that marketplace and there is opportunity as we look at the.
Susan Diamond: We look at the value proposition from our members point of view.
Susan Diamond: Okay. Thanks.
Susan Diamond: Our next question comes from the line of Gary Taylor with Cowen.
Susan Diamond: Hi, good morning.
I wanted to go back to 25, just for a moment and make sure im understanding.
Gary P. Taylor: It looks like the earnings pickup is implying.
Gary P. Taylor: Insurance segment margins would improve 100 basis points, maybe a little bit more.
And I know the Street's Simplistically assumes you can always just cut.
Gary P. Taylor: Benefits to hit your target margin, but CMS TBC changed threshold to handcuff you to some degree so is the right way to think about 25, it's right now youre, assuming a negative rate update.
Gary P. Taylor: I'm sure you're probably assuming some positive cost trend growth in 'twenty five youll need to use a portion of your TBC thresholds just to solve for that math.
Gary P. Taylor: Then the 100 basis points implied margin improvement earnings improvement is really what's what's left to be.
Justin Lake: Recovered after that math is that a good way to think about with due respect for your capitation arrangements as well like is that a right way to think about.
Justin Lake: Kind of how much you're delivering to shareholders in terms of margin and EPS for 2011.
Speaker Change: Yeah, Gary So think about the math right and as I said earlier, we are anticipating that there right. Now is <unk> 25 will look similar in terms of impact of <unk> 24, as an initial assumption you remember we cut about on average something closer to $13 on average PM Kim in the environment and so that you can think of as your baseline.
Gary: In terms of just from the rate notice than what we've committed to from the earnings depreciation of all of that really came from individuals May then you can do the math in terms of what the average benefit cut is which would be incremental to that rate notice.
Gary: Once you account for resumes you are really.
Gary: Bumping up against that upper bound of what's possible and that's why it's also important to remember that range also contemplate some level of membership impact as a result of those cuts and that is a huge input as well that will continue to refine and once you have a better understanding so I just.
Gary: Want to make sure we're leaving everyone with the impression we are taking significant pricing action in order to deliver these results. We will continue to evaluate the trends in Chile degree they get better that provides the more opportunity we will work hard to optimize within the bids and themselves to make smart decisions such that we maximize the impact and maintain a really compelling value proposition still for.
Gary: Consumers on a go forward basis.
Gary: But we think with a reasonable set of assumptions and the dynamics in play the six to 10 is really bumping up against what you can do in the absence of something changing between now and when we resubmit pricing that we can incorporate Gary I just want to reemphasize something here that.
Gary: We also are very active in looking at.
Gary: A trend after.
Gary: We have a lot of activity going in the organization around that and.
Gary: And we are oriented to how can we.
Gary: A number of these things through other both clinical actions and then also just the proper insurance that people are using.
Gary: The health care system, most assertion efficiently.
Gary: I think that's why.
Gary: John Asbury earlier, we do think it's probably a couple of years of recovery to get back to the margin profile, just because of the inherent limitations and expectation that the rate environment won't fully cover trend and that has to be addressed as well.
Gary: Got it makes sense. Thank you.
Gary: Our next question comes from the line of Sarah James with Cantor Fitzgerald.
Gary: Thank you.
Sarah E. James: I was hoping you could give us more color on your claims clarity. So you made some comments earlier about waiting for.
Sarah E. James: November claims clarity and that sounds a little bit slower than I typically think of the industry is getting.
Sarah E. James: 60% of the 30 day claims and 80% 60 day claims so how much clarity do you guys have on November and December.
Sarah E. James: Was there any kind of slowdown this year and as you think about that going forward.
Sarah E. James:
Sarah E. James: There's some regulatory changes coming around having to do prior authorization.
Sarah E. James: 72 hours to make decisions and some of the charge.
Sarah E. James: There are potential that that could have an impact on your claims clarity when that goes into effect in 2006.
Sarah E. James: Thanks, Eric I'll try to answer them. So in terms of claims as we've always said, we have more visibility real time to inpatient utilization from the authorization data that we receive in more real time.
Sarah E. James: We're dependent on flight claims data to understand the unit cost of those inpatient events and get more details on some of the underlying immune condition data and other things to understand the acuity and the level of treatment and intervention.
Sarah E. James: On the non inpatient side, while we do receive authorization data for some of our service categories like outpatient surgical it is not sufficiently high to be credible and we've made improvement over the years, but I think it's in the order of magnitude approaching 50% of those events, but we have demonstrated through analysis that is not sufficiently credible to base.
Eric Smith: Your claim estimate off up so we will certainly look at it as an input.
Eric Smith: But for those categories. We are very much relying on completion factor models based on paid claim progression.
I will say, we certainly while we don't rely on the most recent 60 day paid claims data, we certainly do look at it and in fact for the month of December we did see very high levels of paid claims for data service for December which would be atypical in light of what we saw we did step up to an assumption that some of that will result in higher.
Eric Smith: There are costs that was primarily in the physician cost category. So we've accounted for that in our year end estimates and that's where we'll just have to see as those claims being more fully mature.
Eric Smith: Develop but did our best to make sure that we were using all of the readily available information to base our year end reserves.
Eric Smith: On utilization management as you said there are changes anticipated for 2024, we knew that at the time of pricing.
Ann Hynes: Did have an expectation as a result of those changes that we will see a larger number of inpatient authorizations approved where in the old model. They may have been downgraded to say to you in the ER or observation event or denied for medical necessity. So we do anticipate a meaningful impact to inpatient utilization trends as a result of that and that was accounted for.
Ann Hynes: In our initial pricing and our initial thinking and targets for 'twenty four we will have pretty good visibility in near real time to how those.
Ann Hynes: Utilization management outcomes.
Ann Hynes: From your initial assessment are holding up versus our expectations. The piece I will say, we will take a little bit longer to assess is do we see any subsequent change and provider appeals or ultimate uphold rates those will take a little bit more time can we use our best judgment and data and make some assumptions about that but that I won't say, we'll take probably throughout the first half of the year to understand if there are.
Ann Hynes: Any unanticipated changes to those appeal and ultimate uphold rates and we'll certainly keep you guys informed if we see any variances.
Ann Hynes: Paul.
Paul: Thank you.
Paul: Yes.
Paul: I'm showing no further questions.
Paul: Okay, well I'll close out the call here.
Paul: <unk> started the call we are.
Paul: We're disappointed in the updates provided today and as I said many times, we take our commitments serious and are are we will continue to work hard on behalf of our investors.
Joshua Raskin: I do want to first just continue to re emphasize that although the near term impacts of the higher utilization are disappointing our confidence in the long term attractiveness of this sector and our position has not changed one bit.
Justin Lake: I don't want to say thank you for both your time today and R.
Justin Lake: Our 65000 employees for their dedication and support.
Justin Lake: For our business and the individuals we serve so thank you and have a wonderful day.
Justin Lake: This concludes today's conference call. Thank you for participating.
Justin Lake: You may now disconnect.
Justin Lake: Yes.
Justin Lake: Goodbye.
Justin Lake: Okay.
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Justin Lake: Yes.
Justin Lake: Okay.
Justin Lake: Sure.
Justin Lake: Okay.
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Justin Lake: Okay.