Q4 2023 Molina Healthcare Inc Earnings Call
[music].
Operator: Good morning, and welcome to the Molina Healthcare fourth quarter 2023 earnings call. All participants will be in a listen-only mode.
Good morning, and welcome to the Molina healthcare fourth quarter 2023 earnings call.
All participants will be in a listen only mode.
Operator: Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key, then one on a touch-tone phone.
Should you need assistance. Please signal a conference specialist by pressing the star followed by zero.
After todays presentation, there will be an opportunity to ask questions.
You asked a question you May press Star then one on a touchtone phone.
Operator: To withdraw your question, please press star, then two. Please note that this event is being recorded. Standing in for Joe Krocheski today is Jeff Geyer, Vice President of Investor Relations. Please go ahead. Good morning, and welcome to Molina Healthcare's fourth quarter and full year 2023 earnings call. Joining me today are Molina's President and CEO, Joseph Zubretsky, and our CFO, Mark Kimes. A press release announcing our fourth quarter and full year 2023 earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days.
You withdraw your question. Please press Star then two.
Please note this event is being recorded.
Standing in for Joe Coshocton Today is Jeff Guyer, Vice President of Investor Relations. Please go ahead.
Jeff Guyer: Good morning, and welcome to Molina Healthcare's fourth quarter and full year 2023 earnings call. Joining me today are Molina, President and CEO, Joe is the breast ski and our CFO Marc.
Jeff Guyer: A press release announcing our fourth quarter and full year 2023 earnings was distributed after the market closed yesterday and is available on our Investor Relations website.
Jeff Guyer: Shortly after the conclusion of this call a replay will be available for 30 days.
Jeff Geyer: The numbers to access the replay are in the earnings release. For those of you who listened to the rebroadcast of this presentation, we remind you that all of the remarks made are as of today, Thursday, February 8th, 2024, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures. A reconciliation of these measures, with the most directly comparable GAAP measures for 2023 and 2024, can be found in our fourth quarter 2023 earnings release. During the call, we will be making certain forward-looking statements, including, but not limited to, statements regarding our 2024 guidance, Medicaid redeterminations, our recent RFP awards and related revenue growth, our recent acquisitions and M&A activity, our long-term growth strategy, and our embedded earnings power and projected 2025 earnings per share.
Jeff Guyer: The numbers to access the replay are in the earnings release.
Jeff Guyer: For those of you who listen to the rebroadcast of this presentation. We remind you that all of the remarks made are as of today Thursday February eight 2024 and have not been updated subsequent to the initial earnings call.
Jeff Guyer: On this call we will refer to certain non-GAAP measures are.
Jeff Guyer: A reconciliation of these measures with the most directly comparable GAAP measures for 2023 and 2024 can be found in our fourth quarter 2023 earnings release.
Jeff Guyer: During the call, we will be making certain forward looking statements, including but not limited to.
Jeff Guyer: Statements regarding our 2024 guidance Medicaid Redetermination, our recent RFP awards and related revenue growth, our recent acquisitions and M&A activity, our long term growth strategy and our embedded earnings power and projected 2025 earnings per share.
Jeff Geyer: Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K Annual Report filed with the SEC, as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joseph Zubretsky. Joe?
Jeff Guyer: Listeners are cautioned that all of our forward looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations.
Jeff Guyer: We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q, and form 8-K filings with the SEC.
Jeff Guyer: After completion of our prepared remarks, we will open the call to take your questions I will now turn the call over to our Chief Executive Officer Joseph Breath.
Jeff Guyer: Joe.
Joseph M. Zubretsky: Thank you, Jeff, and good morning. Today, I will discuss several topics, including our financial results for the fourth quarter and full year 2023, our growth initiatives and our strategy for sustaining profitable growth, our 2024 Premium Revenue and Earnings Guidance, and an affirmation of our long-term growth target. Let me start with our fourth-quarter performance.
Joseph Krocheski: Thank you, Jeff and good morning.
Joseph Krocheski: Today I will discuss several topics.
Joseph Krocheski: Our financial results for the fourth quarter and full year 2023.
Joseph Krocheski: Our growth initiatives and our strategy for sustaining profitable growth.
Joseph Krocheski: Our 2024 premium revenue and earnings guidance.
Joseph Krocheski: And an affirmation of our long term growth targets.
Joseph Krocheski: Let me start with our fourth quarter performance.
Joseph M. Zubretsky: Last night, we reported adjusted earnings per diluted share of $4.38 on $8.4 billion of premium revenue. Our fourth quarter results and performance metrics demonstrated strong medical cost management and operating cost discipline. Medicaid continued to perform well, withstanding the impacts of the unprecedented redetermination process.
Joseph Krocheski: Last night, we reported adjusted earnings per diluted share of $4 38, an $8 4 billion of premium revenue.
Joseph Krocheski: Yeah.
Joseph Krocheski: Our fourth quarter results and performance metrics demonstrated strong medical cost management and operating cost discipline.
Joseph Krocheski: Medicaid continued to perform well withstanding the impact of the unprecedented redetermination process.
Joseph M. Zubretsky: Medicare experienced higher than target medical costs, consistent with prior quarters, and Marketplace performed very well despite the late-in-year medical cost seasonality typically experienced. Our fourth quarter completes a strong year of operating and financial performance. Full-year adjusted earnings per share of $20.88 represents 17% year-over-year growth, squarely in line with our long-term target range of 15 to 18 percent and 6% above our initial 2023 guidance of at least $19.75. Our full-year premium revenue of $32.5 billion represents 5% year-over-year, and our pre-tax margin of 4.8% is at the high end of our long-term target range heading into 2025. In Medicaid, our flagship business representing over 80% of revenue, we reported an 88.7% NCR for the full year, which is within our long-term target range. Throughout the redetermination process, we have managed through a number of factors that shape Medicaid's performance, all to land a full year result at a solid jump-off point into 2024. These factors included medical cost utilization, various state corridors and MLR minimums, and In Medicare, the full-year MCR was 90.7%.
Joseph Krocheski: Medicare experienced higher than target medical costs consistent with prior quarters.
Joseph Krocheski: And marketplace performed very well despite the late in year medical cost seasonality typically experienced.
Yeah.
Joseph Krocheski: Our fourth quarter, completing a strong year of operating and financial performance.
Joseph Krocheski: Full year adjusted earnings per share of $20 88.
Joseph Krocheski: Representing 17% year over year growth square.
Joseph Krocheski: Squarely in line with our long term target range of 15% to 18%.
Joseph Krocheski: 6% above our initial 2023 guidance.
Joseph Krocheski: $19 75.
Joseph Krocheski: Our full year premium revenue of $32 5 billion represents 5% year over year growth in our pre tax margin of four 8% is at the high end of our long term target range heading into 2024.
Joseph Krocheski: In Medicaid our flagship business representing over 80% of revenue.
Joseph Krocheski: We reported 88, 7% MCR for the full year, which is within our long term target range.
Joseph Krocheski: Throughout the Redetermination process, we have managed through a number of factors that shaped Medicaid performance.
Joseph Krocheski: All told we ended the full year result at a solid jump off point into 2024.
Joseph Krocheski: These factors included medical cost utilization various state core doors and MLR minimums.
Joseph Krocheski: And prospective rate changes.
Joseph Krocheski: In Medicare the full year MCR was 97%.
Joseph M. Zubretsky: While the business is profitable, we did not meet our performance expectations due to higher utilization of supplemental benefits, in-home services, and high-cost drugs. However, I am confident that our 2024 bid strategy, adjustments to benefit design, and various operational improvements will return the business to target margins in 2024. In Marketplace, we reported a 75.3% MCR for the full year below the low end of our target range, which reflects the successful execution of our small, silver, and stable strategy. This business is now positioned to grow at a rate that allows us to sustain mid-single-digit margins. In addition to delivering strong financial results in 2023, we continue to execute on our profitable growth strategy to recap the growth milestones achieved in 2020. In January, we successfully re-procured our contract in Texas for the state's STAR Plus program, retaining all eight regions and likely growing market share. In July, we successfully launched our Medicaid in Iowa, following the RFP, which we won in a highly competitive process in late 2022. In August, we announced that we were awarded a contract to once again serve Medicaid beneficiaries in the state of New Mexico. In September, we closed on the My Choice Wisconsin acquisition, further expanding our market-leading LTSS franchise.
Joseph Krocheski: While the business is profitable we did not meet our performance expectations due to higher utilization of supplemental benefits.
Joseph Krocheski: In home services and high cost drugs.
Joseph Krocheski: I am confident that our 2020 for bid strategy.
Joseph Krocheski: Adjustments to benefit design and various operational improvements will return the business to target margins in 2024.
Joseph Krocheski: In marketplace, we reported a 75, 3% MCR for the full year below the low end of our target range, which reflects the successful execution of our small silver and stable strategy.
Joseph Krocheski: This business is now positioned to grow at a rate, which allows us to sustain mid single digit margins.
Joseph Krocheski: In addition to delivering strong financial results in 2023, we continue to execute on our profitable growth strategy.
Joseph Krocheski: To recap the growth milestones achieved in 2023.
Joseph Krocheski: In January we successfully re procured our contract in Texas for the States Star plus program, retaining all eight regions and likely growing market share.
Joseph Krocheski: In July we successfully launched our Iowa Medicaid plan following the RFP, which we had won in a highly competitive process in late 2022.
Joseph Krocheski: In August we announced that we were awarded a contract to once again serve Medicaid beneficiaries in the state of New Mexico.
In September we closed on the my choice, Wisconsin acquisition further expanding our market leading L. T. S S franchise.
Joseph Krocheski: In June we agreed to acquire Bright House, California, Medicare business, which we have now closed effective January one 2024.
Joseph M. Zubretsky: In June, we agreed to acquire Bright Health's California Medicare business, which we have now closed, effective January 1st, 2024. Also, effective January 1st, and after another win and a highly competitive bid process, we successfully launched our Nebraska Health. And finally, on January 1, we launched our expanded California platform, including Los Angeles County, which doubled the size of our business in the state. Collectively, these acquisitions and RFP successes represent $7 billion of annual premium revenue, a portion of which was in our 2023 results, most of which is in our 2024 guidance, and all of which will be fully realized in 2025. To say we are pleased with the execution of our 2023 growth initiatives would be an understatement. But the growth story doesn't stop there.
Joseph Krocheski: Also effective January 1st and after another win in a highly competitive bid process. We successfully launched our Nebraska health plan and finally on January one we launched our expanded California platform, including Los Angeles County, which doubled the size of our business in the state.
Joseph Krocheski: Collectively these acquisitions and RFP successes represent $7 billion of annual premium revenue.
Joseph Krocheski: A portion of which was in our 2023 results.
Joseph Krocheski: Most of which is in our 2020 for guidance.
Joseph Krocheski: And all of which will be fully realized in 2025.
To say, we are pleased with the execution of our 2023 growth initiatives would be an understatement.
Joseph Krocheski: But the growth story doesn't stop there.
Joseph Krocheski: Our pipeline of opportunities fueling our future growth trajectory is extremely strong.
Speaker Change: Let me begin with re procurement.
Speaker Change: We have submitted our RFP responses for contract renewals in Florida, Virginia and Michigan.
Speaker Change: We are proven partners with all three of these states and we are confident in our ability to retain and grow these relationships.
Speaker Change: With regard to new state opportunities.
Joseph M. Zubretsky: The pipeline of opportunities fueling our future growth trajectory is extremely strong. Let me begin with re-procurement. We have submitted our RFP responses for contract renewals in Florida, Virginia, and Michigan. We are proven partners with all three of these states, and we are confident in our ability to retain and grow these relationships. With regard to new state opportunities, including the Florida opportunity just described, there is over $50 billion of total premium revenue opportunity, active or near term, up for bid in several states over the coming years. We have already submitted bids in the states of Kansas and Georgia.
Speaker Change: Including the Florida opportunity just described there is over $50 billion of total premium revenue opportunity active or near term up for bid in several states over the coming years.
Speaker Change: We have already submitted bids in the states of Kansas in Georgia.
Speaker Change: With our demonstrated capabilities and referenced triple track record, we remain confident in our ability to continue to win new state contracts.
Speaker Change: With respect to our M&A initiatives.
Speaker Change: Our acquisition pipeline remains robust with actionable opportunities and we are confident in our ability to deliver growth from this key component of our strategy.
Speaker Change: Since 2019, we have completed eight transactions, having acquired over $11 billion of premium for which we paid 22% of revenue.
This capital allocation to M&A will continue to be a value driver.
Speaker Change: Turning now to our 2020 for guidance.
Speaker Change: We project 2024 premium revenue of approximately $38 billion.
Joseph M. Zubretsky: With our demonstrated capabilities and a referenceable track record, we remain confident in our ability to continue to win new state contracts. Our acquisition pipeline remains robust with actionable opportunities, and we are confident in our ability to deliver growth from this key component of our strategy. Since 2019, we have completed eight transactions, having acquired over $11 billion of premium, for which we paid 22% of revenue. This capital allocation to M&A will continue to be a value driver.
Speaker Change: Which is consistent with our previous outlook and represents 17% year over year growth.
Speaker Change: We project 2024 adjusted earnings per share of at least $23 50.
Speaker Change: Representing 13% year over year growth.
Mark will take you through the detailed guidance builds in a few minutes, but in the meantime, let me offer some high level commentary.
Speaker Change: Our projected premium revenue growth to $38 million.
Speaker Change: It represents a well balanced combination of new contract wins acquisitions and growth in our current footprint, partially offset by the impact of Medicaid Redetermination.
Speaker Change: With respect to earnings guidance in the core business.
Speaker Change: And Medicaid our guidance fully considers the impact of the Redetermination process.
Speaker Change: From a margin perspective, this is playing out as we had predicted.
Joseph M. Zubretsky: Turning now to our 2024 guidance. We project 2024 premium revenue of approximately $38 billion, which is consistent with our previous outlook and represents 17% year-over-year growth. We project 2024 adjusted earnings per share of at least $23.50, representing 13% year-over-year growth. Mark will take you through the detailed guidance build in a few minutes, but in the meantime, let me offer some high-level comments. Our projected premium revenue growth to $38 billion represents a well-balanced combination of new contract wins, acquisitions, and growth in our current footprint, partially offset by the impact of Medicaid redetermination with respect In Medicaid, our guidance fully considers the impact of the redetermination process. From a margin perspective, this is playing out as we had predicted. The impact of acuity shifts is real, but it is not significant.
Speaker Change: The impact of acuity shifts Israel, but not significant.
Speaker Change: The risk corridor as accurate as a financial buffer and rates prospective and retrospective are largely capturing the trended back.
Speaker Change: On a same store basis, we are projecting that 2020 for Medicaid MCR to be within our long term range.
Speaker Change: We expect Medicare to return to mid single digit profitability in 2024, as a result of our bid strategy adjustments to benefit design and operational improvements in the legacy business.
Speaker Change: Our marketplace product had been priced right is competitively positioned and the risk pool has stabilized.
Speaker Change: We expect the business to achieve mid to high single digit margins membership to grow over 30% in revenue to grow 17%.
Speaker Change: On top of our 2024 earnings per share guidance of at least $23 50.
Speaker Change: We now have $4 per share of new store embedded earnings.
Speaker Change: Which as you may recall represents the expected accretion produced by our new store growth.
Speaker Change: Mark will review the components of the updated $4 per share in his remarks.
Speaker Change: Our confidence in our 2024 guidance starts with a high quality 2023 earnings baseline and then takes a thorough account of all the various factors exogenous and company specific that could impact earnings in 2024.
Speaker Change: Now a few comments on our longer term trajectory.
Speaker Change: Our 'twenty 'twenty four guidance picture is one more data point that validates our long term targets of 13% to 15% premium growth and 15% to 18% adjusted earnings per share growth.
Joseph M. Zubretsky: The risk corridors acted as a financial buffer, and rates, prospective and retrospective, are largely capturing the trend. On a same-store basis, we are projecting the 2024 Medicaid MCR to be within our long-term range. We expect Medicare to return to mid-single-digit profitability in 2024 as a result of our bid strategy, adjustments to benefit design, and operational improvements in the legacy business. Our marketplace product has been priced right, is competitively positioned, and the risk pool has stabilized. We expect the business to achieve mid to high single-digit margins, membership to grow over 30 percent, and revenue to grow 17 percent, on top of our 2024 earnings per share guidance of at least $23.50. We now have $4 per share of New Store Embedded Earnings, which, as you may recall, represents the expected accretion produced by our new store growth. Mark will review the components of the updated $4 per share in his remarks.
Speaker Change: We committed to these targets at our Investor Day last may and we reaffirmed that commitment today.
Speaker Change: With the majority of the $4 of new store embedded earnings expected to emerge in 2025, we already see a clear outlook to achieving the low end of our long term EPS growth target in 2025, even before considering the execution of additional growth initiatives and.
Speaker Change: Driving growth from our current footprint.
In summary, we are very pleased with our 2023 performance or trajectory to deliver the growth and profitability inherent in our 2020 for guidance and the embedded earnings outlook, we provided for 2025.
Our confidence in continuing to achieve our long term targets as data driven as demonstrated by the following historical factset.
Speaker Change: We have re procured approximately $12 billion in existing revenue.
Speaker Change: We have added approximately $7 billion of new revenue through wins of new or expanded contracts in seven states.
From 'twenty to 'twenty to 'twenty to 'twenty, three we achieved 21% annual premium growth.
Speaker Change: And 25% annual earnings per share growth.
Speaker Change: 2024 guidance, 17% premium revenue growth year over year, 13% earnings per share growth year over year.
Joseph M. Zubretsky: Our confidence in our 2024 guidance starts with a high-quality 2023 earnings baseline and then takes a thorough account of all the various factors, exogenous and company-specific, that could impact earnings in 2024. Now, a few comments on our longer-term trajectory. Our 2024 guidance picture is one more data point that validates our long-term targets of 13 to 15 percent premium growth and 15 to 18 percent adjusted earnings per share growth. We committed to these targets at our Investor Day last May, and we reaffirm that commitment today.
Speaker Change: And for 2025, we expect to harvest the majority of our $4 per share of embedded earnings.
Speaker Change: Our strategy is clear and simple.
Speaker Change: We are in the business of providing access to high quality health care for individuals relying on government assistance.
Speaker Change: Our business model is also clear and simple.
Speaker Change: We take on capitation risk take or make rates that are commensurate with medical cost trends and.
Speaker Change: And manage those trends to consistently achieve our target margins, while maintaining the highest standards of quality.
Speaker Change: The execution of our strategy and business model has been and will continue to be strong which is why we look to the future with a great deal of contracts.
Speaker Change: In conclusion I want to extend my special Thanks to our 19000 associates, who are dedicated to delivering access to high quality health care to our members. It is my privilege to serve with such a committed and capable group of professionals.
Joseph M. Zubretsky: With the majority of the $4 of new store embedded earnings expected to emerge in 2025, we already see a clear outlook for achieving the low end of our long-term EPS growth target in 2025, even before considering the execution of additional growth initiatives and driving growth from our current footprint. In summary, we are very pleased with our 2023 performance, our trajectory to deliver the growth and profitability inherent in our 2024 guidance, and the embedded earnings outlook we provided for 2025. Our confidence in continuing to achieve our long-term targets is data-driven, as demonstrated by the following historical facts.
Speaker Change: With that I will turn the call over to Mark for some additional color on the financials.
Speaker Change: Mark.
Speaker Change: Yeah.
Mark: Thanks, Joe and good morning, everyone.
Mark: Today I'll discuss some additional details on our fourth quarter and full year performance the balance sheet Redetermination and our 2020 for guidance.
Mark: Beginning with our fourth quarter and full year results.
Mark: For the quarter, we reported 9 billion in total revenue and $8 4 billion of premium revenue.
Mark: I will note that total revenue includes approximately $380 million in reimbursement for our California, MTO tax item that was retroactive to April.
This item modestly distorts, our reported G&A and margin ratios, but had no net economic consequence.
Mark: Yeah.
Mark: On a consolidated basis, our fourth quarter MCR was $89, one and our full year was $88 one.
Reflecting continued strong medical cost management.
Mark: Our full year consolidated MCR was consistent with our expectations.
Joseph M. Zubretsky: We have re-procured approximately $12 billion in existing revenue. Additionally, we have added approximately $7 billion of new revenue through wins of new or expanded contracts in seven states. From 2020 to 2023, we achieved 21% annual premium growth and 25% annual earnings per share growth. For 2024, our guidance is 17% premium revenue growth year over year and 13% earnings per share growth year over year. And for 2025, we expect to harvest the majority of our $4 per share of embedded earnings. Our strategy is clear and simple.
Mark: Where are they in line with our long term target range.
Mark: Yeah.
Mark: In Medicaid our fourth quarter reported MCR was $89 two.
Mark: The MTR included a moderate impact from the net effect of Redetermination acuity shifts and corridor in several states as well as some MCR pressure from the additions of our Iowa Health plan and our my choice acquisition.
Mark: Across our Medicaid segment, the major medical cost categories were largely in line with our expectation and normal quarter to quarter trend fluctuations.
Mark: Our full year Medicaid MCR was $88 seven.
Mark: Within our long term target range and consistent with our expectations.
Mark: In Medicare our fourth quarter reported MCR was 93 three.
Mark: And our full year was 97.
Mark: Both above our long term target range and impacted by increased utilization of supplemental benefits.
Mark: In home services and high cost drugs.
Joseph M. Zubretsky: We are in the business of providing access to high-quality healthcare for individuals relying on government assistance. Our business model is also clear and sound; we take uncapitalized risk, take or make rates that are commensurate with medical cost trends, and manage those trends to consistently achieve our target margins while maintaining the highest standards of quality. The execution of our strategy and business model has been and will continue to be strong, which is why we look to the future with a great deal of confidence. In conclusion, I want to extend my special thanks to our 19,000 associates who are dedicated to delivering access to high-quality health care to our members. It is my privilege to serve with such a committed and capable group of professionals. With that, I will turn the call over to Mark for some additional color on the financial, more. Thanks, Joe, and good morning, everyone.
Mark: As Joe mentioned, we are confident that our 2020 for bid strategy adjustments to benefit design as well as operational improvements will produce target margins in our Medicare business in 2024.
Mark: And marketplace a.
Mark: Our reported fourth quarter MCR was $79 eight reflecting our continued success in returning this business to target margins.
Mark: Our full year marketplace MCR of $75 three was well below our long term target range.
Mark: Our adjusted G&A ratio for the quarter was 7% as reported.
Mark: However, when accounting for the California pass through premium tax items, the ratio restates to seven 3%.
Mark: This result includes new business implementation spending for new contract wins in California, Nebraska, and new Mexico, as well as expected seasonal expenditures for Medicare and marketplace marketing.
Mark: Our full year adjusted G&A ratio was seven two.
Mark: Recognizing the California tax item in the fourth quarter, the full year G&A ratio restates to seven three.
Mark: Turning to our Great acquisition, we successfully closed the transaction effective this past January one at <unk>.
Mark: Final price of $425 million net of tax benefits, which was lower than our initially announced terms.
Mark Kimes: Today, I'll discuss some additional details on our fourth quarter and full year performance, the balance sheet, redeterminations, and our 2024 guidance, beginning with our fourth quarter and full year results. For the quarter, we reported $9 billion in total revenue and $8.4 billion in premium revenue. I will note the total revenue includes approximately $380 million in reimbursement for a California MCO tax item that was retrospective to April. This item modestly distorts our reported G&A and margin ratios but has no net economic consequence.
Mark: The acquisition adds 109000 members and contributed $1 6 billion in premiums this year.
Mark: We acquired the business with a premium deficiency reserve, which is expected to moderate first year losses, but we still expect the acquisition to be approximately 50 cents dilutive to 2024 adjusted EPS.
Mark: Now that we have owned the business for six weeks, we have increased confidence in our assumption that the bright acquisition will deliver on the ultimate accretion of one dollar per share its final run rate margin.
Mark: Given the expectation of this modest loss in the first year, we are updating the 2024 new store embedded earnings from.
Mark: From the <unk> acquisition to $1 50 per share, reflecting this 50, a first year dilution.
Mark Kimes: On a consolidated basis, our fourth-quarter MCR was 89.1 and our full year was 88.1, reflecting continued strong medical cost management. Our four-year consolidated MCR was consistent with our expectations and squarely in line with our long-term target range. In Medicaid, our fourth-quarter reported MCR was 89.2. The MCR included a moderate impact from the net effect of redetermination acuity shifts and corridors in several states, as well as some MCR pressure from the additions of our Iowa Health Plan and our My Choice Acquisition. Across our Medicaid segment, the major medical cost categories were largely in line with our expectations and normal quarter-to-quarter trend fluctuations.
Mark: Moving on to Medicaid Redetermination.
Mark: In the quarter, we estimate we lost 200000 members driven by re determinations, bringing the full year figure to approximately 500000.
Mark: We are now updating our estimate of members gained during the pandemic to $1 million to include new business additions in 2023, and 2024 as well as the legacy business.
Mark: Given the high rate of procedural dis enrollments rather than through verification, we are seeing a nearly 30% reconnect rate consistent with previous quarters.
Mark: As <unk> continue we expect the membership losses, just described to restate to a lower level over the coming months.
Mark: We continue to project ultimately retaining 40% of our updated members gained which implies a net loss of 600000 from the Redetermination process.
Mark: The offsetting positive impact from our growth initiatives is significant.
Mark Kimes: Our full-year Medicaid MCR was 88.7, within our long-term target range and consistent with our expectations. For Medicare, our fourth quarter reported MCR was 93.3, and our full year was 90.7, both above our long-term target range and impacted by increased utilization of supplemental benefits, in-home services, and high-cost drugs. As Joe mentioned, we are confident that our 2024 bid strategy adjustments to benefit design, as well as operational improvements, will produce target margins in our Medicare business in 2024 and in the Marketplace. Our reported fourth-quarter MCR was 79.8, reflecting our continued success in returning this business to target margins. Our full-year marketplace MCR of 75.3 was well below our long-term target range. Our adjusted DNA ratio for the quarter was 7%, as reported.
We ended 2022 with $4 8 million Medicaid members and we expect to close out 2024 with $5 1 million members, a net 300000 member growth.
Mark: Over a two year period, despite the losses from Redetermination.
Mark: Moving to Medicaid rates.
Mark: We now have visibility into rates impacting approximately 80% of our 2024 premium.
Mark: All but one of our states have now included in acuity adjustment for Redetermination for 2024.
Mark: We continue to work with our state partners to ensure appropriate rates through the normal rate cycle retroactive or mid cycle adjustment given the experience to date.
We are confident that the requirement for Actuarially sound rates will offset trends as they may emerge.
Mark: Updated rate and trend assumptions had been considered in the 'twenty 'twenty four Medicaid MCR that supports our guidance.
Mark: Turning to our balance sheet.
Mark: Our capital Foundation remains strong we harvested approximately $280 million of subsidiary dividends in the quarter and our parent company cash balance was approximately $740 million.
Mark: One of which was used to fund the brake Medicare acquisition, just after the first of the year.
Mark Kimes: However, when accounting for the California pass-through premium tax item, the ratio restates to 7.3%. This result includes new business implementation spending for new contract wins in California, Nebraska, and New Mexico, as well as expected seasonal expenditures for Medicare and Marketplace Markets. Our full-year adjusted GNA ratio was 7.2. However, recognizing the California tax item in the fourth quarter, the full-year G&A ratio restates to 7.5.
Mark: Debt at the end of the quarter was one four times trailing 12 month EBITDA with our debt to cap ratio at $36 three.
Mark: These ratios reflect our low leverage position and ample cash and capital capacity for additional growth and investment.
Mark: Our reserve approach remains consistent with prior quarters, we are covenant and the strength of our reserve position.
Mark: Days and claims payable at the end of the quarter was 50.
Mark: Now some additional details on our 2024 guidance beginning with membership.
Mark: In Medicaid, we expect new membership from our recent new contract wins to add approximately 650000 members.
Mark: We expect to lose 100000 members over the remainder of the Redetermination process at 2024.
Mark Kimes: Turning to our bright acquisition, we successfully closed the transaction effective this past January 1st at a final price of $425 million net of tax benefits, which was lower than our initially announced terms. The acquisition adds 109,000 members and contributes $1.6 billion in premium this year. We acquired the business with a premium deficiency reserve, which is expected to moderate first-year losses, but we still expect the acquisition to be approximately 50 cents dilutive to 2024 adjusted EPS. Now that we have owned the business for six weeks, we have increased confidence in our assumption that the Bright acquisition will deliver an ultimate accretion of a dollar per share at final run rate margins. Given the expectation of this modest loss in the first year, we are updating the 2024 New Store Embedded Earnings from the right acquisition to $1.50 per share, reflecting this $0.50 of first-year dilution. Moving on to Medicaid redetermination. In the quarter, we estimate we lost 200,000 members driven by redetermination, bringing the full year figure to approximately $500,000.
The net result in 2024 year end membership of approximately $5 1 million members or 12% growth year over year.
Mark: In Medicare there bright acquisition added 109000 members.
Mark: Bind with our legacy business, we expect to end 2024, with 270000, Medicare members, representing 58% growth year over year.
Mark: In marketplace.
Mark: Just on open enrollment we expect to begin 2024 with approximately 320000 members representing 14% growth from year end 2023.
Mark: We expect growth to continue through the year boosted by the Redetermination conversions and ending with approximately 370000 members representing 31% growth year over year.
Mark: We are still 75% silver, which bodes well for medical margin stability.
Mark: Our 2024 premium revenue guidance is approximately 38 billion, representing 17% growth from 2023.
Mark: Our revenue growth is comprised of several items.
Mark: $3 3 billion of revenue tied to our recent RFP wins.
Mark: To this we add $2 4 billion of revenue from our recently closed acquisitions, including $1 6 billion from bright.
Mark: At $800 million from a full year of my choice, Wisconsin.
Mark: And finally, $1 7 billion of organic growth across Medicaid Medicare and marketplace.
Mark: Partially offsetting these growth drivers is a higher estimated full year impact of $1 9 billion and decreased revenue from re determinations.
Mark Kimes: We are now updating our estimate of members gained during the pandemic to 1 million to include new business additions in 2023 and 2024, as well as the legacy business. Given the high rate of procedural disenrollments rather than through verification, we are seeing a nearly 30% reconnect rate consistent with previous quarters. As ReConnects continue, we expect the membership losses just described to restate to a lower level over the coming months. We continue to project ultimately retaining 40% of our updated members' gains, which implies a net loss of $600,000 from the redetermination process. The offsetting positive impact from our growth initiatives is significant. We ended 2022 with 4.8 million Medicaid members, and we expect to close out 2024 with 5.1 million members, a net 300,000 member growth over a two-year period despite the losses from redetermination.
Mark: Moving onto earnings guidance.
Mark: We expect 2020 for full year adjusted earnings of at least $23 50 per share.
Mark: Our EPS guidance reflects.
Mark: The realization of approximately $2 per share of 2023, new store embedded earnings.
Mark: Approximately $2 for the underlying organic growth across our current Medicaid and Medicare footprints.
Mark: The realization of 75 cents benefit from the onetime nonrecurring implementation costs incurred in 2023.
Mark: Partially offset by a $1 25 impact from re determinations.
Mark: And 50 cents impact from the bright acquisitions first year operating and carrying costs and finally 25 from a conservative view of earnings contribution from investment income.
Mark: Turning to MTR guidance.
Mark: Our consolidated medical care ratio is expected to be $88 two.
Mark: Our Medicaid MCR is expected to be 89 at the high end of our long term target range.
This guidance reflects the inclusion of our significant new store growth, which runs at a higher MCR in the first year.
Mark: Our legacy or same store Medicaid MCR is expected to fall in the middle of our long term range.
Mark: We anticipate our Medicare MCR to be 88%.
Mark Kimes: Moving to Medicaid rates, we now have visibility into rates impacting approximately 80% of our 2024 premium. Additionally, all but one of our states have now included an acuity adjustment for redetermination for 2024.
Mark: While at the high end of our long term target range. The MCR reflects our expected success in our 2020 for bid strategy adjustments to benefit design and various operational improvements.
Mark: For marketplace.
Mark: We expect the MCR at the low end of the long term target MCR range of 78 to 80.
Mark: Moving on to select P&L guidance metrics.
Mark Kimes: We continue to work with our state partners to ensure appropriate rates through the normal rate cycle, retroactive, or mid-cycle adjustments, given the experience to date. We are confident that the requirement for actuarially sound rates will offset trends as they may emerge. Updated rates and trend assumptions have been considered in the 2024 Medicaid MCR, which supports our guidance. Turning to our balance sheet, our capital foundation remains strong.
Mark: We expect our adjusted G&A ratio default to 7% as new business implementation costs subside and we leveraged the increased scale of our business.
Mark: Effective tax rate of $25 seven.
Mark: Adjusted pre tax margin of four six well within our long term target range.
Mark: Weighted average share count unchanged at $58 1 million shares.
Mark: And our quarterly EPS will be weighted slightly heavier towards the second half of the year as we drive improved performance in our new business portfolio additions over the course of the year.
Mark Kimes: We harvested approximately 280 million in subsidiary dividends in the quarter, and our parent company cash balance was approximately 740 million, a portion of which was used to fund the Bright Medicare acquisition just after the first of the year. Debt at the end of the quarter was 1.4 times trailing 12-month EBITDA, with our debt-to-cap ratio at 36.3.
Mark: Turning to embedded earnings.
Mark: We ended 2023 with $5 50 per share of new store embedded earnings.
Mark: Our 2024 guidance includes the realization of $2, resulting in a new base of $3 50.
Mark: To this we add 50 for the impact of Brian acquisitions first year was.
Mark: Leaving us with $4 remaining at the end of 2024.
Mark: We expect the majority of this to emerge in 2025, giving us further confidence in our 15% to 18% long term growth rate for EPS.
Speaker Change: This concludes our prepared remarks.
Mark Kimes: These ratios reflect our low leverage position and ample cash and capital capacity for additional growth and investment. Our reserve approach remains consistent with prior quarters, and we are confident in the strength of our reserve position. Days in Clems payable at the end of the quarter was $50.
Speaker Change: Operator, we are now ready to take questions.
Speaker Change: We will now begin the question and answer question.
Speaker Change: The question you May Press Star then one on your Touchtone phone.
Speaker Change: If you are using a speakerphone please pick up the handset.
Speaker Change: And then any time your question has been addressed and you would like to withdraw your question. Please press Star then two.
Mark Kimes: Now some additional details on our 2020 board guidance, beginning with membership. In Medicaid, we expect new membership from our recent new contract wins to add approximately 650,000 members. We expect to lose 100,000 members over the remainder of the redetermination process in 2024, meaning the net result in 2024 year-end membership of approximately 5.1 million members, or 12% growth year over year. In Medicare, the right acquisition added 109,000 members.
Speaker Change: At this time, we will pause momentarily to assemble our roster.
Speaker Change: The first question comes from AJ Rice with UBS.
Please go ahead.
AJ Rice: Thanks, Hi, everybody maybe.
AJ Rice: Maybe two things.
AJ Rice: On the Medicare MLR margin it sounds like you're attributing your improvement that you're expecting largely to benefit design changes and operational improvements any comment on what you're assuming relative to underlying utilization trends and then just on the Medicaid you're sounding like a.
AJ Rice: You'll be on the legacy business in the middle of your long term.
AJ Rice: While our targets.
AJ Rice: Hi, how are you thinking about a margin profile coming out of <unk>.
Mark Kimes: Combined with our legacy business, we expect to end 2024 with 270,000 Medicare members, representing 58% growth year over year. In Marketplace, based on open enrollment, we expect to begin 2024 with approximately 320,000 members, representing 14% growth from year-end 2023. We expect growth to continue through the year, boosted by the redetermination conversion, and ending with approximately 370,000 members representing 31% growth year over year. We are still 75% silver, which bodes well for medical margin stability. Our 2024 Premium Revenue Guidance is approximately $38 billion, representing 17% growth from 2023. Our revenue growth is comprised of several items. $3.3 billion of revenue tied to our recent RFP wins. To this, we add $2.4 billion of revenue from our recently closed acquisition, including $1.6 billion from Bright and $800 million from a full year of My Choice Wisconsin. And finally, 1.7 billion of organic growth across Medicaid, Medicare, and the Marketplace. Partially offsetting these growth drivers is a higher estimated full-year impact of $1.9 billion in decreased revenue from redetermination.
AJ Rice: Redetermination is there an opportunity for further improvement is it steady any thoughts on that.
Speaker Change: Sure a J with respect to the Medicare MLR question.
Speaker Change: We had three components of medical costs that ran.
Speaker Change: Higher than expectations.
Speaker Change: One was a L. P. S S hours on the Medicaid side of the MMP business.
Speaker Change: Second high cost drugs and third our supper.
Speaker Change: Supplemental benefits vision dental cash card over the counter was a little too originally designed in 2023 to be to be honest.
Speaker Change: We pulled back on those benefits in our 2020 for product design and bids.
Speaker Change: We've reshaped some of the allowance based benefits to be more manage and we're confident that that cost category will come back into line.
Speaker Change: Enel PSS hours on the Medicaid side of the MMP benefit we know we know where we know why and corrective actions are in place and it's not unusual in a soft economy for in home service hours to increase so we are very confident in the restoration of our MCR.
Speaker Change: Back to the top end of the range and Medicare to 88% in 2024.
Speaker Change: You also asked about the Medicaid MLR and let me frame. It this way, Matt I'll turn it to Mark.
Speaker Change:
Mark: The redetermination process.
Speaker Change: <unk> unfolded exactly.
Mark: And as we had predicted.
Mark: The acuity shift with noticeable.
Mark: But it was it wasn't dramatic and it wasn't significant but it was noticeable.
Mark: And that began to happen as the Redetermination process began.
Mark: We then said and it occurred that the first financial cushion would be the corridor the payments into the quarters that existed.
Mark: In the latter half of 2023.
Mark: That acted as a financial buffer in the meantime.
Mark: The acuity shift became noticeable to our state partners. They began to introduce a rate adjustment to account for the acuity shift so going into 2020 for.
Mark: The rate actions are completely compensated for what we call core medical trend completely compensated for any acuity shift and that's why we are able to print.
Mark: We are in Medicaid.
Mark: At the high end of the range at 89%.
Mark: Which includes a little bit of pressure from the new business that we put on the books.
Mark: Joe summarized that well look we finished 88 seven in 2023 for Medicaid and as Joe mentioned that included a little bit of pressure from the acuity shift from <unk>, but also as we projected the benefit of some core doors, so really tracking exactly where we expect it here in the new year.
Mark Kimes: Moving on to earnings guidance, we expect 2024 full-year adjusted earnings of at least $2,350 per share. Our EPS guidance reflects the realization of approximately $2 per share of 2023 New Store Embedded Earnings, approximately $2 for the underlying organic growth across our current Medicaid and Medicare footprints, the realization of $0.75 benefit from the one-time non-recurring implementation cost incurred in 2023, partially offset by a $1.25 impact for redeterminations, and $0.50 impact from the Bright Acquisition's first year operating and carrying costs, and finally $0. Our consolidated medical care ratio is expected to be 88.2.
Mark: On our legacy book.
Mark: Trend roughly equals the rates that we're getting from our state partners. So on our legacy book into 'twenty four we're roughly seeing about a flat MLR versus where we finished 2023 now why are we added 89 in guidance just as Joe mentioned, we're adding significant new store.
Mark: <unk> through both our acquisitions and a number of big wins.
Mark: Whenever we have new store or go into our portfolio it tends to be a little bit hotter in the first year on an MLR.
Mark: So we're seeing a pretty much flat carryover on legacy a little bit of increased pressure on new store. That's how you get to that 89 that we have in our guidance.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: The next question comes from Karl Sir Nick with Jpmorgan. Please go ahead.
Speaker Change: Yes, thanks for the question.
Speaker Change: I wanted to ask you about the marketplace. It sounds like the book is running really well and you know.
Speaker Change: I think you were a little bit more competitively priced this year than you were previously.
Mark Kimes: Our Medicaid MCR is expected to be 89 cents, at the high end of our long-term target range. This guidance reflects the inclusion of our significant new store growth, which runs at a higher MCR in the first year. Our legacy, or same-store Medicaid MCR, is expected to fall in the middle of our long-term target range. We anticipate our Medicare MCR to be 88%. While at the high end of our long-term target range, the MCR reflects our expected success in our 2024 bid strategy adjustments to benefit design and various operational improvements. The Marketplace
Speaker Change: Guess first.
Speaker Change: Is the expectation when we talk about mid single digit to high single digit margins that you are within sort of that 5% to 7% range do you expect to be towards the upper half of that or maybe a bit above and then second how do you think about the market and the <unk>.
Speaker Change: <unk> for 2025, do you think youre still going to maintain the current pricing position or do you expect to I guess be more competitive across your total corporate again.
Speaker Change: <unk> strategy.
Speaker Change: And marketplace until we.
Speaker Change: We're satisfied with the risk pool will stabilize as to keep it as we say small silver and stable, but as the risk pool has stabilized.
Mark Kimes: We expect the MCR to be at the low end of the long-term target MCR range of 78 to 80. Moving on to Select P&L Guidance Metrics We expect our adjusted GNA ratio to fall to 7% as new business implementation costs subside and we leverage the increased scale of our business, an effective tax rate of 25.7, and an adjusted pre-tax margin of 4.6, well within our long-term target range. Weighted average share count unchanged at 58.1 million shares.
Speaker Change: Irrational pricing is pretty much left the market, we will allocate more capital to this business.
Speaker Change: And we will grow it at a rate that allows us to earn mid to high single digit margins. That's the key for us.
Speaker Change: Yeah.
Speaker Change: The risk pool can have inherent volatility, we believe that our margin target of 5% to 7%. As you suggested is the right target margin and we will grow the business at.
Speaker Change: At a rate that allows us to achieve that target margin.
Speaker Change: We're very competitively positioned this year.
Speaker Change: And our silver product, we were number one and two and 30% of our counties. This year as compared to 20% last year, a 75% of the book is still silver 50% of the book is renewal, which gives us good insight.
Speaker Change: To capture appropriate risk, scoring of the book is very well positioned to grow 31% membership growth, 17% revenue growth just this year and hopefully we'll be able to grow it at this rate in the future all with the goal of achieving mid to high single digit margins.
Mark Kimes: And our quarterly EPS will be weighted slightly heavier towards the second half of the year as we drive improved performance in our new business portfolio additions over the course of the year. Turning to Embedded Earnings, we ended 2023 with $5.50 per share of new store embedded earnings.
Speaker Change: Alright, great. Thanks.
Speaker Change: The next question comes from Kevin Chiang with Bank of America. Please go ahead.
Kevin Mark Fischbeck: Alright, great. Thanks, maybe two questions because I get in I guess, the first one on the Medicare side.
Mark Kimes: Our 2024 guidance includes the realization of $2, resulting in a new base of $3.50. To this, we add 50 cents for the impact of Bright Acquisitions' first year loss, leaving us with $4 remaining at the end of 2024. We expect the majority of this to emerge in 2025, giving us further confidence in our 15 to 18% long-term growth rate for EPS. This concludes our prepared remarks. Operator, we are now ready to take questions. We will now begin the question and answer session. To ask a question, you may press star and one on your touchtone phone.
Kevin Mark Fischbeck: I just want make sure I understand your commentary around MLR, because you're bringing in bright with a PDR.
Kevin Mark Fischbeck: Youre still saying, we're going to be at.
Kevin Mark Fischbeck: Overall target market are we talking about the core business being a target margin or even with losing money, you'll you'll be at target margin on the consolidated book.
Kevin Mark Fischbeck: And then thinking about the exchanges I guess there was potentially some issue about you know we are determined to keep people off and then the second part of that population comes onto the exchanges are you seeing any of that or does the risk pool benefit of lower subsidies just kind of.
Kevin Mark Fischbeck: Take that.
Speaker Change: Not really an issue.
Kevin Mark Fischbeck: Yeah.
Speaker Change: Thanks, Kevin I'm going to kick it to mark for a detailed commentary on the Medicare MLR, but.
Operator: If you are using a speakerphone, please pick up the handset before pressing your key. If at any time your question has been addressed and you would like to withdraw your question, please press star, send to. At this time, we will pause momentarily to assemble our roster. The first question today comes from A.J. Rice with UBS.
Mark: I think it's really important to frame the Medicare business and its component parts.
Mark: They are somewhat different and situationally they are quite different.
Mark: $6 billion of revenue forecasted for 2024 in Medicare.
Kevin Mark Fischbeck: One 6 billion is bright newly acquired subject to the premium deficiency reserve as you suggested and Mark will explain that in a minute.
Kevin Mark Fischbeck: $2 4 billion as our legacy business and 2 billion are the MMP demonstrations where rates are received from CMS.
A.J. Rice: Please go ahead. Thanks. Hi everybody.
Mark: Against the benchmark so the dynamics in the book of business are quite different and you need to look at the three components in order to develop your view of the.
Joseph M. Zubretsky: Maybe two things. On the Medicare MLR margin, it sounds like you're attributing your improvements that you're expecting largely to benefit design changes and operational improvements. Any comment on what you're assuming relative to underlying utilization trends? And then just on Medicaid, you're sounding like you'll be in the legacy business in the middle of your long-term MLR targets. How are you thinking about the margin profile coming out of the redeterminations? Is there an opportunity for further improvement? Is it steady?
Kevin Mark Fischbeck: The various profitability components.
Kevin Mark Fischbeck: That as the backdrop and the context I'll kick it to Mark for a detailed commentary on how you build the Medicare MLR, particularly with respect to bright and the premium deficiency reserve.
Mark: Fantastic Good morning, Kevin So break comes to us with the PDR in place with that PDR. The benefit goes into the MLR line and effectively reduces the MLR. So on the brake component, which is a third of our book Youll see an MLR that's below our target range at the mall.
Kevin Mark Fischbeck: <unk>.
Kevin Mark Fischbeck: On the D SNP, which is another third of our business.
Joseph M. Zubretsky: Any thoughts on that? Sure, A.J., with respect to the Medicare MLR question... We had three components of medical costs that ran higher than expected. One was LTSS Hours on the Medicaid side of the MNP business, second, high-cost drugs, and third. Supplemental benefits, vision, dental, cash card, over-the-counter, were a little too richly designed in 2023 to be.
Kevin Mark Fischbeck: We're seeing.
Kevin Mark Fischbeck: Our trend of probably around 4%, but overall, we're able to offset that and pull that into our target range and of course on MMP, which is the third component of the book the rates that we're getting from our state at CMS partners. We feel are quite adequate to bring us all told to that 88 in our MLR guidance.
Kevin Mark Fischbeck: With respect to your second question, if I remember correctly, you would have to do with the exchanges.
Joseph M. Zubretsky: We will pull back on those benefits in our 2020 product design and bid. We reshaped some of the allowance-based benefits to be more managed, and we're confident that that cost category will come through. For LTSS hours on the Medicaid side of the MMP benefit, we know where, we know why, and those corrective actions are in place.
Kevin Mark Fischbeck: Members coming off of the Medicaid rolls into the exchanges.
Kevin Mark Fischbeck: If you look at the last couple of years.
Kevin Mark Fischbeck: Membership is already always started the year at a higher point and ended the year at a lower point due to the natural attrition in the book this year, we're starting the year at 320000 members and plan to grow it to 370000 by the end of the year.
Kevin Mark Fischbeck: The natural attrition rate is still 2% to 3% inside that number but we do plan to pick up more members from not only our own Medicaid plans, but competitors Medicaid plans I think we are seeing are up.
Joseph M. Zubretsky: And it's not unusual in a soft economy for in-home service to increase. So we are very confident in the restoration of our MCR, back to the top end of the range in Medicare for 88%. You also asked about the Medicaid MLK. And let me frame it this way, and then I'll turn it around. The redetermination process actually unfolded exactly as we had planned and as we had planned. The acuity shift was
Kevin Mark Fischbeck: A a penetration rate of people coming off Medicaid of about 10% of members lost.
Speaker Change: Mark anything to add yes in the past when we picked up FEP members.
Mark: Put a little pressure on our MLR.
Mark: What we're seeing in the third and fourth quarter, and 23, and what I expect into 'twenty four is a dell come over at more sustaining and normalized levels that is they won't put pressure on because they are coming off.
Joseph M. Zubretsky: But it wasn't dramatic, and it wasn't significant, but it was noticeable. And that began to happen during the redetermination process. We then said, and it occurred, that the first financial cushion would be the court works, the payments into the court works that exist that act as a financial buffer. In the meantime, as the acuity shifts became noticeable to our state parks, they began to introduce rate adjustments to account for the acuity shifts. So going into 2024, The Raid Action is completely compensated for what we call a poor medical trend, completely compensated for any acuity shift.
Mark: <unk> using services Theres not pent up demand they are not new to the product.
Mark: So I'm expecting to see a good pick up on FEP as we did in Q3 and Q4 and not pressure on the MLR.
Kevin Mark Fischbeck: Yeah.
Kevin Mark Fischbeck: The next question comes from Josh Raskin.
Joshua Raskin: Please go ahead.
Joshua Raskin: Hi, Thanks, Good morning, 212 from me as well just you know that health insurance exchange membership up 31%, but revenues up 17 is that state geography mix related or is that reductions in prices and what's driving that versus a market that generally raising prices and then I'm still confused on bright how the target.
Mark Kimes: And that's why we're able to print an MCR in Medicaid at the high end of the range at 89%, which includes a little bit of pressure from the new business that we put on. Joe summarized that well. Look, we finished 88.7 in 2023 for Medicaid. And as Joe mentioned, that included a little bit of pressure from the acuity shift from redebt, but also as we projected the benefit of some corridors. So really tracking exactly where we expected, here in the new year on our legacy book, and the trend roughly equals the rates that we're getting from our state partners. So on our legacy book into 24, we're roughly seeing about a flat MLR versus where we finished in 2023. Now, why are we at an 89 in guidance?
Joshua Raskin: Have the MLR for bright that Youre booking this year is below the target range, but youre actually increasing the embedded earnings by 50 to $1 50, maybe just help us understand those two parts.
Speaker Change: So a couple of things and good morning, Josh.
Speaker Change: Our metallic mix has remained unchanged.
Speaker Change: What youre seeing in marketplace is not at all a metallic or mix related that's state footprint related as you know we're in 14 states.
Speaker Change: And our mix among the states is we're more competitive and some maybe not so much in others are mixed shift a little bit so that'd be the driver there.
Speaker Change: On bright on the PDR.
Joshua Raskin: With the PDR that was booked before we bought the business.
Joshua Raskin: Benefits, the MLR and pulls it down to a level, that's actually a little bit below our target range now remember our target range is largely a D SNP and MMP because that's our legacy Medicare book.
Mark Kimes: Just as Joe mentioned, we're adding significant new store business through both our acquisitions and a number of big wins. Whenever we have a new store go into our portfolio, it tends to be a little bit hotter in the first year on an MLR. So we're seeing a pretty much flat carryover on Legacy, and a little bit of increased pressure on New Store. That's how you get to that 89 that we have in our guidance. Okay, great. Thanks a lot.
Joshua Raskin: On the bright with the PDR in the MLR line. It does pull it down a little bit below our target range.
Speaker Change: And so how does that impact you know I'm just trying to think through it. So it feels like with the PDR rescheduled will wells sort of reversed out through the year. How does the embedded earnings go up right I'm confused as to how it was bright MLR low, but they are losing more money.
Operator: The next question comes from Cal Sternick with J.P. Morgan. Please go ahead. Yeah, thanks for the question. I wanted to ask about the marketplace. It sounds like the book is running really well, and, you know, I think you are a little bit more competitively priced this year than you were previously. So, I guess, first, is the expectation that when we talk about mid-single-digit to high-single-digit margins, you're within sort of that 5% to 7% range? Do you expect to be towards the upper half of that, or maybe a bit above?
Speaker Change: It's a good question and thanks for raising that I knew we were going to get that sooner or later, so with the PDR as you know the PDR should largely normalized expected operating losses on a contract year.
Speaker Change: PDR accounting doesn't allow you to put all of the losses into the PDR. There are certain accounting matters that are still held out so even with the PDR I'll have a very small operating loss Josh but the other thing is when we talk about embedded earnings. We always include the carrying costs. The embedded earnings are essentially fully capitalized.
Operator: And then, second, you know, how do you think about the market and your positioning for 2025? Do you think you're still going to maintain the current pricing position, or do you expect to, I guess, you know, be more competitive across your total footprint again? Our strategy in the marketplace until we were satisfied that the risk pool was stabilized was to keep it, as we say, small, silver, and stable. But as the risk pool has stabilized, irrational pricing has pretty much left the market. We will allocate more capital to this business, and we'll grow it at a rate that allows us to earn mid to high single-digit margins. That's the key.
Speaker Change: Fully funded for their carrying costs. So when I say I have about 50 cents.
Speaker Change: Dilution this year, it's about half operating costs that aren't covered by the PDR and about half carrying costs remember, we paid about $5 billion the opportunity cost of our interest on that is maybe the other half of the 50 <unk>.
Speaker Change: So as a result.
Speaker Change: I'm carrying a 50 cent hole.
Speaker Change: In this year's EPS bridge.
Speaker Change: Since that's a 50 cent whole I said I'd have a dollar of ultimate benefit from this property. The dollar now goes to $1 50, because I'm going to call out of that hole over the next couple of years.
Joseph M. Zubretsky: The risk pool can have inherent volatility, and we believe that a margin target of 5-7%, as you suggested, is the right target margin, and we will grow the business at a rate that allows us to achieve that target. But we're very competitively positioned this year. We are, in our silver product, we were number one in two in 30% of our counties this year as compared to 20% last year. 75% of the book is still silver.
Speaker Change: Okay got it thanks.
Speaker Change: Yeah.
Speaker Change: The next question comes from Justin Lake with Wolfe.
Justin Lake: Please go ahead.
Justin Lake: Thanks. Good morning, just wanted to follow up on bright so a few things here first can you can you give me the.
Justin Lake: Dr number.
Justin Lake: That you put through there for for 2024.
Justin Lake: Sure we acquired the business with the $75 million PDR on the balance sheet.
Justin Lake: Okay.
Justin Lake: And so you are saying the I understand the PDR getting it to normal levels potentially but how does the PDR get it below normal along levels.
Joseph M. Zubretsky: 50% of the book is renewal, which gives us good insight to capture appropriate risk scoring. The book is very well positioned to grow. 31% membership growth and 17% revenue growth just this year. And hopefully, we'll be able to grow it at this rate in the future, all with the goal of achieving mid to high single digits. All right, great.
Justin Lake: The PDR books all of the losses.
Justin Lake: It picks up a little bit of the G&A losses, but the medical cost losses.
Justin Lake: <unk> booked some into the medical cost line so to the extent that there was some G&A items. It will get picked up in the MLR line, It's just accounting and accounting convention, where the net of losses get picked up in one line item or the other.
Justin Lake: Okay. So your point is that just thinking about the math of the MLR was going to go up next year.
Operator: Thanks. The next question comes from Kevin Fischbeck with Bank of America. Please go ahead.
Justin Lake: It's actually below normal and you're saying the G&A.
Kevin Mark Fischbeck: All right, great, thanks. Maybe two questions I'd like to sneak in. I guess the first one on the Medicare side, I just want to make sure I understand your commentary around MOR because you're bringing in Bright with a PDR, but you're still saying you're going to be at the overall target margin. Are you talking about the core business being at that target margin, or even with Bright losing money, you'll be at target margin on a consolidated book? And then thinking about the exchanges, I guess there was potentially some issue about, you know, redetermination to kick people off, and then the sickest part of that population comes onto the exchanges. Are you seeing any of that, or does the risk pool benefit of lower subsidies just kind of make that, you know, not really an issue? Thanks. Thanks, Kevin. I'm going to kick it to Mark for detailed commentary on the Medicare M.O.R., but I think it's really important to frame the Medicare M.O.R. and its component parts. They're somewhat different.
Justin Lake: We will come down there.
Speaker Change: There are a little be a little bit of that Justin.
Speaker Change: Okay, and you said you expect to get this full dollar back.
Justin Lake: Plus in 2025.
Justin Lake: And that's the important point the important point here first of all the first year losses were fully contemplated in the value. We paid so there was no surprise there the business is running at a 92% MCR and a 14% G&A ratio, we plan to get to 92 down to $88 89, and the 14%.
Justin Lake: To nine to 10, so half to two thirds of the turn is G&A related and we are very very clear line of sight to allocate their cost burden down from 14 to nine or 10, where it should be.
Justin Lake: That dollar of accretion.
Justin Lake: As expected to emerge in the third full year of ownership.
Justin Lake: First year protected by mostly protected by a PDR second year breakeven to probably slightly profitable full dollar of accretion.
Speaker Change: And your first.
Speaker Change: Third full year of ownership getting the MCR from 92 down to 88 or 89 getting to 14% G&A ratio down to nine or 10.
Speaker Change: Got it and then lastly, just on a you know theres a big Rfps, you've known Florida, I think a lot of anticipation there around.
Joseph M. Zubretsky: Situationally, they are quite stable. You have $6 billion of revenue forecasted for 2024 in May. $1.6 billion is bright, newly acquired, subject to the premium deficiency reserve as you suggested, and Mark will explain. $2.4 billion is our legacy.
Speaker Change: When that might be communicated my understanding is we're kind of into the second round of negotiations.
Speaker Change: Soon you can't tell us whether you're.
Speaker Change: Whether you are still kind of in the running there, but any idea given that given where you are today any idea of when you would think that under normal conditions.
Joseph M. Zubretsky: And two billion are the MMP demonstrations, where rates are received from CMS. So the dynamics in the book of business are quite different. You need to look at all three components in order to develop your view of the various profitability components.
Speaker Change: The MLR would be announced.
Speaker Change: Alright.
Speaker Change: RFP would be announced.
Joseph M. Zubretsky: But with that as the backdrop and the context, I'll kick it to Mark for detailed commentary on how you build the Medicare MLR, particularly with respect to BRITE and the premium. Fantastic. Good morning, Kevin.
Justin Lake: Sure.
Justin Lake: And we appreciate that we appreciate your sensitivity to the situations, yes, we are.
Justin Lake: We.
Justin Lake: Observed the sanctity of all these bidding process, including the ICANN process. So we cant comment specifically on it but as we run it.
Mark Kimes: So Bright comes to us with a PDR in place. With that PDR, the benefit goes into the MLR line and effectively reduces the MLR. So on the Bright component, which is a third of our book, you'll see an MLR that's below our target range at the moment. On the DSNP, which is another third of our business, we're seeing a trend of probably around 4%. But overall, we're able to offset that and pull that into our target range. And of course, on MMP, which is the third component of the book, the rates that we're getting from our state and CMS partners, we feel are quite adequate to bring us all told to that 88 in our MLR guidance. With respect to your second question, if I remember correctly, it had to do with the exchanges and members coming off of the Medicaid rolls into the exchanges. If you look at the last couple of years, membership has always started the year at a higher point and ended the year at a lower point due to the natural attrition of the book. This year we're starting the year at 320,000 members and plan to grow it to 370,000 by the end of the year.
Justin Lake: Nice business in Florida, it's smaller than it used to be two regions, we used to be in a statewide back in 2017.
Justin Lake: It runs really well, we're the only four star plan in Florida.
Justin Lake: And the same team that works on all our successful bids.
Justin Lake: Our $12 billion of re procured revenue in our $7 billion of new contract wins.
Justin Lake: That is the same team that worked on this so we go into it with a great deal of confidence and we would hope to expand our footprint in Florida, There's $14 billion of Medicaid revenue and Florida regions, where we are not currently represented but let's see how the process plays out and hopefully something will be.
Justin Lake: <unk>.
Justin Lake: Awards will be out sometime later this spring.
Speaker Change: Thanks for the color.
Speaker Change: The next question comes from Stephen Baxter with Wells Fargo. Please go ahead.
Stephen Baxter: Hi, Thanks, I appreciate all the commentary on your expectations for the year I was hoping you could help us think about the bridge from your Medicaid MLR accident year to your same store Medicare MLR for.
Stephen Baxter: For the sort of around the midpoint of the range I'm curious any bank that core can kind of get there earlier in the year because some of the one one rate adjustments that we've been focused on or do you think that will take some time to kind of work through the business and other seasonal factors play out. Thanks.
Mark Kimes: The natural attrition rate is still 2 or 3% inside that number, but we do plan to pick up more members from not only our own Medicaid plans but competitors. I think we're seeing a penetration rate of people coming off Medicaid of about 10% of members. Mark, anything to add? Yeah.
Stephen Baxter: As a general framework for how we stay within our long term range year over year back on a same store basis almost equivalent.
Stephen Baxter: We talk about the Redetermination process, which late in 2023 began to put pressure on the MLR until rates caught up with it.
Speaker Change: As Mark.
Stephen Baxter: Commented in his prepared remarks, we know about Medicaid rates on 80% of our revenue for 2024 that rate increase came in at 4%. So it blends to about $3. Two we forecasted the other 20% at less than half of that so we have a three 5% rate increase built.
Mark Kimes: In the past, when we picked up SEP members in the past, they put a little pressure on our MLR. What we're seeing in the third and fourth quarters of 23, and what I expect into 24, is they'll come over at more sustaining and normalized levels. That is, they won't put pressure on because they're coming off normal usage services. There's not pent-up demand. They're not new to the product.
Stephen Baxter: Into our 2020 for guidance and that was exactly commensurate with trend.
Stephen Baxter: <unk> EBIT has influenced by the modest acuity shift that we and our state customers have have observed so pretty much business as usual there is nothing.
Stephen Baxter: No medical cost category that needed to be accounted for accommodated.
Stephen Baxter: Actuarially sound rates.
Mark Kimes: I'm expecting to see a good pickup on SEP, as we did in Q3 and Q4, and not pressure on the MLR. The next question comes from Josh Raskin on Nifon. Please go ahead. Hi, thanks. Good morning. Two for me as well.
Stephen Baxter: Impacted by acuity adjustments at 'twenty or 'twenty two.
Stephen Baxter: <unk> of 21 of our states included.
Speaker Change: And it was completely in line with our contemplated medical cost trend, even as influenced by an acuity shift mark anything to add yes, I think thats exactly right as.
Joshua Raskin: Just, you know, the health insurance exchange membership up 31%, but revenues up 17%. Is that state geography mix related, or is that a reduction in prices, and what's driving that versus a market that's generally raising prices? And then I'm still confused about BRITE, how the target, how the MLR for BRITE that you're booking this year is below the target range, but you're actually increasing the embedded earnings by 50 cents to $1.50. Maybe just help us understand those two parts. So a couple of things, and good morning, Josh. Our metallic mix has remained unchanged.
Speaker Change: As we look at the rates and the trend being roughly equal our legacy book pretty much holds flat as you know, we're bringing in a bunch of additional new business that puts a little more pressure in the first year, which rounds us out of the 89 that we have in guidance.
Speaker Change: Okay.
Speaker Change: The next question comes from Nathan Rich with Goldman Sachs. Please go ahead.
Nathan Rich: Hi, good morning, and thanks for the questions.
Nathan Rich: Wanted to ask on the marketplace MCR I guess moving back to the low end of the long term range. So up about 300 basis points year over year can you just talk about.
Mark Kimes: So what you're seeing in Marketplace is not at all metallic or mix related. That's state footprint related. As you know, we're in 14 states. And our mix among the states, as we're more competitive in some, maybe not so much in others, our mix does shift a little bit. So that'd be the driver there, on Bright, on the PDR.
Nathan Rich: Whats driving that that increase year over year is that just a function of the membership growth that you saw and then.
Nathan Rich: Have you thought of.
Nathan Rich: How I guess are you thinking about maybe the long term target for that business is 78 to 80 still the right range to US and then just one clarifying question for Mark I think you said quarterly EPS is weighted towards the back half of the year I think usually the back half is about 45% of the total year. So does that mean this.
Mark Kimes: With the PDR that was booked before we bought the business, that benefits the MLR and pulls it down to a level that's actually a little bit below our target range. Now, remember, our target range is largely DSNP and MMP because that's our legacy Medicare book. On the Bright, with the PDR in the MLR line, it does pull it down a little bit below our target range.
Speaker Change: Year will be over 50% or is that not the right way to interpret the comment that you made thank you.
Mark Kimes: And so how does that impact? You know, I'm just trying to make it so it feels like with the PDR, you guys will, will, will, you know, sort of reverse that through the year. How does the embedded earnings go up, right?
Speaker Change: David I'll take the marketplace question first.
Speaker Change: We were running really well in the middle of 2023.
Speaker Change: Our experience was.
Speaker Change: Quite positive so.
Speaker Change: So we consciously consciously did to grow the business modestly and moderately as we suggested we would.
Speaker Change: And so we price somewhat below the observed trend.
Mark Kimes: I'm confused. That was a bright MLR low, but they're losing more money. It's a good question and thanks for raising that. I knew we were going to get that sooner or later.
Speaker Change: Not hugely Columbia absorbed trend, but slightly below the observed trend.
Speaker Change: Essentially invest some of the excess margin, we earned nearly 10% pre tax in that business in 2023. So in a sense, we invested some of the excess margin and growth, hence the 31% membership growth of 17% revenue growth.
Speaker Change: Mark on the on the phasing of quarterly phasing, yeah, absolutely Nathan and good morning, Yes, you got it right, where normally 50 545 on the front half versus the second half of the year I'd almost flipped that around this year because the dynamics are a little bit different.
Mark Kimes: So with the PDR, as you know, the PDR should largely normalize expected operating losses for a contract year. PDR accounting doesn't allow you to put all of the losses into the PDR. There are certain accounting matters that are still held out. So even with the PDR, I'll have a very small operating loss, Josh. But the other thing is that when we talk about embedded earnings, we always include the carrying costs. The embedded earnings are essentially fully capitalized or fully funded for their carrying costs.
Speaker Change: One we put on a lot of new business. This year as you can see in our revenue bridge, we got $5 $7 billion of new revenue coming into the company, which always comes in just a little bit warmer in the first year, but in the first quarters in particular, so I'm expecting to get some momentum in MLR.
Mark Kimes: So when I say I have about 50 cents of dilution this year, it's about half the operating costs that aren't covered by the PDR and about half the carrying costs. Remember, we paid about half a billion. The opportunity cost or interest on that is maybe the other half of the 50 cents. So, as a result, I'm carrying a 50 cent hole in this year's EPS bridge. Since that's a 50-cent hole, I said I'd have a dollar of ultimate benefit from this property. But the dollar now goes to $1.50 because I'm going to crawl out of that hole over the next couple of years.
Speaker Change: In Medicaid and Medicare as we kind of grow into our new footprint. There. So that will change the dynamic a little bit. The other thing is and I think Joe touched on this very often marketplace has attrition throughout the year such that marketplace declines during the year.
Speaker Change: This year is a little bit different with all the members rolling off on re debt and is expecting to pick up our fair share of them in marketplace as they convert we will see a growing book in marketplace and as you know we've got some confidence on the margins given that we really prioritize margin over volume and marketplace. So for.
Justin Lake: Okay, got it. Thanks. The next question comes from Justin Lake on Wall Street. Please go ahead.
Justin Lake: Thanks, good morning. I just want to follow up on Bright. So, a few things here. First, can you give me the PDR number?
Speaker Change: Those two reasons youre going to see a little bit more of a backend diluted EPS trajectory. This year I think that should address your question.
Mark Kimes: that you put through there for 2024. Sure, we acquired the business with a $75 million PDR on the balance sheet. And so you're saying the PDR is getting it to normal levels, potentially. But how does the PDR get it below normal MR?
Speaker Change: Great. Thank you.
Speaker Change: The next question.
Speaker Change: Paul Cheng with Cantor Fitzgerald. Please go ahead.
Paul Cheng: Thank you.
Paul Cheng: Can you clarify for us what you guys contemplated in for Tim Midnight and day 28, and tier 2024 plan design and also for bright.
Mark Kimes: The PDR books all of the losses; it picks up a little bit of the G&A losses but the medical cost losses and books them into the medical cost line. So to the extent that there were some G&A items, they'll get picked up in the MLR line. It's just an accounting convention where the net of losses gets picked up in one line item or the other.
Paul Cheng: And when you mentioned that the pressures that you were seeing on Medicare you guys didn't flag outpatient or some of the inpatient trends that the rest of the group is seeing so I wanted to clarify.
Paul Cheng: You are seeing now.
Speaker Change: I sure can.
Paul Cheng: Get to Mark for we have very detailed analysis of the changes in the risk adjustment rules are what it meant for our book.
Mark Kimes: Okay, so your point is that, just thinking about the math of this, the MLR is going to go up next. It's actually below normal, and you're seeing the SG&A, will come down. There will be a little bit of that, Justin, and you expect to get this full dollar back plus in 2025. Well, and that's the important point.
Speaker Change: And answer to your second question.
Paul Cheng: One of the reasons I articulated earlier, the configuration of our book of business being somewhat different than what I would call mainstream.
Paul Cheng: Medicare advantage is that we have a low income high acuity population. Our members are using services from the first day of the year to the last day of the your chronic comorbidities and poly chronic.
Paul Cheng: And so the notion of discretionary utilization means far less to our business based on its mix that it might be to a mainstream population where discretionary orthopedic procedures are being done.
Joseph M. Zubretsky: The important point here, first of all, is that the first year's losses were fully contemplated in the value we paid. So there was no surprise. The business is running at a 92% MCR and a 14% GNA ratio. We plan to get the 92% down to 88% to 89% and the 14% down to 90%. So half to two-thirds of the term is G&A related, and we have a very, very clear line of sight to how to take their cost burden down from 14 to 9 or 10, where it should be, that dollar of accretion is expected to emerge in the third full year of ownership. First year protected by, mostly protected by, a PDR.
Paul Cheng: Screenings were taking place, perhaps pent up demand from from the pandemic in our book of highly chronic patients high acuity members, that's less of a dynamic and so the three cost categories that I articulated previously L. P. S S hours high cost drugs <unk>.
Paul Cheng: And.
Paul Cheng: The.
Paul Cheng: Supplemental benefits were really the drivers in our book Mark do you want to take the risk adjustment question sure.
Mark: And I think that's important as Joe mentioned, when we talk about Medicare is in fact, three things Youre probably question is most aimed at the D. SNP were high acuity component of our Medicare, which is a third of the book, obviously, it's less relevant to MLP.
Joseph M. Zubretsky: Second year, break even to probably slightly profitable, full dollar of accretion, and the third full year of my life, getting the MCR from 92 down to 88 or 89, getting the 14% GNA ratio down to, got it and then lastly just on you know there's a big RP as you know in Florida I think a lot of anticipation there around you know when that might be communicated my understanding is, We're kind of into the second round of negotiations. I assume you can't tell us whether you're still kind of in the running there, but any idea, given where you are today, any idea when you think that under normal conditions that MLR would be announced? and Peter Rodriguez.
Mark: On the two things you mentioned on the two midnight rule I've seen a little bit of buzz about that lately and we're a little bit surprised because it's certainly not new.
Mark: And many of US are factored this in for quite some time and what I always remind folks is even though theres a two midnight rule provider is still have to prove medical necessity.
Mark: No theres really not a big window, there for a change in trend or a change in risk adjustment issues as we can see it on day 28.
Mark: That's got some interesting dynamics it is certainly.
Mark: Drag in many places for folks, but there is an interesting dynamic around <unk> 28 in high acuity on single chronic people use. The example of diabetes, where theres diabetes, but there is some other conditions that kind of correlate or a highly associated with diabetes V 28 will be a reduction on a risk adjusted.
Joseph M. Zubretsky: But look, we run a nice business in Florida. It's smaller than it used to be, two regions. We used to be statewide back in 2017. It runs really well.
Mark: For those kind of situations, but when theres poly chronic.
Mark: There's different co morbidities that are quite different than each other b 28 is actually helpful and in our high acuity chronic book, we actually have many of those poly chronic so we don't quite see the same dynamic that maybe some of the other folks do out there.
Joseph M. Zubretsky: We're the only four-star plant, and the same team that works on all our successful bids, our $12 billion of recovered revenue, and our $7 billion of new contracts, that is the same team that worked on this. So we go into it with a great deal of confidence, and we would hope to expand our footprint in Florida. There's $14 billion of Medicaid revenue in Florida regions where we are not currently represented.
Speaker Change: That's helpful and one more clarification, if I could just on your comment with the exchanges.
Speaker Change: And I know you guys are guiding to really.
Speaker Change: Favorable MLR for this year, but is there still a step up in earnings as you mature this new box I guess in other words.
Joseph M. Zubretsky: But let's see how the process plays out, and hopefully, something will be announced. Awards will be out sometime later this year.
Speaker Change: Your year one.
Operator: Thanks for the call. The next question comes from Stephen Baxter with Wells Fargo. Please go ahead.
Speaker Change: Still slightly below target range right on on new members and then there would be an implied earnings lift as that book.
Stephen Baxter: Hi, thanks. I appreciate all the commentary on your Medicaid expectations for the year. I was hoping you could help us think about the bridge from your Medicaid MLR exit in the year to your same-store Medicaid MLR in 2024, around the midpoint of the range. I'm curious if the core could kind of get there earlier in the year because of some of the one-on-one grade adjustments that we've been focused on, or do you think that'll take some time to kind of work through the business and then other seasonal factors play Thanks.
Mark: Into the second year of operations.
Mark: Hmm.
Mark: I'm not quite sure I captured the essence of your question, but we are forecasting a 78% MCR for the year, which is at the low end of our long term target range, which means we'll be operating high single digit margin certainly at the 10% pre tax we achieved in 2000.
Mark: And 23.
Speaker Change: But okay.
Speaker Change: If you grow the book more aggressively more of your members are going to be new to the book.
Speaker Change: And so you have this in our view you have to strike a balance about how fast you're going to grow it and how many new members you want every new member that comes in you need to find risk adjustment.
Speaker Change: If they come enduring FEP.
Speaker Change: If they are chronic and you better find risk adjustment quickly or they won't get to profitability in the near term. So there's there's a very much a balance between what you get at annual enrollment what you pick up an asap.
Joseph M. Zubretsky: As a general framework for how we stay within our long-term range year-over-year, in fact, on a same-story basis, almost identical. We talk about the redetermination process, which late in 2023 began to put pressure on the MLR until rates caught on fire, as Mark commented in his prepared remarks. We know about Medicaid rates on 80% of our revenue for 2024. That rate increase came in at 4%, so that combines to about 3.2. We forecasted the other 20% at less than half. So we have a 3.5% rate increase built into our 2024 guidance, and that is exactly commensurate with the trend.
Speaker Change: And how one thinks about how faster I grow the book to achieve achieved mid single digit margins when the maturity of the membership and the duration of the membership is pretty important to the stability of the risk pool, you have to balance those two factors.
Speaker Change: Thank you.
Speaker Change: The next question comes from George Hill with Deutsche Bank.
George Hill: Uh huh.
George Hill: Yes, good morning, guys and I think they're kind of covered everything I wanted to hit on the exchange, but I'll talk I'll try to bring up one more topic, which is I guess can you talk about underlying utilization trends and kind of cost growth trends there because it sounds like you guys priced the book for growth in 2020.
George Hill: Or but the utilization is going to kind of continue to remain low so I guess I'm trying to parse the spread between utilization.
George Hill: Trends in price growth for the margin expansion kind of any color on that would be helpful.
George Hill: George your questions focused on marketplace.
George Hill: Yes marketplace.
George Hill: Yeah look.
George Hill: As Joe has been very clear, we're prioritizing margin over volume in this space in this business and the way we do that is we keep it silver which we believe is the best product for both the the member and the Payor.
Joseph M. Zubretsky: This trend even has influence the modest acuity shift that we and our state customers have observed. So, pretty much business as usual. No medical cost category that needed to be accounted for or accommodated.
Joseph M. Zubretsky: It's actually a really sound rate, impacted by acuity adjustments at 20 or 20, 20 of 21 of our states included, and it was completely in line with our contemplated medical cost trend, even as impacted by an acuity shift. Mark, anything to add? No, I think that's exactly right.
George Hill: But we keep it stable, which means we continue to have really good renewals.
George Hill: As we look at our pricing objectives here, we're putting priced into the market to make sure that we can defend reasonable margins here.
Speaker Change: We did concede a little bit of margin in our pricing for 2024, just because we were well below our target range remember our target range of 78 to 80, and we printed something a little bit south of that in 'twenty. Three so there's no reason to lead volume on the table. If we can put a little bit of price back or drive some volume.
Mark Kimes: As we look at the rates and the trend being roughly equal, our legacy book pretty much holds flat. As you know, we're bringing in a bunch of additional new business, which puts a little more pressure on the first year, which rounds us out at the 89 that we have in guidance. The next question comes from Nathan Rich with Goldman Sachs. Please go ahead.
Speaker Change: It's still hit our margin targets I hope that helps.
Speaker Change: It does it and maybe if I can just sneak in a quick follow up I know, it's a tiny piece of the business, but could you talk about kind of the expected disruption in PDP and twenty-five given the changes from IRI.
Nathan Rich: Hi, good morning, and thanks for the questions. I wanted to ask about the Marketplace MCR, which is probably moving back to the low end of the long-term range, so up about 300 basis points year over year. Can you just talk about what's driving that increase year over year? Is that just a function of the membership growth that you saw? And then have you thought of, you know, how you are thinking about maybe the long-term target for that business? Is 78 to 80 still the right range to use? And then just one clarifying question for Mark. I think you said quarterly EPS is weighted towards the back half of the year. I think usually the back half is about 45% of the total year.
Speaker Change: I'm sorry, we didn't we had trouble hearing the last part of your question George PDP.
Speaker Change: But yes, like I said I know, it's a tiny part of the business, but we're expecting kind of PDP to be pretty disruptive or disrupted in 2025 because of the IRB changes I know, it's a tiny part of the book, but did you guys have any commentary on what youre seeing would be helpful.
Speaker Change: Yeah. So on PDP as you know, we don't price, our PDP product and the IRR or the inflation reduction act as you're pointing out is certainly a headwind for that sector, but that's that's not too relevant to our business George.
Speaker Change: Okay.
George Hill: The last question today will come from Scott Fidel with Stephens. Please go ahead.
Scott J. Fidel: Thanks, John right before the Bell here.
Scott J. Fidel: Just interested if you could walk us through your.
Scott J. Fidel: Preliminary analysis on the 2025 MAA advance notice.
Joseph M. Zubretsky: So does that mean this year will be over 50%, or is that not the right way to interpret the comment that you made? Thank you. David, I'll take the marketplace question first. We were running really well in the middle of 2023. Our experience was quite positive.
Scott J. Fidel: And whether you're able to parse that down between the legacy business impact.
Scott J. Fidel: And then what you're projecting will be that preliminary impact on on the bright book. Thanks.
John: Sure Scott I mean on balance our view is the same view that you've heard from others is that the advance notice.
Joseph M. Zubretsky: So we consciously, consciously bid to grow the business modestly and moderately, as we suggested we would. And so we priced somewhat below the observed price. Not hugely below the observed trend, but slightly below the observed trend, to essentially invest some of the excess margin. We earned nearly 10% pre-tax on that business in 2023.
Scott J. Fidel: <unk> does not appear to be adequate to compensate for trends that we're all on the durbin.
Scott J. Fidel: I think in our book if you take the CMS.
Scott J. Fidel: Advanced notice and projected to our book I think we're projecting about a 50 basis point or half a point of rate increase which we believe is along with others is insufficient and we'll see where the final notice comes out it usually comes out as you know better than that but our view was not any.
Speaker Change: Different from anybody else's, yeah, just just to build on that and a lot of this data is in the public domain at this point.
Speaker Change: On the effective benchmark rates in the advanced notice and then risk score normalization most folks are seeing across the entire market. The netted those at about zero rate as Joe mentioned, we see a net of about a positive 50 bps. So we're a little bit better on the benchmark rate and we're a little bit not so bad on the risk or normalization.
Joseph M. Zubretsky: So in a sense, we invested some of the excess margin in growth, hence the 31% membership growth and 17%. Mark, on the phasing, the quarterly phasing? Yeah, absolutely. Nathan, and good morning.
Mark Kimes: Yeah, you got it right. We're normally 55-45 in the front half versus the second half of the year. I'd almost flip that around this year because the dynamics are a little bit different.
Speaker Change: <unk> for some reasons I alluded to earlier, so we're seeing about a 50 bps benefit there and obviously the rest of stars impact and what ultimately everyone does with risk scores.
Scott J. Fidel: Yet to play out, but that's our initial point on the legacy book.
Speaker Change: Okay. Thanks, and then just to clarify so the 50 bps thats for the overall book right and then I would assume that directionally, the legacy, but probably better than the bright book, a little worse than the legacy of matters that are Paris assumption.
Mark Kimes: One, we put on a lot of new business this year. As you can see in our revenue bridge, we got 5.7 billion of new revenue coming into the company, which always comes in just a little bit warmer in the first year, but in the first quarters, in particular. So I'm expecting to get some momentum on the MLRs in Medicaid and Medicare as we kind of grow into our new footprint there. So that'll change the dynamic a little bit. The other thing is, and I think Joe touched on this, very often Marketplace has attrition throughout the year such that it declines during the year. This year is a little bit different.
Speaker Change: We're still working our way through that there'll.
Scott J. Fidel: There'll be a couple of things going on there as I mentioned earlier, we're six weeks into owning it we're working through that.
Scott J. Fidel: Those issues with the with the team there there'll also be a bunch of dynamics that happen. This year there are actually two entities there.
Scott J. Fidel: One is community health plan.
Scott J. Fidel: <unk>.
Scott J. Fidel: The other one brand new day there'll be some issues between them on exactly how we balance the effects of all this between those two entities. So a little bit of work there and not ready to comment on that one, but I would say that we're not anticipating.
Mark Kimes: With all the members rolling off the redebt and us expecting to pick up our fair share of them in Marketplace as they convert, we'll see a growing book in Marketplace. And as you know, we've got some confidence in the margins, given that we really prioritize margin over volume in Marketplace. So for those two reasons, you're gonna see a little bit more of a backend loaded EPS trajectory this year. I think that should address your question. Great, thank you. The next question comes from Sarah James with Kansas Fitzgerald. Please go ahead.
Scott J. Fidel: And any analysis when completed on rates that would move us off of achieving the $1 accretion in the third full year of ownership, we're pretty confident.
Scott J. Fidel: And that trajectory.
Speaker Change: Okay alright, thank you.
Speaker Change: This concludes the question and answer session and also concludes the conference call. Thank.
Speaker Change: Thank you for attending today's presentation you may now disconnect.
Mark Kimes: Okay.
Scott J. Fidel: [music].
Scott J. Fidel: Okay.
Joseph Zubretsky: [music].
Sarah E. James: Thank you. Can you clarify for us what you guys contemplated for two midnights in V28 into your 2024 plan design and also for BRITE? And when you mentioned the pressures that you were seeing on Medicare, you guys didn't flag outpatient or some of the inpatient trends that the rest of the group is seeing. So I wanted to clarify if you are seeing those.
Scott J. Fidel: Okay.
Sarah E. James: [music].
Scott J. Fidel: Yes.
Joseph M. Zubretsky: Hi Sarah, I'll kick it to Mark for a very detailed analysis of the changes in the risk adjustment rules and what they mean for our book. In answer to your second question... One of the reasons I articulated earlier was the configuration of our book of business being somewhat different than what I call mainstream. Medicare Advantage is that we have a low-income, high-acuity population. Our members are using services from the first day of the year to the last day of the year. They're chronic.
Sarah E. James: [music].
Joseph M. Zubretsky: They have comorbidities. And so, the notion of discretionary utilization means far less to our business based on its mix than it might to a mainstream population where, you know, discretionary orthopedic procedures are being done, screenings are taking place, perhaps due to pent-up demand from the pandemic. In our book of highly chronic patients, high-acuity members, that's less of a dynamic. And so, the three cost categories that I articulated previously, LTSS hours, high-cost drugs, GLPT, and Supplemental Benefits were really the drivers in our book.
Mark Kimes: Mark, do you want to take the risk adjustment question? Sure. And I think, Sarah, it's important, as Joe mentioned, when we talk about Medicare, it's, in fact, three things. Your question is probably most aimed at the DSNP, or high-acuity, component of our Medicare, which is a third of the book. Obviously, it's less relevant to MMP.
Mark Kimes: On the two things you mentioned, the two-midnight rule, I've seen a little bit of buzz about that lately, and we're a little bit surprised because it's certainly not new, and many of us have factored this in for quite some time. And what I always remind folks is that even though there's a two-midnight rule, providers still have to prove medical necessity.
Mark Kimes: So there's really not a big window there for a change in trend or a change in risk adjustment issues, as we can see. On V-28... that's got some interesting dynamics. It is certainly a drag in many places for folks, but there's an interesting dynamic around V28 and high acuity. For single chronic, people use the example of diabetes, where there's diabetes, but there are some other conditions that kind of correlate or are highly associated with diabetes.
Mark Kimes: V28 will be a reduction in risk adjustment for those kinds of situations. But when there's polychronics, where there are different comorbidities that are, in fact, quite different from each other, V28 is actually helpful. And in our high-acuity chronic book, we actually have many of those polychronics.
Joseph M. Zubretsky: So we don't quite see the same dynamic that maybe some of the other folks out there do. That's helpful. And one more clarification, if I could, just on your comment about the exchanges. I know you guys are guiding to a really favorable MLR for this year, but is there still a step-up in earnings as you mature this new book? I guess, in other words, your year one is still slightly below the target range, right, on new members, and then there would be an implied earnings lift as that book moved into the second year of operations. I'm not quite sure I've captured the essence of your question, but we are forecasting... 78% MCR for the year, which is at the low end of our long-term projection, which means we'll be operating high single-digit margins, certainly not the 10% we achieved and 23.
Joseph M. Zubretsky: Look, if you grow the book more aggressively, more of your members are going to be new to the book. And so, in our view, you have to strike a balance about how fast you're going to grow and how many new members you're going to have. Every new member that comes in, you need to find a risk adjuster. If they come in during FEP, or if they're chronic, you better find risk adjustment quickly, or they won't get to profitability in the near term.
Joseph M. Zubretsky: [music].
Joseph M. Zubretsky: So there's very much a balance between what you get in annual enrollment, what you pick up in SEP, and how one thinks about how fast I grow the book to achieve mid-single-digit margins when the maturity of the membership and the duration of the membership are pretty important to the stability of the book. You have to balance those. Thank you. The next question comes from George Hill with Deutsche Bank. Please go ahead.
George Hill: Yeah, good morning, guys. And I think Nate and Sarah kind of covered everything I wanted to hit in the exchange. But I'll talk, I'll try to bring up one more topic, which is, I guess, can you talk about underlying utilization trends and any kind of cost growth trends there? Because it sounds like you guys priced the book for growth in 2024. But utilization is going to kind of continue to remain low. So I guess I'm trying to parse the spread between utilization trends and price growth for margin expansion. Kind of any call around that would be helpful. And George, your question's focused on Marketplace. Eon Marketplace. Yeah, look, as Joe has been very clear, we're prioritizing margin over volume in this business, and the way we do that is we keep it silver, which we believe is the best product for both the member and the payer.
Mark Kimes: But we keep it stable, which means we continue to have really good renewals. As we look at our pricing objectives here, we're putting prices into the market to make sure that we can defend reasonable margins here. We did concede a little bit of margin in our pricing for 2024, just because we were well below our target range. Remember, our target range is 78 to 80, and we printed something a little bit south of that in 23.
Mark Kimes: So there's no reason to leave volume on the table if we can put a little bit of price back, drive some volume, and still hit our margin target. Hope that helped. It does.
George Hill: And maybe if I can just sneak in a quick follow-up, I know it's a tiny piece of the business, but could you talk about the kind of expected disruption in PDP and 25 given the changes from IRA? I'm sorry, we didn't, we had trouble hearing the last part of your question, George. PDP?
Mark Kimes: Oh, yeah. But yeah, like I said, I know it's a tiny part of the business. But we're expecting some kind of PDP to be pretty disruptive or disrupted in 2025 because of the IRA changes.
George Hill: But if you guys have any commentary on what you're saying, it would be helpful. Yeah, so on PDP, as you know, we don't price a PDP product in the IRA or the Inflation Reduction Act. As you're pointing out, it's certainly a headwind for that sector. But that's not too relevant to our business, George. The last question today will come from Scott Fidel with Steven. Please go ahead. Thanks. Right before the bell, here.
Scott J. Fidel: I just was interested if you could walk us through your preliminary analysis on the 2025 MA Advance Notice and whether you're able to parse that down between the legacy business impact and then what you're projecting will be the preliminary impact on the Bright Book. Thanks.
Joseph M. Zubretsky: I mean, on balance, our view is the same view that you've heard from others, that the advance notice does not appear to be adequate to compensate for trends that we're all observing. I think in our book, if you take the CMS... I think we're projecting about a 50 basis point, a half a point of rate increase, which we believe, along with others, is insufficient, and we'll see where the final notice comes out. It usually comes out, as you know, better than that, but our view is not any different from anybody else's. Yeah. Just to build on that, and a lot of this data is in the public domain at this point, on the effective benchmark rates in the advance notice, and then risk score normalization, most folks are seeing across the entire market the net of those at about zero, right?
Joseph M. Zubretsky: [music].
Joseph M. Zubretsky: As Joe mentioned, we see a net of about a positive 50 bps, so we're a little bit better on the benchmark rate, and we're a little bit not so bad on the risk score normalization for some reasons I alluded to earlier, so we're seeing about a 50 bps benefit there, and obviously, the rest of STARS' impact and what ultimately everyone does with risk scores has yet to play out, but that Thanks. And then just to clarify, so the 50 bips, that's for the overall book, right? And then I would assume that it's actually the legacy book, probably better, and the Bright book a little worse than the legacy in that. Is that a fair assumption?
Mark Kimes: We're still working our way through that. There will be a couple things going on there. As I mentioned earlier, we're six weeks into owning it, and we're working through those issues with the team there. There will also be a bunch of dynamics that happen this year. There are actually two entities there. One is Community Health Plan, and the other one is Brand New Day.
Mark Kimes: There'll be some issues between them on exactly how we balance the effects of all this between those two entities. A little bit of work there, and I'm not ready to comment on that one. I would say that we're not anticipating any analysis when it is completed on rates that would move us off of achieving the $1 accretion in the third full year of ownership. We're pretty confident in that trajectory.
Mark Kimes: Okay, all right, thank you. This concludes the question and answer session and also concludes the conference call. Thank you for attending today's presentation. You may now disconnect.
Operator: © BF-WATCH TV 2021, © The Ultimate Parody Site! © BF-WATCH TV 2021, © The Ultimate Parody Site! © BF-WATCH TV 2021, ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Thanks for watching!