Q4 2023 Elevance Health Inc Earnings Call

Operator: Ladies and gentlemen, thank you for standing by and welcome to the Elevance Health Force Quarter Earnings Conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star than one on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star than two. These instructions will be repeated prior to the question and answer portion of this call. As a reminder, today's conference is being recorded.

Operator: I would now like to turn the conference over to the company's management. Please go ahead.

Steve Chenau: Good morning and welcome to Elevance Health Force Quarter 2023 Earnings Call. This is Steve Chenau, Vice President of Investor Relations.

Steve Chenau: And with us this morning on the Earnings Call, our Gail Boudreaux, President and CEO, Mark Kaye, our CFO, Peter Haytaian, President of Carolyn, Morgan Kendrick, President of our Commercial Health Benefits Business, and Felicia Norwood, President of our Government Health Benefits Business. Gail will begin the call with a brief discussion of the quarter and year and recent progress against our strategic initiatives. Mark will then discuss our financial results and outlook in greater detail.

Steve Chenau: After our prepared remarks, the team will be available for Q&A. During the call, we will reference certain non-GAP measures. Reconciliation of these non-GAP measures to the most directly comparable GAP measures are available on our website, ElevanceELF.com.

Steve Chenau: We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Elevance Health. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings at the SEC.

Gail Boudreaux: I will now turn the call over to Gail. Thanks, Steve, and good morning everyone. Today, we're pleased to share that Elevance Health delivered a strong end to 2023, demonstrating our ability to execute with agility and the balance and resilience of our enterprise. In the fourth quarter, Elevance Health delivered GAP diluted earnings per share of $3.63 and adjusted diluted earnings per share of $5.62. For the full year, we reported GAP diluted earnings per share of $25.22 and adjusted diluted earnings per share of $33.14.

Gail Boudreaux: 2023 marks the sixth consecutive year in which we grew adjusted diluted earnings per share within or above our 12 to 15% long-term target growth rate with a compound annual growth rate exceeding the high end of the range. This reflects the ongoing execution of our strategy to accelerate capabilities and services, invest in high growth opportunities, and optimize our health benefits business. In 2023, we made significant strides building upon our flywheel for growth.

Gail Boudreaux: Caroline has and will continue to add attractive capabilities that we can scale rapidly and sustainably over the long term. For example, just a few weeks ago, we announced the acquisition of Paragon Healthcare, a company specializing in infusable and injectable therapies. The acquisition expands our capabilities catering to consumers with complex and chronic needs, who can benefit the most from our approach to whole person health. Infusion services will complement our suite of pharmacy services, which today include a fast growing specialty pharmacy business, and our advanced home delivery service, which launched at the beginning of this year.

Gail Boudreaux: Keralan services poised for strong growth in 2024, with the onboarding of new clients and continued expansion of services provided to Elevance Health medical members, including the rollout of risk-based oncology products and Keralan insights, as well as the launch of comprehensive Keralan behavioral health management services, to address the whole health needs of Medicaid beneficiaries living with serious mental illness. Turning to our health benefits business, 2023 marked another strong year, despite a dynamic operating environment, performance was led by the optimization of our commercial business, where operating margins continue to recover from pandemic arrow lows, which will continue into 2025.

Gail Boudreaux: Commercial customers prioritize affordability, experience and simplicity, and we're delivering on all fronts. In 2023, we launched a series of initiatives designed to improve and simplify the customer experience, including our associate's ability to better serve our members, through the integration of AI support and natural language processing, which has significantly improved first call resolution. In addition to enhancing our claims auto adjudication rate, we're also broadening the use of AI to automate certain aspects of our provider directory and other administrative processes, which have improved data accuracy and consumer and provider experiences. Momentum in our national accounts business is a direct result of the unique and differentiated value we offer to large employers.

Gail Boudreaux: We continue to consolidate business with existing clients, achieving excellent retention, and winning over 75% of employers who ultimately switched carriers despite a smaller pipeline of new accounts for 2024. In our individual business, we positioned our products thoughtfully to drive profitable and sustainable growth, and were pleased with our performance in 2023. We're looking forward to even stronger membership growth this year as we focus on maximizing access to care for redetermined Medicaid beneficiaries.

Gail Boudreaux: Our relentless focus on affordable products, superior customer experiences and simplicity is yielding strong results. After growing commercial membership by over 400,000 members last year, we are poised to grow by another 750,000 in 2024. Medicaid eligibility, redeterminations remain ongoing, and in many states have accelerated the redetermination processes. To date, over 70% of our members who lost Medicaid coverage were unenrolled for administrative reasons. This is a challenging reality for many families. But we're encouraged that we are nearly two thirds of the way through the process.

Gail Boudreaux: With close to 30% of those unenrolled individuals before September 1st, having re-enrolled in an Elevance Health product. Our research indicates that many unenrolled members are facing barriers to re-enrollment, including awareness of the process and required actions to maintain coverage.

Gail Boudreaux: To address this, we're executing an extensive renewal campaign and it reached over 3 million people with our Omni Channel approach as we remain committed to supporting them as their trusted health partner. Despite accelerated membership attrition from redeterminations to date, our Medicaid business is performing well. Grades remain actuarially sound for the members we are privileged to serve and we are innovating to meet their needs. For example, in 2024, we will expand our community-connected care model into eight additional states.

Gail Boudreaux: This program assists Medicaid members with their health-related social needs by identifying gaps and connecting members to support services in their communities. We will also launch a program in alliance with the Affordable Connectivity Program, Major Wireless Careers and SAMSUNG, that will help increase equitable access to digital and virtual health tools. The program will provide eligible Medicaid members with a curated selection of digital and virtual health tools via smartphone with no data cap at no cost. Along with training materials and ongoing guidance on how to use these tools.

Gail Boudreaux: Strong performance in 2023 allowed us to invest for the long term. In the fourth quarter, these investments were concentrated in Medicare, where we remain intensely focused on building a strong foundation for sustainable long term growth. This includes improving our star quality ratings and driving profitable growth in markets where we know we can win over the long term. Unfortunately, pockets of the Medicare Advantage market have remained hyper competitive despite a more challenging funding environment.

Gail Boudreaux: While our plans continue to offer attractive and valuable benefits, we took intentional actions as part of our 2024 bid strategy to address product sustainability, and as such, we experienced greater than expected attrition in certain markets. As a result, we expect our Medicare Advantage membership to be roughly flat in 2024 on an organic basis, but earnings to improve. Importantly, cost trends in our Medicare Advantage business continue to develop as we expected, and we are confident that the assumptions underlying our bid for 2024 are appropriate.

Gail Boudreaux: With respect to stars, we have now fully implemented My Health Advocate, our comprehensive, personalized customer service model for Medicare. This has improved experiences for our members, helping them to easily navigate the healthcare system and their plan benefits. Early proof points reflect an improvement and first call resolution, a key indicator of future quality performance for our Medicare Advantage plans. We are confident that we have a solid foundation in our health benefits business, from which we will grow carol on for the long term with many of the building blocks in place to accelerate our enterprise flywheel for growth.

Gail Boudreaux: We are positioned to deliver another year of strong earnings growth in line with our long term target in 2024 while continuing to invest in our future. We expect adjusted looted earnings for share to be greater than $37.10 this year, reflecting growth of at least 12% over 2023.

Gail Boudreaux: Finally, advancing health equity is foundational to our efforts to improve the health and lives of the individuals and communities we are privileged to serve. Our industry leading approach received renewed recognition when the National Committee for Quality Assurance awarded its newly established health equity accreditation plus to 20 of Elevance Health affiliated Medicaid health plans covering over 90% of our Medicaid members and making us the only national plan to have received this distinction to date.

Gail Boudreaux: We also saw excellent progress on our ambitious goal to improve maternal health equity by reducing the disparity in pre-term birth rates between black and non-black communities, improving the disparity gap by 5.2% relative to our 2022 baseline. In closing, I want to express my gratitude to our extraordinary team of over 100,000 associates. It is their collected passion and hard work that enables us to deliver on our commitments to all of our stakeholders.

Gail Boudreaux: This past year alone, our associates logged over 225,000 volunteer hours in our communities, a record high for Elevance Health. This remarkable achievement reflects our deep dedication to making a tangible, positive impact on the lives of the people we are privileged to serve and for the communities we call home. As we move forward, we will remain focused on serving our members as their lifetime trusted health partner.

Mark Kaye: With that, I'd like to turn the call over to our new Chief Financial Officer, Mark K. Mark? Thank you, Gail, and good morning.

Mark Kaye: I am pleased to join you for my first earnings call as CFO of Elevance Health. As Gail shared, we delivered strong results every quarter of 2023, including in the fourth quarter, which was marked by solid top and bottom line growth and significant progress in the execution of our enterprise strategy to accelerate capabilities and services, invest in high growth opportunities. And optimize our business. Forces.

Mark Kaye: Fourth quarter, adjusted deluded earnings per share of $5.62 and full year adjusted deluded earnings per share of $33.14. We're ahead of expectations. Since 2018, Elevance Health has achieved a compound annual growth rate of nearly 16%, surpassing a long-term target range of 12 to 15%. Operating revenue exceeded $170 billion in 2023, up 9.3% year-of-a-year driven by growth in both our health benefits and care-owned businesses. The benefit expense ratio was 89.2% for the fourth quarter, and 87% for the full year, representing an improvement of 50 basis points and 60 basis points, respectively, compared to the prior year periods.

Mark Kaye: This was primarily driven by premium rate adjustments in recognition of medical cost trend, most notably in our commercial health benefits business. The adjusted operating expense ratio was 11.6% for the fourth quarter, up 20 basis points compared to the prior year period, join by accelerated investments made in the quarter, notably in network quality, value-based care, and customer experience initiatives designed to address key priority areas for Medicare-avantage stars. For the full year, the adjusted operating expense ratio was 11.3%, flat year-of-a-year.

Mark Kaye: Operating cash flow was $8.1 billion in 2023 for 1.3 times gap net income. This includes the benefit of approximately 300 million of state-based payments for 2024 dates of service that we received in the fourth quarter, and which will correspondingly impact operating cash flow in 2024. We ended the year with a debt-to-capital ratio of 38.9% in line with our targeted range. Given confidence in our outlook, we took advantage of market volatility during the fourth quarter to accelerate share repurchases. Specifically, we repurchased 2 million shares of our common stock for 929 million, bringing total share repurchases for the year to 5.8 million shares at a total cost of 2.7 billion.

Mark Kaye: Our health benefits business ended the year with approximately 47 million members, a decrease of around 570,000 year-over-year, driven by attrition in Medicaid associated with eligibility redeterminations, partially offset by growth in our commercial fee-based membership. Today, we are seven to eight months into the Medicaid redetermination process, and while there is significant variability by state, we believe that nearly two-thirds of our members have had their eligibility evaluated. Of those unenrolled, approximately 70% have lost coverage due to administrative reasons, and we have also seen an elongation in the time some beneficiaries have taken to reenroll in to Medicaid, while others have transitioned onto an ACA exchange plan.

Mark Kaye: As Gail noted, we are executing an extensive renewal campaign to maximize continuity of coverage. Accordingly, we expect reenrollment in to Medicaid to continue through at least 2024, and for growth in ACA exchange plans to accelerate. State.

Mark Kaye: This has been incorporated into our membership guidance ranges for 2024. Turning to our financial outlook for 2024, we are pleased to provide initial guidance for just the deluded earnings per share of greater than $37.10, reflecting growth of at least 12% year over year. We are focused on optimizing our health benefits business, including through the ongoing margin recovery of a commercial risk-based business, the strategic repositioning of our Medicare Advantage Plan offerings and certain markets, and the transformation of our cost structure.

Mark Kaye: Further, we are investing in high growth opportunities with a focus on establishing a foundation for sustained long-term growth. We will scale Kellan's existing capabilities and add new ones in 2024, driving incremental earnings growth and accelerating our enterprise flywheel for growth. The momentum in our commercial health benefits and Kellan businesses is partially offset by the Medicaid membership headwinds included in our guidance. We anticipate total medical membership to end 2024 in the range of 45.8 to 46.6 million, down to approximately 750,000 year over year at the midpoint.

Mark Kaye: Medicaid membership is expected to end the year in the range of 8.8 to 9.2 million members, with attrition driven by the net plus of approximately 930,000 members associated with changes in our footprint discussed on our third quarter earnings call and ongoing eligibility redeterminations. Commercial membership is expected to grow by over 750,000 at the midpoint, ending the year in the range of 32.4 to 32.8 million members. This includes over 300,000 net new risk-based members and approximately 400,000 net new fee-based members collectively driven by new business wins and strong client retention, reflecting our resolute focus on customer affordability experience. And simplicity.

Mark Kaye: Medicare Advantage membership is expected to end the year approximately flat. As a reminder, we took intentional actions as part of our 2024 bid strategy to improve the sustainability of our product offerings and give an unexpected competitive dynamics in certain markets experience greater than expected attrition. Nonetheless, these actions will help establish a strong foundation for profitable and sustainable growth over the long term, and we remain confident in the outlook for utilization and medical cost trends embedded in our 2024 bids. Finally, we expect our Medicare supplement and federal employees' health benefits membership to remain relatively stable year over year.

Mark Kaye: On a consolidated basis, operating revenue for 2024 is expected to be flat to up low single digits. We project operating earnings for the year to be at least 10.3 billion, reflecting 9% growth with contributions from both our health benefits and care-long businesses, discipline-benefit management and a successful execution of our 2023 business optimization initiatives. Please note that our guidance metrics do not include the impact of pending M&A, even though we have several transactions we expect to close this year.

Mark Kaye: Earning seasonality is expected to be relatively consistent year over year, with slightly more than 55% of our full year adjusted deluded earnings per share in the first half of the year, and more than half of that expected in the first quarter. Finally, I'm pleased to announce that our Board of Directors recently approved a 10.1% increase in our regular quarterly dividend, raising it to $1.63 per share. This marks our 13 consecutive annual dividend increase, and destroying our commitment to delivering strong results for our shareholders and the value of our balanced and resilient business model. In closing, 2023 was a strong year for the company, and I'm looking forward to working alongside the talented and dedicated team at Elevance Health to deliver on our financial targets.

Operator: I look forward to meeting all of you in 2024, and with that operator, please open the line for questions. Ladies and gentlemen, if you wish to ask a question, please press star than one on your telephone keypad. You will hear prompt that you have been queued. You may withdraw your question at any time by pressing star than two. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each analyst that may wish to participate in this portion of the call.

AJ Rice: For our first question, we'll go to the line of AJ Rice from UBS. Please go ahead.

Mark Kaye: Hi, everybody. Welcome on board, Mark. Congratulations to the company for another year of meeting the growth targets, and I know it's early to talk about this, but maybe you'd have to take some steps today to ensure your positioning. With 2025, you'll have the star ratings impact overcome. When you think about that, will the company do anything differently? How do you think about the levers you have to push to also appears, at least on the service to be a couple.

Mark Kaye: So, percentage points of head went from that star ratings impact. We step up, share, repurchases, accelerate investments in carol on. How do you think about that at this early date and the ability to sustain that 12 to 50% even in the next years? Well, thanks for the question, AJ. There's a lot in there. And as you know, 25, it's a little early to apply on 25, but I'd like to give you at least a little bit of color on how we're thinking about some of the things that you mentioned. Let me start first with star rating.

Mark Kaye: So, because as we shared on the last call, we are intensely working, Medicare Advantage is a very important business for us, and we're strategically committed to the long term. And I will reiterate this year we felt we took very prudent actions for a long term sustainable business and feel good about our bids. So, that's positions us well for 2025 in particular in terms of the star ratings. Again, few things going on there.

Mark Kaye: We shared on our last call that on the group business. We have a number of levers at our disposal that we are able to pull and we're still moving forward with that. And then in terms of overall star ratings, we do think that that's going to be a multi-year initiative, but I wanted to share as I shared on my early remarks that we have invested at the last part of the year and we were investing actually prior to even the announcement.

Mark Kaye: We have been successful at moving all of our business into our health advocate model and we do know that we're seeing some early signs. We don't know where the points are going to come out but we do feel good about the investments we're making and again feel really good about where our bids have come out. Broader, let me take a little bit further back because I think your question around 25 is broader than just Medicare Advantage in stars.

Mark Kaye: And as I think about 25, again, not giving guidance on 25, but we do expect to accelerate growth in 2025. And we've talked quite a bit on recent calls about our flywheel for growth, which is an improvement in both the health benefits business and our Caroline segment. We anticipate that our health benefits businesses can continue to grow in 25 after a reset year in 24. And we should see an accelerated impact to that growth, which will drive revenue for Caroline.

Mark Kaye: And then Caroline also has been independently scaling its multiple new capabilities and will share I assume even more of those on the call today. And then finally, as you know, we took some actions at the end of last year around our discipline operating cost efficiencies and we expect to see even greater benefits from those as we digitize and you use AI in our investments. So honestly, I think we feel that we've positioned our business very prudently and that the balance and really resilience of our enterprise and our earnings power of our health benefits and Caroline together gives us a lot of confidence and our ability to achieve our long term target. So just a little bit more color on where we are. Thank you very much for the question. Please.

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

Mark Kaye: Great, thanks. I guess I wanted to ask about the MLR guidance for 2024. It sounds like you guys are expecting margin improvement in MA, your repositioning commercial, and Medicaid is dropping pretty meaningfully. But why is MLR only flat? I would think that we'd be seeing MLR improvement if there's some offset, you know, in there. Good morning, and thank you very much for the question.

Mark Kaye: Maybe let me start with the 2023 just to set the context here. So 2023 benefit expense ratio into the years slightly better than our initial expectations at that 87%. And just reminded that represented the 60 basis point improvement year over year, as well as falling in the lower hot of our initial 2023 guidance range. As it relates to 2024, we are guiding to a flat benefit expense ratio of 87% plus minus 50 basis points.

Mark Kaye: And our outlook here reflects a consistent approach to reserves and a prudent thought process around utilization given the dynamic operating environment, especially for our government businesses. If I take a deeper look at the underlying businesses themselves, you know, the health benefits benefit expense ratio reflects that intentional management action. We're taking in commercial, it will continue on through into 2024 around the disciplined underwriting practices and part of our margin recovery efforts. And then certainly on the Medicare Advantage side continue appropriate expectations around utilization and Medicare medical cost trends. Thank you, Mark. And thanks Kevin for the question. Next question, please.

Josh Raskin: Next we'll go to the line of Josh Raskin from Neffron Research. Please go ahead. Hi, thanks. Good morning.

Josh Raskin: We could speak a little bit more specifically around the growth and Medicare Advantage to start this year. Sounds like a little bit lower than expectations. And I'm curious specifically in the commentary you made around pockets of competition, maybe where you're seeing that what you think is driving that. And then any specific comments on retention relative to expectations for this year. Well, thanks.

Josh Raskin: Thanks, Josh, very much for the question. And just maybe a couple overarching comments because I think it's important that I'm an asked solution or would who leads our government business to comment more specifically. And I, I think it's important to frame that, you know, we made some very specific discipline decisions and feel really good about our bids entering into this. And Felicia, you know, we actually exited some markets very specifically that we're underperforming. So I think you have to take that into capital. She'll provide a lot more detail on kind of where we landed this year on the perspective on the market. So Felicia, please. Sure. Good morning, Josh.

Felicia Norwood: And thank you very much for that question. You know, as we headed into 2024, we made some very disciplined decisions that we were going to enhance the financial performance for our Medicaid Advantage business. You know, in the mainland, we exited a scale noted specifically certain markets that had been underperforming for us for years. And with the impending risk model revisions, we really saw no path to long-term attractive, sustainable economics in those markets. And that really represented a decline of about 84,000. First.

Felicia Norwood: I also want to note that we've reduced supplemental benefits in Puerto Rico, both to turn around their performance after a very challenging 2023 and to position us for the three-year face-in of the RIS model revisions, which will have a material at first impact on Medicare Advantage on the island, in part due to the higher mix of duels that we have in Puerto Rico. So we've reset our supplemental benefits there, and in the midst of a very highly competitive bid environment, we will see membership declines of somewhere in the neighborhood of about 90,000 in 2024 in Puerto Rico.

Felicia Norwood: Now, while the decline is larger than we expected, it certainly has boasted our confidence in the anticipated improvement in our benefit expense ratio in Puerto Rico. At the end of the day, what we wanted to do was to establish a very strong foundation from which we can grow in Puerto Rico long-term, sustainably, and profitably. Back to the mainland.

Felicia Norwood: Selling activity for AEP was actually very strong for us as we expected. When we exclude the planned attrition on the island that we mentioned on the mainland that I mentioned earlier, our net mainland Medicare Advantage membership would be on track to grow by high single digits this year, despite encountering greater disenrollment in certain markets due to very aggressive offerings by select competitors. At the end of the day, I think that we've made very thoughtful decisions around how we're going to position our business for long-term sustainable growth going forward, and we've done the things that we've always committed to do.

Felicia Norwood: We expect to do very well in our blue markets. We are performing better in our blue markets than the overall growth rates, and we're very much focused on a combination of balancing that perspective between margins and membership growth. So, we feel good about how we're positioning our business going forward, and as we said earlier, in light of all of these dynamics, would expect to have flat membership in 2024. Thank you.

Sarah James: Next question, please. Next, we'll go to the line of Sarah James from Cancer Fitzgerald. Please go ahead.

Sarah James: Thank you. So, you guys have some really nice margin expansion guided to for Carolyn in 2024. I was wondering if you could unpack it a little bit for us as we think through the major buckets that are causing the expansion, and then also the pacing, if it's radical as we think about the margin expansion through 2024, and then I guess further out as we get to 2027. Thank you. Thank you, Sarah. I'm going to ask Pete Eitian, who leads Carolyn to come on that.

Peter Haytaian: And as you know, we're excited about real flywheel opportunity that we're seeing in Carolyn. So, Pete, yeah, let me thank you, Sarah, for the question. Let me talk about Carolyn services growth, and we are very excited about the opportunity and the progress that we're making with respect to services growth. I think you saw that play through in 2023.

Peter Haytaian: We committed to double digit increase on revenue, which we achieved. And as it relates to our 2024 guide, you saw that we're talking about high teens, low 20s growth, and it's really playing through our strategy that we talked about focusing on complexities in healthcare, high cost spend areas, and really driving capitated risk in key areas to support our health plans. In 23, we did that with our post-cute care initiative, DME, wound care, and as we move forward into 2024, and Gail mentioned this in a prepared remarks, we have new offerings that are whole health full-risk opportunities, like oncology, assuming full-risk and oncology, as well as in Medicaid with behavioral health with the seriously mentally ill population.

Peter Haytaian: So, these are significant initiatives that are really propelling the trajectory of our business. I would also say that as it relates to external growth, we're also seeing really nice improvements from that perspective and really nice momentum. Our pipeline in 23 for 24 growth was much more significant in terms of our sales. This time versus last year, we've seen a real nice trajectory in our growth, and we've had a couple of really nice notable wins with the Blues.

Peter Haytaian: I would say that as it relates to that and the opportunity with the Blues, they are doing exactly what we've talked about in the past, and looking closely at some of these full-risk comprehensive offerings that we're delivering in Elevants Health, and then very interested in that in terms of the opportunities to create predictable stable costs to care for them. So, very pleased with where we are in the trajectory of growth in Thank you, next question please.

Stephen Baxter: Next, we'll go to the line of Stephen Baxter from Wells Fargo, please go ahead. Yeah, hi, thank you.

Mark Kaye: I'm just going to come back to the Medicaid re-determination process. So, entering in 2023, you were expecting some normalization of the Medicaid outperformance that you saw in years prior. Can you give it an update on where that land is in 2023 compared to your initial thinking? And I'm just a little bit more color on what your guidance assumes from Medicaid in 2024. That puts you back in store for norms from margins or should we be thinking about something out there? Thank you. Even thanks very much for the question.

Mark Kaye: On Medicaid membership, our outlook reflects the footprint adjustments we spoke about on our third quarter earnings call and the continued attrition due to re-determinations. We believe Medicaid re-determinations are approximately two-thirds complete across our Medicaid markets and in general, we've seen more front-loaded disenrollment, notably in a few large states that have elected to adopt accelerated processes. And then based on the trains that we've observed related to these market-wide coverage shifts, we have adjusted our Medicaid retention assumption to be approximately 30% of our PHE-related growth.

Mark Kaye: We're not planning to provide point estimates for coverage transitions generally. We do, however, believe that ACA will pick up more than initially expected, while employer group coverage will gain a little bit less than initially expected. But most importantly, these updated projections are factored into our membership guidance that we provided this morning. Thank you.

Lance Wilkes: Next question, please. Next, we'll go to the line of Lance Wilkes from Bernstein. Please go ahead.

Mark Kaye: Yes, thanks. Could you talk a little bit about your value-based care strategies? And what would be interested in is from a contracting standpoint, how are you approaching that for 24 in like MA? Are you doing any sort of re-negotiations that kind of hold those value-based care providers more stable in that you're given the risk adjustment changes? And then how is the priority for owning those sorts of assets and carry-on change in what's your current outlook there? Thanks.

Mark Kaye: Well, thanks for the question, Lance. There's quite a bit there, but I think, you know, maybe start with our value-based strategy. We've talked about on this call a number of times, and I think I would say it's remained really consistent, but we're making a lot of very good progress on that. Overall, more than 60% are in value-based care and in Medicare, it's even more specific to your question or re-negotiation. You know, we have multiple year arrangements with our value-based providers, and we're always looking at a couple of things. One, quite frankly, make sure that it's win-win and we're aligned, both on cost quality outcomes and stars.

Mark Kaye: So we've spent a lot of time focusing on some of the ways that we can get data back and forth more simply. We've integrated the way we share data back and forth, and that's really around closing gaps in care, and quite frankly, simplifying the process under which we work with those providers. Our goal is to make that ubiquitous across all of our value-based providers, and so we made a lot of progress there and dramatically improved sort of the time to action with those providers. And I think that's important because, honestly, that gives some data to act, and that improves their outcomes.

Mark Kaye: We have seen our value-based providers perform better in the circumstance, and we think that that's going to remain important. In terms of our strategy around ownership, you know, we've talked about that. As you know, we do have assets inside a carol on.

Mark Kaye: I guess where I would focus you more is around the specialty high-cost complex areas of specialty, because that's where we think that there's a huge differentiated focus between our technology, our clinical domain expertise, and our ability to drive trend. Again, we don't need to own the providers, but we do need to have a significant role in the enablement of those care providers, and we have spent time doing that. We launched a number of new products this year with oncology, serious mental illness, and we're getting into other areas like musculoskeletal, renal, and more.

Mark Kaye: And I think that's where you see, you know, the significant spend areas accelerating, and carol on with its assets has a great opportunity. So we expect carol on care provider, and enablement platforms continue to contribute pretty significantly. Carol ends revenue, meaningfully, over the longer term, and we're building those assets. And again, I'll keep going back to my flywheel where we think that will improve the performance of our health benefit plans. There's a lot of interest in externally in these, and Pete mentioned we saw some nice traction in a few of these offerings this year.

Mark Kaye: So overall, I'd say very consistent focus around our value-based care enablement, and we feel like we're getting a lot of traction. And I would focus you a lot on the specialized care, specialty care, particularly on the carol on growth opportunities. So thank you very much for the question.

Nathan Rich: Next question, please. Next, we'll go to the line of Nathan Rich from Goldman Sachs.

Mark Kaye: Please go ahead. Great. Good morning. Thanks for the questions. Two on the Medicare business. First, you know, you talked about Medicare cost trend developing as expected in the fourth quarter. I guess I'd be curious if there are any areas that came in higher or lower than expected and what the benefit expense guidance for 2020 suit for assumes for Medicare cost trend. And then, I guess, you know, higher level is you reposition the Medicare business and I understand there's there's several moving pieces over the next couple of years. What's the company's current view? I guess first of the Medicare advantage market longer term, but then second, the membership growth and margin potential for Elevance specifically within that market context. Thank you.

Mark Kaye: So, thanks. Thank you for the question. I'm asked Mark to address your first question and then I'll come back and share our long term views on Medicare. Nathan, overall utilization in the fourth quarter developed largely in line with our expectations. And that's evidenced by reported benefit expense ratio, which came in favorable as you know, to consensus and really to the midpoint of our initial full year 2023 guidance range. We did see pockets of high utilization specifically in Medicare related to orthopedics, such as knee and hip replacements and other outpatient procedures, but this is broadly planned for as part of our underlying cost trend assumptions. Similarly, we saw seasonal uptick in respiratory elements, including the flu and COVID as well as increased RSC vaccinations.

Mark Kaye: But again, utilizations were aligned with what we planned. We'll continue to monitor our claims trends closely, including prior authorization data. We remain confident that our Medicare advantages for 2024 and our pricing commercial do reflect appropriate projections for utilizations and medical cost trends. Thank you, Mark.

Gail Boudreaux: Nathan, in terms of your broader question, let me just provide a little bit of perspective. Now, as I think about the market, we still think Medicare advantage is a very good long term market. And as I said, we're committed to driving sustainable performance to the long term. Medicare advantage delivers really strong differentiated value for seniors. I think you have to start there.

Gail Boudreaux: And as you look at the aligned incentives across the system to deliver better outcomes and better care, it is very strong marketplace and it continues to grow. And importantly, it's incredibly popular with seniors with greater than 50% of seniors selecting Medicare advantage today. So that's against that backdrop.

Gail Boudreaux: We know seniors value stability in their benefits year over year and the items that are most important to them. And so we have, as you heard from us earlier, look to make sure that we are in this market for the long term balancing that stability. So with what we know is happening in this market, we can we can make the right benefit decisions and again feel that we positioned ourselves are making the right strategic investments to improve our performance.

Gail Koziara Boudreaux: We see this business maturing as Mark shared in his comments as well. And again, been very intentional about our desire or decision to exit certain programs or markets and plans where we didn't think we had a long term sustainable path to performance. And that combined with the risk models made that choice. And then again, reposition Puerto Rico, which we believe is still a very good market, but there were some actions that we knew we had to take.

Gail Boudreaux: So as we look at those decisions for the long term, is police to share our business performed when you look at the mainland and take out those exits. We had very strong selling season. And again, I think that's a testament to the value of the benefits and our position. And importantly, we do believe we can grow this business profitably even in a year with hyper competitive markets in certain cases where we outperformed the growth in our blue markets, which again is always been a strategy we've had is to go deeper in our blue markets and to gain more share with the value of our brand as well as another place.

Gail Boudreaux: So again, we think it's a good market. We know we have some work to do in that market, but we feel we're positioning for the long term and think that we can add distinctive value for seniors as part of our focus on whole health and continuation of coverage to stay blue for life and all of their coverage. So thank you very much for the question.

Lisa Gill: Next question. Please. Next, we'll go to the line of Lisa Gill from JP Morgan. Please go ahead. Thanks very much and good morning.

Lisa Gill: I want to focus on the Martin drivers. Can you maybe just spend a little time talking about the progression in 2024, getting to those targets that you have in 25? And then secondly, when I think about the margins in Carolina Rx, you talk about them improving by 40 to 60 basis points. Can you talk about what the drivers are there as well?

Peter Haytaian: Is that, you know, Paragon Health and Bioplast, which I would assume carried better margins? Or is there something else that that's really driving that improvement as we move into 24? So thank you very much for the question.

Mark Kaye: I'll talk about health benefits, and I'll pause it over to peak in a couple of minutes to talk about Kailan. On the health benefits side, we are seeing operating margins expand or expect to expand by 25 to 50 basis points in 2024. And I think about this has really been driven by three primary categories. First is the continued underwriting discipline and the pricing actions that we're taking in commercial. You know, 2023 really marks the end of the first full year of our efforts to recover margins from the pandemic arrow lows. And we expect those supporting initiatives really to continue through 2024 and then possibly into 2025. Second one, I'd call your attention to here really relates to the Medicare margin expansion.

Mark Kaye: And here, as you've heard us talk about, this is about building that strong foundation for sustainable long-term growth in 2024 and striking that balance between growth and margin. And in 2024, we lead a little bit more towards the margin and the growth. And you see that comes through in some of our outlook projections this morning. And then the third one, I call your attention to is really the operating expense leverage. You see that we are gaining additional incremental leverage in 2024 without guide down to 11.1% for the operating expense ratio. Thanks, Mark.

Peter Haytaian: And Lisa, your question was on the trajectory of the margins and pharmacy. So you'll recall that this year in 2023, we made pretty significant investments as it relates to the acceleration of bioplus in advance on delivery. And that puts some pressure on our margins in 2023. That will not repeat itself in 2024.

Scott J. Fidel: We did go live with bioplus on January 1, as well as with respect to advanced on delivery. We're really excited about that and it's moving in the right direction. And over time, we've built those products for scale. And as that business builds and progresses, we will continue to see margin improvement. So that is what is delivering an improvement in margin in 24. Next question, please.

Scott Fidel: Next we'll go to the line of Scott Fidel from Stevens. Please go ahead. Hi, thanks. Good morning.

Morgan Kendrick: I was hoping you could just on the commercial risk enrollment guidance, if you can break that down for us between group and individual. And then on the individual piece, I'm curious in terms of what you're thinking in terms of how much of that growth comes from the catchers met, Medicaid. And then how you're thinking about the acuity of those lives that are coming into the exchanges from Medicaid. We know that in Medicaid, that acuity is generally rising as the redeterminations continue.

Morgan Kendrick: So I'm curious, though, in terms of those lives that are transitioning into the exchanges, are you thinking about those as being sort of higher, lower, or inline acuity with the legacy population exchange market? Thanks a lot.

Morgan Kendrick: Well, thanks for the question, Scott. I think we've got about four or five in there, so we will try to hit the high points of your question. Let me ask Morgan and then Mark to comment on your questions. Morgan?

Mark Kaye: Yes, Scott, thanks for the question. You know, as we think about the ACA business, you know, we've talked about it for a while now. We're quite bullish on that segment. And as we've remarked in other quarterly reports, we operate in all rating areas in our 14 geographies where we can.

Mark Kaye: And you know, certainly we've seen an expansion in the actual market share and the market growth actually in these geographies. In fact, you know, it's certainly a big driver is Medicaid re-determination. As we've indicated earlier on the call today, we've concluded about two-thirds of those. We expect that to continue in 2024. And also we noted in the past, we've seen an elongated period of time from when someone is re-determined and when they actually joined Medicare or come on an ACA product moving along.

Mark Kaye: That said, but quite pleased that, you know, our growth this year is outpacing our market growth. So clearly we're picking up our fair share and more, quite honestly, of the Medicaid re-determined members. So at the end of the day, this will continue. We've had a very steadfast and steady approach around the right economics and the right network strategies to draw in these members. It's very important for the business to continue. And I'm going to turn that over to Mark to speak a little bit about the margins and the separation of various pieces that you have to question. Yes, but I think about Medicaid rates and acuity.

Mark Kaye: You know, the conversations with the states are ongoing. We'll continue to work[inaudible] So, thank you for the question. Next question, please.

Ben Hendrix: Next, we'll go to the line of Ben Hendrix from RBC Capital Markets. Please go ahead.

David Windley: Thank you very much. You just wanted to follow up on the Caroline Margin question on Caroline services flat, slightly down margins in the guidance. Just wanted to see if that is agree to which that is associated with new risk-based arrangements or membership or to the press to the new board. Behavioral benefits, kind of what are the prospects for that kind of ramping up beyond 2024? Thanks.

Peter Haytaian: Yeah, no, thanks Ben for the question. First of all, we're very pleased with the operating performance of Caroline. You saw that play through in 2023. I think we committed to 25 to 50 basis points of improvement. You saw 70 basis points of improvement year over year so that it's performing really well. Well, you answered the question ready. Is it related to 2024?

Peter Haytaian: Quite frankly, we are as Gail talked about. And as I talked about earlier, launching some very significant at risk product offerings, both oncology, seriously, mentally ill population, as well as others. And that comes with a lower margin in the earlier years, but that improves over time. So that is precisely what was creating the pressure on the margin in 24. Yeah, and just to sort of put a finer point on it, we do remain confident in our long term guidance that we gave and made to upper single digit operating margins.

Peter Haytaian: So as Pete said, we think the business we're bringing on is really good. We're committed to bringing in more risk business, but in the early years that does have a little bit lower profile, but overall we feel very good about the long term.

Mark Kaye: Next question, please. Next, we'll go to the line of Justin Lake from Wolf Research. Please go ahead.

Justin Lake: Thanks, good morning. Most of my questions have been answered, but a couple of numbers here. First, you reported $200 million plus of positive prior to your development in the quarter, materially more than I think the company has ever seen in the Q4. Just curious, given the MLR was generally in line. Can you tell us whether there were any pressure areas that worked offset the benefit of the PYD?

Mark Kaye: In the quarter? And then with the benefits repositioning and Medicare advantage, which have clearly done, the expected be within your three to five percent target margin here for Medicare advantage in 24. Thanks. Justin, thank you very much for the questions this morning.

Mark Kaye: We are confident that our year end reserves are prudent and have been set consistent with historical practice. In the quarter, you are correct that we saw positive prior development on a gross basis, and that was indeed favorable. It's worth pointing out here that that was largely offset through premium rebates and colors as well as the reestablishment of reserves for the current year. An alternative way to think about this is that a full year, days and claims payable decreased just 0.2 days a year of a year, and that's noteworthy in the context of the fact that we have observed cycle times to actually decrease more than three days since the end of December 2022.

Mark Kaye: And that should give you a feel for our comfort level around reserves. On your second question, just relative to the long-term target margin ranges, commercial is on track to achieve our long-term goals. Let's say Medicaid is normalizing, but continues to perform well, and then Medicare advantage for now is below our long-term target margin range. Thank you.

Gary Taylor: Next question, please. Next, we'll go to the line of Gary Taylor from TD Cowan.

Mark Kaye: Please go ahead. Hi, good morning. I just wanted to follow up on enrollment. I kind of thought the story for 23 was that with the intentional commercial repricing, which has been pretty successful this year, you lost some commercial risk enrollment because of that. And I'm just trying to figure out on the million plus decline in risk enrollment for 24 how much of that is commercial risk versus the expected Medicaid redeterminations. We're all pleased with the performance of our commercial business in the fourth quarter in 2023.

Mark Kaye: We did make meaningful progress towards our margin recovery goals in the year. I think January renewals have gone well. We certainly experienced a today higher retention than we did at the same period last year. Repricing actions, as you would expect, do continue to impact membership growth, but this is expected. And so we're really continuing to expect approximately flat membership growth overall in our group risk business this year, while continuing to improve margins in line with our stated goals.

Mark Kaye: Thank you. And just again, to put a fine point, most of the loss in risk membership is driven by both the Medicaid redeterminations and the adjustment in the footprints that we've shared with you in the past. So that really is the key driver.

David Windley: Next question, please. Next, we'll go to the line of David Windley from Jeffries.

Mark Kaye: Please go ahead. Hi, thanks for squeezing me in here. I wanted to go to Caroline R. X on the revenue growth side, high growth in 23. Low single digits, I think you're expecting in 24. I suspect the bioplast acquisition and organically would have contributed to some of that growth in 23. But I don't think it bridges the full change. So maybe you could you could add some color around.

Peter Haytaian: The slow down in growth, the lower growth expectations for Caroline R. X in 24. Thanks. Yeah, thanks, excuse me, thanks David for the question.

Peter Haytaian: You know, as it relates to 2023 and the growth of over around 18.6% that did exceed our initial guidance. And as you alluded to, that was driven, you know, primarily by the bioplast acquisition and including bioplast and a result to a lesser extent. Drug mix and trends.

Peter Haytaian: But I would say as it relates to 2024, I would say we have tremendous momentum in the business. And we're really excited about how our strategy is playing, playing through. We've talked about assuming this strategic levers that really matter in our business. We've done that with specialty pharmacy and bioplasts. We've done that with advanced home delivery.

Peter Haytaian: You heard about the recent announcement of power gone and infusion, which we're really excited about. And then there are several new product launches that are resonating in the marketplace that we've talked about previously like, ensure, ensure our access as one of the examples. And this this momentum is playing through in ourselves in 2024. We are having a good good season. Obviously that activity occurred in 2023.

Peter Haytaian: Our retention remains strong. Our sweet spot does remain in that 3 to 10,000 range in terms of the business that we're attracting. And as you know, there's a little more reticence in terms of the larger jumbo accounts moving. But I would say that a couple of notable wins there. We saw a couple of wins in the 20 to 50,000 range. So we're really excited about the momentum in carol on and what we're doing strategically and how that's playing through in the marketplace. Thank you, Pete.

George Hill: Our next question will be our last question. For our final question, we'll go to the line of George Hill from Deutsche Bank. Please go ahead. Yeah, good morning, guys. And thanks for squeezing me in after Dave.

Mark Kaye: I'm going to come back to MA margins one more time. And I'm going to ask you to see if you can expand a little bit. If there's a way to disaggregate kind of the MA margin expansion, thinking about your pricing initiatives versus utilization expectation versus next and kind of the market exits that you guys are going to purchase. If you're going to kind of maybe rank over the contribution margin expansion in MA from each of those four initiatives. Thanks very much for the question, George. We are not looking to necessarily provide individual margin guidance within the health benefits segment.

Mark Kaye: Certainly, we feel comfortable with where we're guiding to in aggregate for 2024 and the 25 to 50 basis point range. And we think that the qualitative commentary that we provided in the call today should give you enough to get a feel for other management team is thinking about this. Given this is my first earnings, I just want to spend minutes on capital deployment before we close out here.

Mark Kaye: And I just want to make the point that I expect to continue with Elevants Health's existing strategic policy around capital deployment. As I believe it really strikes the right balance between growth and the return of capital to our stockholders. And just as a reminder, we argue the target 50% of our free cash flow towards M&A or organic rein basement and approximately 50% is a return of capital to our stockholders, either via the 30% for share repurchases or the 20% for dividends. And each year may differ, but over the years we expect to allocate capital consistent with this frame.

Gail Boudreaux: Thank you, Mark, and thank you to everyone who joined us. In closing, we're pleased to have delivered another strong year in 2023, and we're confident that the ongoing execution of our strategy and the balance and resilience of our diverse set of businesses positions us well for 2024 and beyond. We're very excited about our future, and we look forward to sharing more on our progress with you in the coming year. Thank you again for your interest in Elevance Health and have a great rest of your week.

Gail Boudreaux: Ladies and gentlemen, a recording of this conference will be available for replay after 11 a.m, today through February 23rd, 2024. You may access the replay system at any time by dialing 8000-568-3942. International participants can dial 203-369-3812. This concludes our conference for today. Thank you for your participation, and for using Verizon Conferencing, you may now disconnect.

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Operator: ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ??? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? ?? Ladies and gentlemen, thank you for standing by and welcome to the Elevance Health 4th Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode.

Operator: Later, we will conduct a question-and-answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star then 1 on your telephone keypad. You will hear a prompt that you have been cued. You may withdraw your question at any time by pressing star then 2.

Operator: These instructions will be repeated prior to the question-and-answer portion of this call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the company's management. Please do so.

Steve Tanal: Good morning, and welcome to Elevance Health's fourth quarter 2023 earnings call. This is Steve Tanal, Vice President of Investor Relations. And with us this morning on the earnings call are Gail Boudreaux, President and CEO; Mark Kay, our CFO; Peter Haytaian, President of Carillon; Morgan Kendrick, President of our Commercial Health Benefits business; and Felicia Norwood, President of our Government Health Benefits business. Gail will begin the call with a brief discussion of the quarter and year and recent progress against our strategic initiatives. Mark will then discuss our financial results and outlook in greater detail. After our prepared remarks, the team will be available for Q&A. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, www.elevancehealth.com.

Steve Tanal: We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Elevance Health. These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail. Thanks, Steve. And good morning, everyone.

Ladies and gentlemen, thank you for standing by and welcome to the Elephant Health fourth quarter earnings Conference call. At this time all participants are in a listen only mode. Later, we will conduct a question and answer session, where participants are encouraged to present a single question. If you wish to ask a question. Please press Star then one on your telephone keypad, you'll hear a prompt that you.

Gail Koziara Boudreaux: Today, we're pleased to share that Elevance Health delivered a strong end to 2023, demonstrating our ability to execute with agility and the balance and resilience of our enterprise. In the fourth quarter, Elevance Health delivered GAP diluted earnings per share of $3.63, and adjusted diluted earnings per share of $5.62. For the full year, we reported GAP diluted earnings per share of $25.22 and adjusted diluted earnings per share of $3

Thank you you may withdraw your question at any time by pressing Star then two these instructions will be repeated prior to the question and answer portion of this call.

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

Good morning, and welcome to elegance now fourth quarter 2023 earnings call. This is Steve to now Vice President of Investor Relations and with US. This morning on the earnings call. Our Gal do drew President and CEO, Mark <unk>, our CFO, Peter <unk> President of Carillon, Oregon, Kendrick President of <unk>.

Gail: Commercial health benefits business, and Felicia Norwood President of our government health benefits business Gail will begin the call with a brief discussion of the quarter and year and recent progress against their strategic initiatives.

Gail: We'll then discuss our financial results and outlook in greater detail.

Gail: After our prepared remarks, the team will be available for Q&A. During the call. We will reference certain non-GAAP measures reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website <unk> Dot com. We will also be making some forward looking statements on this call listeners are cautioned that these statements are subject to certain risks.

Gail Koziara Boudreaux: 2023 marks the sixth consecutive year in which we grew adjusted diluted earnings per share within or above our 12 to 15 percent long-term target growth rate with a compound annual growth rate exceeding the high end of the range. This reflects the ongoing execution of our strategy to accelerate capabilities and services, invest in high growth opportunities, and optimize our health benefits business. In 2023, we made significant strides building upon our flywheel for growth. Caroline has and will continue to add attractive capabilities that we can scale rapidly and sustainably over the long term. For example, just a few weeks ago, we announced the acquisition of Paragon Healthcare, a company specializing in infusible and injectable therapy.

Gail: And uncertainties, many of which are difficult to predict and generally beyond the control of element itself.

Gail: These risks and uncertainties can cause actual results to differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC I will now turn the call over to Gail.

Gail: Thanks, Steve and good morning, everyone. Today, we're pleased to share that elegance health delivered a strong end to 2023 Tim.

Speaker Change: Demonstrating our ability to execute with agility and the balance and resilience of our enterprise.

Speaker Change: In the fourth quarter elegans health delivered GAAP diluted earnings per share of $3 63, and adjusted diluted earnings per share of $5.62.

Gail Koziara Boudreaux: The acquisition expands our capabilities, catering to consumers with complex and chronic needs who can benefit the most from our approach to whole person health. Infusion services will complement our suite of pharmacy services, which today include a fast-growing specialty pharmacy business and our advanced home delivery service, which launched at the beginning of this year. Carillon Services is poised for strong growth in 2024 with the onboarding of new clients and continued expansion of services provided to Elevance Health medical members, including the rollout of risk-based oncology products and Carillon Insights, as well as the launch of comprehensive Carillon Behavioral Health Management Services to address the whole health needs of Medicaid beneficiaries living with serious mental illness. Turning to our health benefits business, 2023 marked another strong year despite a dynamic operating environment. The performance was led by the optimization of our commercial business.

Speaker Change: For the full year, we reported GAAP diluted earnings per share of $25.22 and adjusted diluted earnings per share of $33 in 14.

Speaker Change: 2023 marks the sixth consecutive year in which we grew adjusted diluted earnings per share within or above our 12% to 15% long term target growth rate with a compound annual growth rate exceeding the high end of the range.

Speaker Change: This reflects the ongoing execution of our strategy to accelerate capabilities and services invest in high growth opportunities and optimize our health benefits business.

Speaker Change: In 2023, we made significant strides building upon our flywheel for growth.

Speaker Change: <unk> has and will continue to add attractive capabilities that we can scale rapidly and sustainably over the long term.

Speaker Change: For example, just a few weeks ago, we announced the acquisition of Paragon Health care company specializing in Infusible injectable therapies.

Speaker Change: The acquisition expands our capabilities catering to consumers with complex and chronic needs who can benefit the most from our approach to whole person health.

Speaker Change: Infusion services will complement our suite of pharmacy services, which today include a fast growing specialty pharmacy business and our advanced home delivery service, which launched at the beginning of this year.

Speaker Change: Caroline services is poised for strong growth in 2024 with the Onboarding of new clients and continued expansion of services provided to elegance health medical members, including the rollout of risk based oncology products and Caroline insights as well as the launch of comprehensive Caroline behavioral health.

Speaker Change: Management services to dress the whole health needs of Medicaid beneficiaries living with serious mental illness.

Speaker Change: Turning to our health benefits business 2023 marked another strong year, despite a dynamic operating environment.

Speaker Change: Performance was led by the optimization of our commercial business.

Speaker Change: Our operating margins continue to recover from pandemic era, Lowe's, which will continue into 2025.

Speaker Change: Commercial customers prioritize affordability experience and simplicity.

Gail Koziara Boudreaux: We're operating margins continue to recover from pandemic era lows, which will continue into 2025. Commercial customers prioritize affordability, experience, and simplicity, and we're delivering on all fronts. In 2023, we launched a series of initiatives designed to improve and simplify the customer experience, including our associates' ability to better serve our members through the integration of AI support and natural language processing, which has significantly improved first call resolution in addition to enhancing our claims auto adjudication rate. We're also broadening the use of AI to automate certain aspects of our provider directory and other administrative processes, which have improved data accuracy in the consumer and provider experience.

Speaker Change: And we're delivering on all fronts in 2023, we launched a series of initiatives designed to improve and simplify the customer experience.

Speaker Change: Our associates' ability to better serve our members through the integration of AI support and natural language processing, which has significantly improved first call resolution. In addition to enhancing our claims auto adjudication rate.

Speaker Change: We're also broadening the use of AI to automate certain aspects of our provider directory and other administrative processes, which have improved data accuracy and consumer and provider experiences.

Speaker Change: Momentum in our National accounts business is a direct result of the unique and differentiated value we offer to large employers.

Speaker Change: We continue to consolidate business with existing clients, achieving excellent retention and winning over 75% of employers who ultimately switch carriers. Despite a smaller pipeline of new accounts for 2024.

Speaker Change: In our individual business, we positioned our product thoughtfully to drive profitable and sustainable growth and we're pleased with our performance in 2023.

Speaker Change: We're looking forward to even stronger membership growth this year as we focus on maximizing access to care for retirement Medicaid beneficiaries.

Speaker Change: Our relentless focus on affordable products superior customer experiences and simplicity is yielding strong results.

Speaker Change: After growing commercial membership by over 400000 members last year, we are poised to grow by another 750002 thousand 24.

Gail Koziara Boudreaux: Momentum in our national accounts business is a direct result of the unique and differentiated value we offer to large employers. We continue to consolidate business with existing clients, achieving excellent retention and winning over 75% of employers who ultimately switch carriers despite a smaller pipeline of new accounts for 2024. In our individual business, we positioned our products thoughtfully to drive profitable and sustainable growth, and we're pleased with our performance in 2023. We're looking forward to even stronger membership growth this year as we focus on maximizing access to care for redetermined Medicaid beneficiaries. Our relentless focus on affordable products, superior customer experiences, and simplicity is yielding strong results. After growing commercial membership by over 400,000 members last year, we are poised to grow by another 750,000 in 2024. Medicaid eligibility redeterminations remain ongoing and, in many states, have accelerated the redetermination process. To date, over 70% of our members who lost Medicaid coverage were unenrolled for administrative reasons. This is a challenging reality for many families.

Speaker Change: Medicaid eligibility re determinations remain ongoing and in many states have accelerated their redetermination processes.

Speaker Change: To date over 70% of our members, who lost Medicaid coverage, where unenroll for administrative reasons.

Speaker Change: This is a challenging reality for many families.

Speaker Change: But we're encouraged that we are nearly two thirds of the way through the process with close to 30% of those Unenroll before September one having re enrolled in an elegant health product.

Speaker Change: Our research indicates that many on enrolled members are facing barriers to re enrollment including awareness of the process and required actions to maintain coverage.

Speaker Change: To address this we're executing an extensive renewal campaign and it reached over 3 million people with our Omnichannel approach as we remain committed to supporting them as their trusted health partner.

Speaker Change: Despite accelerated membership attrition from Redetermination to date, our Medicaid business is performing well.

Speaker Change: Rates remain Actuarially sound for the members we are privileged to serve and we are innovating to meet their needs for.

Speaker Change: For example in 2024, we will expand our community connected care model and to eight additional states.

Speaker Change: This program assist Medicaid members with their health related social needs.

Gail Koziara Boudreaux: But we're encouraged that we are nearly two-thirds of the way through the process, with close to 30% of those unenrolled before September 1st having re-enrolled in an Elevance Health product. However, our research indicates that many unenrolled members are facing barriers to re-enrollment, including awareness of the process and required actions to maintain coverage. To address this, we're executing an extensive renewal campaign and have reached over three million people with our omni-channel approach as we remain committed to supporting them as their trusted health partner. Despite accelerated membership attrition from redeterminations to date, our Medicaid business is performing well. Rates remain actuarially sound for the members we are privileged to serve, and we are innovating to meet their needs. For example, in 2024, we will expand our community-based care model into eight additional states.

Speaker Change: I identify gaps and connecting members to support services and their communities.

Speaker Change: We will also launch a program in alliance with the affordable connectivity program major wireless carriers, and Samsung that will help increase equitable access to digital and virtual health tools. The program will provide eligible Medicaid members with a curated selection of digital and virtual health too.

Speaker Change: <unk> via smartphone with no data cap at no cost along with training materials and ongoing guidance on how to use these tools.

Speaker Change: Strong performance in 2023 allowed us to invest for the long term.

Speaker Change: In the fourth quarter. These investments were concentrated in Medicare, where we remain intensely focused on building a strong foundation for sustainable long term growth.

Gail Koziara Boudreaux: This program assists Medicaid members with their health-related social needs by identifying gaps and connecting members to support services in their community. We will also launch a program in alliance with the Affordable Connectivity Program, major wireless carriers, and Samsung that will help increase equitable access to digital and virtual health tools. The program will provide eligible Medicaid members with a curated selection of digital and virtual health tools via smartphone with no data cap, at no cost, along with training materials and ongoing guidance on how to use these tools.

Speaker Change: This includes improving our star quality ratings and driving profitable growth in markets, where we know we can win over the long term.

Speaker Change: Unfortunately pockets of the Medicare advantage market have remained hyper competitive.

Speaker Change: <unk> had a more challenging funding environment.

Speaker Change: While our plans continue to offer attractive and valuable benefits, we took intentional actions as part of our 2020 for bid strategy to address product sustainability and as such we experienced greater than expected attrition in certain markets.

Speaker Change: As a result, we expect our Medicare advantage membership to be roughly flat in 2024 on an organic basis, but earnings to improve.

Gail Koziara Boudreaux: Strong performance in 2023 allowed us to invest for the long term. In the fourth quarter, these investments were concentrated in Medicare, where we remain intensely focused on building a strong foundation for sustainable long-term growth. This includes improving our star quality ratings and driving profitable growth in markets where we know we can win over the long term. Unfortunately, pockets of the Medicare Advantage market have remained hyper-competitive despite a more challenging funding environment, while our plans continue to offer attractive and valuable benefits. We took intentional actions as part of our 2024 bid strategy to address product sustainability, and as such, we experienced greater than expected attrition in certain markets.

Speaker Change: Importantly, <unk>.

Speaker Change: Cost trends in our Medicare advantage business continued to develop as we expected and we are confident that the assumptions underlying our bids for 2024 are appropriate.

Speaker Change: With respect to stars we have now fully implemented and my health advocate.

Speaker Change: Our comprehensive personalized customer service model for Medicare.

Gail Koziara Boudreaux: As a result, we expect our Medicare Advantage membership to be roughly flat in 2024 on an organic basis, but earnings to improve. Importantly, cost trends in our Medicare Advantage business continue to develop as we expected, and we are confident that the assumptions underlying our bids for 2024 are appropriate. With respect to STARS, we have now fully implemented My Health Advocate, our comprehensive personalized customer service model for Medicare.

This is improved experiences for our members, helping them to easily navigate the health care system and their plan benefits.

Speaker Change: Early proof points reflect an improvement in first call resolution a key indicator of future quality performance for our Medicare advantage plans.

Speaker Change: We are confident that we have a solid foundation and our health benefits business from which we will grow Caroline for the long term with many of the building blocks in place to accelerate our enterprise flywheel for growth.

Gail Koziara Boudreaux: This has improved experiences for our members, helping them to easily navigate the health care system and their planned benefits. Early proof points reflect an improvement in first call resolution, a key indicator of future quality performance for our Medicare Advantage plan. We are confident that we have a solid foundation in our health benefits business from which we will grow Carol on for the long term, with many of the building blocks in place to accelerate our enterprise flywheel for growth. We are positioned to deliver another year of strong earnings growth in line with our long-term target in 2024 while continuing to invest in our future. We expect adjusted diluted earnings per share to be greater than $37.10 this year, reflecting growth of at least 12% over 2023. Finally, advancing health equity is foundational to our efforts to improve the health and lives of the individuals and communities we are privileged to serve.

Speaker Change: We are positioned to deliver another year of strong earnings growth in line with our long term target in 2024, while continuing to invest in our future.

Speaker Change: We expect adjusted diluted earnings per share to be greater than $37.10. This year.

Speaker Change: Reflecting growth of at least 12% over 2023.

Speaker Change: Finally, advancing health equity is foundational to our efforts to improve the health and lives of the individuals and communities we are privileged to serve.

Speaker Change: Our industry, leading approach received renewed recognition when the National Committee for quality assurance awarded its newly established health equity accreditation plus to 'twenty of Ela Vance health affiliated Medicaid health plans covering over 90% of our Medicaid members.

And making us the only national plan to have received this distinction to date.

Speaker Change: We also saw excellent progress on our ambitious goal to improve maternal health equity by reducing the disparity in preterm birth rates between black and non black communities, improving the disparity gap by five 2% relative to our 2020 to baseline.

Speaker Change: In closing I want to express my gratitude to our extraordinary team of over 100000 associates.

It is their collective passion and hard work.

Gail Koziara Boudreaux: Our industry-leading approach received renewed recognition when the National Committee for Quality Assurance awarded its newly established Health Equity Accreditation Plus to 20 of Elevance Health's affiliated Medicaid health plans, covering over 90% of our Medicaid members and making us the only national plan to have received this distinction to date. We also saw excellent progress on our ambitious goal to improve maternal health equity by reducing the disparity in preterm birth rates between black and non-black communities, improving the disparity gap by 5.2% relative to our 2022 baseline. In closing, I want to express my gratitude to our extraordinary team of over 100,000 associates. It is their collective passion and hard work that enables us to deliver on our commitments to all of our stakeholders. This past year alone, our associates logged over 225,000 volunteer hours in our communities, a record high for Elevance Health.

Speaker Change: That enables us to deliver on our commitments to all of our stakeholders.

Speaker Change: This past year alone our associates logged over 225000 volunteer hours in our communities.

Speaker Change: Record high for Elevon self.

Speaker Change: This remarkable achievement reflects our deep dedication to making a tangible positive impact on the lives of the people we are privileged to serve and for the communities we call home.

Speaker Change: As we move forward, we will remain focused on serving our members as they.

Gail Koziara Boudreaux: This remarkable achievement reflects our deep dedication to making a tangible positive impact on the lives of the people we are privileged to serve and in the communities we call home. As we move forward, we will remain focused on serving our members as their lifetime trusted health partner. With that, I'd like to turn the call over to our new Chief Financial Officer, Mark Kay.

Speaker Change: Our lifetime trusted health partner.

Speaker Change: With that I'd like to turn the call over to our new Chief Financial Officer, Mark Kaye.

Speaker Change: Mark.

Mark Kaye: Gail and good morning, I'm pleased to join you for my first earnings call as CFO of Elevon as health.

Mark Kay: Thank you, Gail, and good morning. I am pleased to join you for my first earnings call as CFO of Elevons Health. As Gail shared, we delivered strong results every quarter of 2023, including in the fourth quarter, which was marked by solid top and bottom line growth and significant progress in the execution of our enterprise strategy to accelerate capabilities and services, invest in high growth opportunities, and optimize our business. Fourth quarter, adjusted diluted earnings per share of $5.62. Full year adjusted diluted earnings per share of $33.14.

Mark Kaye: As Gale shared we delivered strong results every quarter of 2023, including in the fourth quarter, which was marked by solid top and bottom line growth and significant progress in the execution of our enterprise strategy to accelerate capabilities and services.

Mark Kaye: Based in high growth opportunities and optimize our businesses.

Mark Kaye: Fourth quarter adjusted diluted earnings per share of $5 62.

Mark Kay: We're ahead of expectations. Since 2018, Elevance Health has achieved a compound annual growth rate of nearly 16%, surpassing our long-term target range of 12 to 15%. Operating revenue exceeded $170 billion in 2023, up 9.3% year-over-year, driven by growth in both our health benefits and care loan business. The benefit expense ratio was 89.2% for the fourth quarter and 87% for the full year, representing an improvement of 50 basis points and 60 basis points, respectively, compared to the prior year period.

And full year adjusted diluted earnings per share of $33.14 were ahead of expectations.

Since 2018, <unk> health has achieved a compound annual growth rate of nearly 16%, surpassing our long term target range of 12% to 15%.

Mark Kaye: Operating revenue exceeded 170 billion in 2023 up nine 3% year over year driven by growth in both our health benefits and <unk> businesses.

Mark Kaye: The benefit expense ratio was 89, 2% for the fourth quarter and 87% for the full year, representing an improvement of 50 basis points, and 60 basis points, respectively compared to the prior year periods.

Mark Kaye: This was primarily driven by premium rate adjustments in recognition of medical cost trend, most notably in our commercial health benefits business.

Mark Kaye: The adjusted operating expense ratio was 11, 6% for the fourth quarter up.

Mark Kaye: 20 basis points compared to the prior year period, driven by accelerated investments made in the quarter, notably in network quality.

Sally based care and customer experience initiatives designed to address key priority areas for Medicare advantage starts.

For the full year, the adjusted operating expense ratio was 11, 3%.

That year over year.

Mark Kaye: Operating cash flow was $8 1 billion in 2023, a 1.3 times GAAP net income.

Mark Kaye: This includes the benefit of approximately $300 million of state based payments for 2024 dates of service that we received in the fourth quarter, and which will correspondingly impact operating cash flow in 2024.

Mark Kaye: We ended the year with a debt to capital ratio of 38, 9% in line with our targeted range.

Mark Kay: This was primarily driven by premium rate adjustments in recognition of medical cost trends, most notably in our commercial health benefits business. The adjusted operating expense ratio was 11.6% for the fourth quarter, up 20 basis points compared to the prior year period, driven by accelerated investments made in the quarter, notably in network quality, value-based care, and customer experience initiatives designed to address key priority areas for Medicare Advantage stars. For the full year, the adjusted operating expense ratio was 11.3%, flat year over year.

Mark Kaye: Giving confidence in our outlook, we took advantage of market volatility during the fourth quarter to accelerate share repurchases, specifically, we repurchased 2 million shares of our common stock for $929 million, bringing total share repurchases for the year to $5 8 million shares at a total cost of $2 7 billion.

Mark Kaye: Dollars.

Mark Kaye: Our health benefits business ended the year with approximately 47 million members a decrease of around 570000 year over year, driven by attrition in Medicaid associated with eligibility redetermination.

Mark Kay: Operating cash flow was $8.1 billion in 2023, or 1.3 times GAP-net income. This includes the benefit of approximately $300 million of state-based payments for 2024 dates of service that we received in the fourth quarter and which will correspondingly impact operating cash flow in 2024. We ended the year with a debt to capital ratio of 38.9%, in line with our targeted range. Given confidence in our outlook, we took advantage of market volatility during the fourth quarter to accelerate share repurchases. Specifically, we repurchased 2 million shares of our common stock for $929 million, bringing total share repurchases for the year to 5.8 million shares at a total cost of $2.7 billion.

Mark Kaye: Partially offset by growth in our commercial fee based membership.

Mark Kaye: Today, we are seven to eight months into the Medicaid redetermination process and while there is significant variability by state. We believe that nearly two thirds of our members have had the eligibility evaluated.

Mark Kaye: All of those and enrolled approximately 70% of loss coverage Q2 administrative reasons and we have also seen an elongation in the time some beneficiaries have taken to re enroll into Medicaid.

Mark Kaye: Transitioned onto an.

Mark Kaye: Exchange plan.

Mark Kaye: As Gail noted we are executing an extensive renewal campaign to maximize continuity of coverage. Accordingly, we expect re enrollment into Medicaid to continue through at least 2024 and for growth and ACA exchange plans to accelerate.

Mark Kaye: This has been incorporated into our membership guidance ranges for 2024.

Mark Kaye: Yeah.

Mark Kaye: Turning to our financial outlook for 2024, we are pleased to provide initial guidance for adjusted diluted earnings per share of greater than $37.10, reflecting.

Mark Kaye: <unk> growth of at least 12% year over year.

Mark Kaye: We are focused on optimizing our health benefits business, including through the ongoing margin recovery of our commercial risk based business the strategic repositioning of our Medicare advantage plan offerings in certain markets and the transformation of our cost structure.

Mark Kaye: Further we are investing in high growth opportunities with a focus on establishing a foundation for sustained long term growth.

Mark Kay: Our health benefits business ended the year with approximately 47 million members, a decrease of around 570,000 year over year, driven by attrition in Medicaid associated with eligibility redetermination, partially offset by growth in our commercial fee-based membership. Today, we are seven to eight months into the Medicaid redetermination process. And while there is significant variability by state, we believe that nearly two-thirds of our members have had their eligibility evaluated. Of those unenrolled, approximately 70% have lost coverage due to administrative reasons, and we have also seen an elongation in the time some beneficiaries have taken to re-enroll into Medicaid, while others have transitioned onto an ACA exchange plan.

Mark Kaye: We will scale <unk> existing capabilities and add new ones in 2020 for driving incremental earnings growth and accelerating our enterprise flywheel for growth.

Mark Kaye: The momentum in our commercial health benefits and kill on businesses is partially offset by the Medicaid membership headwinds included in our guidance. We anticipate total medical membership to end 2024 in the range of 45, eight to $46 6 million down approximately 750000 year over year at the mid <unk>.

Mark Kaye: <unk>.

Mark Kaye: Medicaid membership is expected to end the year in the range of $8 eight to $9 2 million members with attrition driven by the net loss of approximately 930000 members associated with changes in our footprint discussed on our third quarter earnings call and ongoing eligibility re determinations.

Mark Kaye: Commercial membership is expected to grow by over 750000 at the mid point ending the year in the range of $32 four to $32 8 million members. This includes over 300000 net new risk based members and approximately 400000 fee.

Mark Kaye: Fee based members collectively driven by new business wins, and strong client retention, reflecting our resolute focus on customer affordability experience and simplicity.

Mark Kaye: Medicare advantage membership is expected to end the year approximately flat.

Mark Kaye: As a reminder, we took intentional actions as part of our 2020 for bid strategy to improve the sustainability of our product offerings and given unexpected competitive dynamics in certain markets experienced greater than expected attrition.

Nonetheless, these actions will help establish a strong foundation for profitable and sustainable growth over the long term.

Mark Kaye: And we remain confident in the outlook for utilization and medical cost trends embedded in our 2024 beds.

Mark Kay: As Gail noted, we are executing an extensive renewal campaign to maximize continuity of coverage. Accordingly, we expect re-enrollment into Medicaid to continue through at least 2024 and for growth in ACA exchange plans to accelerate. This has been incorporated into our membership guidance ranges for 2024. Turning to our financial outlook for 2024, we are pleased to provide initial guidance for adjusted diluted earnings per share of greater than $37.10, reflecting growth of at least 12% year-over-year.

Mark Kaye: Finally, we expect our Medicare supplement and federal employees health benefits membership to remain relatively stable year over year.

Mark Kaye: On a consolidated basis operating revenue for 2024 is expected to be flat to up low single digits.

Mark Kaye: We project operating earnings for the year to be at least $10 3 billion, reflecting 9% growth with contributions from both our health benefits and kill on businesses disciplined benefit management and the successful execution of our 2023 business optimization initiatives.

Mark Kaye: Please note that all guidance metrics do not include the impact of pending M&A, even though we have several transactions we expect to close this year.

Turning seasonality is expected to be relatively consistent year over year with slightly more than 55% to the full year adjusted diluted earnings per share in the first half of the year and more than half of that.

<unk> in the first quarter.

Mark Kaye: Finally, I am pleased to announce that our board of directors recently approved a 10, 1% increase in our regular quarterly dividend raising it to $1 63 per share.

Mark Kaye: This marks our 13th consecutive annual dividend increase underscoring our commitment to delivering strong results for our shareholders and the value of our balanced and resilient business model in.

Mark Kay: We are focused on optimizing our health benefits business, including through the ongoing margin recovery of a commercial risk-based business, the strategic repositioning of our Medicare Advantage plan offerings in certain markets, and the transformation of our cost structure. Additionally, we are investing in high-growth opportunities with a focus on establishing a foundation for sustained long-term growth. We will scale Kelon's existing capabilities and add new ones in 2024, driving incremental earnings growth and accelerating our enterprise flywheel for growth. The momentum in our commercial health benefits and care loan businesses is partially offset by the Medicaid membership headwinds included in our guidance. We anticipate total medical membership to end 2024 in the range of 45.8 to 46.6 million, down to approximately 750,000 year over year at the midpoint. Medicaid membership is expected to end the year in the range of 8.8 to 9.2 million members, with attrition driven by the net loss of approximately 930,000 members associated with changes in our footprint, discussed on our third quarter earnings call and an ongoing eligibility redetermination.

Mark Kaye: In closing 2023 was a strong year for the company and I'm looking forward to working alongside the talented and dedicated team at <unk> health to deliver on our financial targets.

Mark Kaye: I look forward to meeting all of you in 2024 and with that operator. Please open the line for questions.

Speaker Change: Ladies and gentlemen, if you wish to ask a question. Please press Star then one on your telephone keypad, you'll hear pump that you have been cute you may withdraw your question at any time by pressing Star then two if youre using a speakerphone. Please pick up the handset before pressing the numbers. Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each analyst.

Speaker Change: That may wish to participate in this portion of the call for our first question will go to the line of a J rice from UBS. Please go ahead.

J Rice: Hi, everybody welcome aboard Mark.

J Rice: Congratulations to the company for another year.

J Rice: The growth targets and then I know, it's early to talk about this but.

J Rice: Maybe you'd have to take some steps today to ensure.

J Rice: Your positioning with 2020, you'll have the star ratings.

J Rice: Impact to overcome when you think about that.

J Rice: The company do anything differently.

J Rice: How do you think about the levers you have to push.

J Rice: <unk>.

J Rice: Appears at least on the surface to be a couple.

J Rice: Percentage points of headwind from that.

J Rice: Star ratings impact, we step up share repurchases accelerated investments in carillon.

J Rice: How do you think about that at this early date and the ability to sustain that 12% to 15% even into next year.

Mark Kay: Commercial membership is expected to grow by over 750,000 at the midpoint, ending the year in the range of 32.4 to 32.8 million members. This includes over 300,000 net new risk-based members and approximately 400,000 net new fee-based members, collectively driven by new business wins and strong client retention, reflecting our resolute focus on customer affordability, experience, and simplicity. Medicare Advantage membership is expected to end the year approximately flat.

Speaker Change: Well thanks for the question a J there was a lot in there and as you know 25, it's a little early to opine on 25, but I'd like to give you a little at least a little bit of color on how we're thinking about some of the things that you mentioned, let me start first with star ratings, because as we shared on the last call. We are intensely working Medicare advantage is very important.

Speaker Change: <unk> for us and we're strategically committed to the long term and I will reiterate this year. We felt we took a very prudent actions for long term sustainable business and feel good about our bids so that positions us well for 2025.

Speaker Change: In particular in terms of the star ratings again few things going on there we shared on our last call that on the group business. We have a number of levers at our disposal that we are able to pull and we're still moving forward with that and then in terms of overall star ratings. We do think that that's going to be a multi year initiative, but I wanted to share as I shared on my early remarks that.

Mark Kay: As a reminder, we took intentional actions as part of our 2024 bid strategy to improve the sustainability of our product offering, and given unexpected competitive dynamics in certain markets, we experienced greater than expected attrition. Nonetheless, these actions will help establish a strong foundation for profitable and sustainable growth over the long term, and we remain confident in the outlook for utilization and medical cost trends embedded in our 2024 bid. Finally, we expect our Medicare supplements and federal employees health benefits membership to remain relatively stable year over year. On a consolidated basis, operating revenue for 2024 is expected to be flat to up in the low single digits.

Speaker Change: We have invested at the last part of the year and we were investing actually prior to even the announcement we have been successful moving all of our business into our health advocate model and we do know that we're seeing some early signs we don't know where the cut points are going to come out, but we do feel good about the investments, we're making and again feel really good about where our bids have come out.

Speaker Change: Broader let me take a little bit step further back because I think your question around 25 is broader than just Medicare advantage and stars and.

Speaker Change: As I think about 25 again.

Speaker Change: Not giving guidance on 'twenty five, but we do expect except expect to accelerate growth in 2025, and we've talked quite a bit in recent calls about our flywheel for growth, which is an improvement in both the health benefits business and our <unk> segment.

Mark Kay: We project operating earnings for the year to be at least $10.3 billion, reflecting 9% growth with contributions from both our health benefits and care loan businesses, disciplined benefit management, and the successful execution of our 2023 Business Optimization Initiative. Please note that our guidance metrics do not include the impact of pending M&A, even though we have several transactions we expect to close this year. Earnings seasonality is expected to be relatively consistent year over year, with slightly more than 55% of our full-year adjusted diluted earnings per share expected in the first half of the year, and more than half of that expected in the first quarter.

Speaker Change: We anticipate that our health benefits business is going to continue to grow in 'twenty five after a reset year and 'twenty four.

Speaker Change: And we should see an accelerated impact to that growth, which will drive revenue for Caroline and then Caroline also has been independently scaling its multiple new capabilities and will share I assume even more of those on the call today.

Speaker Change: And then finally as you know we took some actions at the end of last year around our disciplined operating cost efficiencies and we expect to see even greater benefits from those as we digitize and you use AI in our investments so.

Speaker Change: Honestly I think we feel that we've positioned our business very prudently and that the balance and resilience of our enterprise and our earnings power of our health benefits and Caroline together gives us a lot of confidence in our ability to achieve our long term target. So just a little bit more color on where we are thank you very much for the question.

Operator: Finally, I'm pleased to announce that our Board of Directors recently approved a 10.1% increase in our regular quarterly dividend, raising it to $1.63 per share. This marks our 13th consecutive annual dividend increase, underscoring our commitment to delivering strong results for our shareholders and the value of our balanced and resilient business model. In closing, 2023 was a strong year for the company, and I'm looking forward to working alongside the talented and dedicated team at Elevance Health to deliver on our financial targets. I look forward to meeting all of you in 2024, and with that operator, please open the line for questions. Ladies and gentlemen, if you wish to ask a question, please press star and then one on your telephone keypad. You will hear a prompt that you have been cued. You may withdraw your question at any time by pressing star then two. If you're using a speakerphone, please pick up the handset before pressing the numbers.

Speaker Change: Next question please.

Speaker Change: Next we will go to the line of Kevin Fischbeck from Bank of America. Please go ahead.

Kevin Mark Fischbeck: Great. Thanks, I guess I wanted to ask about the MLR guidance for 2024. It sounds like you guys are expecting margin improvement in MA you're repositioning commercial.

Kevin Mark Fischbeck: And Medicaid is dropping.

Kevin Mark Fischbeck: Pretty pretty meaningfully, but why is MLR only flat I would think that we'd be saying MLR improvement is there some offset.

Kevin Mark Fischbeck: In there.

Kevin Mark Fischbeck: Yeah.

Speaker Change: Good morning, and thank you very much for the question, maybe let me start with the 2023 just to set the context here. So 2023 benefit expense ratio ended the year slightly better than our initial expectations at that 87% and just to remind you that presented the 60 basis point improvement year over year.

Speaker Change: As well as falling in the lower half of our initial 2023 year guidance range.

Speaker Change: As it relates to 2024, we are guiding to a flat benefit expense ratio of 87%.

Speaker Change: Plus or minus 50 basis points and our outlook here reflects a consistent approach to reserves and a prudent thought process around utilization given the dynamic operating environment, especially for our government businesses.

Speaker Change: Take a deeper look at the underlying businesses themselves the health benefits benefit expense ratio reflects that intentional management action, we're taking in commercial.

Operator: Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each analyst that may wish to participate in this portion of the call. For our first question, we'll go to the line of A.J. Rice from UBS.

Speaker Change: We'll continue on through into 2024 around the disciplined underwriting practices and part of our margin recovery efforts and then certainly on the Medicare.

A J Rice: Please go ahead. Hi everybody. Welcome on board, Mark. Congratulations to the company for another year of meeting its growth targets, and I know it's early to talk about this, but maybe you'd have to take some steps today to ensure your positioning.

Speaker Change: Advantage side continued appropriate to expectations around utilization and Medicare medical cost trends.

Speaker Change: Thank you Mark and thanks, Kevin for the question next question. Please.

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

Gail Koziara Boudreaux: With 2025, you'll have the star ratings impact to overcome. When you think about that, will the company do anything differently? How do you think about the levers you have to push to offset what appears, at least on the surface, to be a couple percentage points of headwind from that star ratings impact?

Joshua Raskin: Hi, Thanks. Good morning, I was wondering if you could speak a little bit more specifically around the growth in Medicare advantage to start this year, it sounds like a little bit lower than expectations and I'm curious specifically.

The commentary you made around pockets of competition may be where youre seeing that what you think is driving that and then any specific comments on retention.

Gail Koziara Boudreaux: If we step up share repurchases, accelerate investments in Carillon, how do you think about that at this early date and the ability to sustain that 12% to 15% even into next year? Well, thanks for the question, AJ. There's a lot in there. And as you know, 25, it's a little early to apply for 25.

Relative to expectations for this year.

Speaker Change: Well. Thanks, Thanks, Josh very much for the question and just maybe a couple of overarching comments because I think it's important that I'm going to ask Felicia Norwood, who leads our government business to comment more specifically and I I think it's important to frame that we made some very specific discipline decisions and feel really good about our bids entering into this.

Felicia F. Norwood: And Felicia.

Felicia F. Norwood: We actually exited some markets very specifically that were underperforming. So I think you have to take that into cap of chilled shows us provide a lot more detail on kind of where we landed this year and the perspective on the market. So Felicia. Please sure good morning, Josh and thank you very much for that question.

Gail Koziara Boudreaux: But I'd like to give you at least a little bit of color on how we're thinking about some of the things that you mentioned. Let me start with star ratings, though, because, as we shared on the last call, we are intensely working on Medicare Advantage is a very important business for us. And we're strategically committed to the long term. And I will, you know, reiterate this year. We felt we took very prudent actions for a long-term sustainable business and feel good about our bids. So that positions us well for 2025. In particular, in terms of the star ratings, again, a few things going on there. We shared on our last call that on the group business, we have a number of levers at our disposal that we are able to pull, and we're still moving forward with that.

Felicia F. Norwood: We headed into 2024, we made some very disciplined decisions that we were going to enhance the financial performance for our Medicaid advantage business you know in the mainland we exited scale noted specifically certain markets that had been underperforming for us for years and with the impending risk model renovations, we really saw no pass.

Felicia F. Norwood: To long term attractive sustainable economics in those markets and that really represented a decline of about 84000 members.

Felicia F. Norwood: I also want to note that we reduce supplemental benefits in Puerto Rico, both to turn around their performance after a very challenging 2023 and to position us for the three year phase in of the risk moderate patients, which will have a material adverse adverse impact on Medicare advantage on the island and part.

Gail Koziara Boudreaux: And then in terms of overall star ratings, we do think that that's going to be a multi-year initiative. But I wanted to share, as I shared in my early remarks, that we have invested heavily in the last part of the year, and we were investing actually prior to even the announcement. We have been successful at moving all of our business into our health advocate model. And we do know that we're seeing some early signs; we don't know where the points are going to come out.

Due to the higher mix of duals that we have in Puerto Rico.

Felicia F. Norwood: So we've reset our supplemental benefits there and in the midst of.

Felicia F. Norwood: Very highly competitive bid environment, we will see membership declines of somewhere in the neighborhood of about 90000 in 2024 in Puerto Rico now while the decline is larger than we expected. It's certainly has bolstered our confidence in the anticipated improvement in our benefit expense ratio in Puerto Rico at the edge.

Felicia F. Norwood: Of the day, what we wanted to do was to establish a very strong foundation from which we can grow in Puerto Rico long term sustainably and profitably.

Gail Koziara Boudreaux: But we do feel good about the investments we're making. And again, feel really good about where our bids have come out. Now, let me take a little step further back, because I think your question around 25 is broader than just Medicare Advantage and stars. And, you know, as I think about 25, again, not giving guidance on 25.

Felicia F. Norwood: Back to the mainland.

Felicia F. Norwood: Selling activity for AEP was actually very strong for us as we expected when we exclude the planned attrition on the island that we mentioned in on the mainland that I mentioned earlier, our net mainland Medicare advantage membership would be on track to grow by high single digits. This year despite encountering.

Gail Koziara Boudreaux: But we do expect to accelerate growth in 2025. And we've talked quite a bit in recent calls about our flywheel for growth, which is an improvement in both the health benefits business and our carillon segment. We anticipate that our health benefits business is going to continue to grow in 25 after a reset year in 24. And we should see an accelerated impact from that growth, which will drive revenue for carillon. And then Carillon also has been independently scaling its multiple new capabilities, and we'll share, I assume, even more of those on the call today. And then finally, as you know, we took some actions at the end of last year around our operating cost efficiencies.

Felicia F. Norwood: Inc. Greater guest enrollment in certain markets due to very aggressive offerings by select competitors.

Felicia F. Norwood: At the end of the day I think that we've made very thoughtful decisions around how we're going to position our business for long term sustainable growth going forward and we've done the things that we've always committed to do.

Felicia F. Norwood: We expect to do very well in our Blue markets, we are performing better in our blue markets than the overall growth rate and we're very much focused on a combination of balancing that perspective between margin and membership growth. So we feel good about how we're positioning our business going forward and as we said earlier.

Felicia F. Norwood: In light of all of these dynamics, we'd expect to have flat number ship in 2024. Thank you next question. Please.

Speaker Change: Next we'll go to the line of Sarah James from Cantor Fitzgerald. Please go ahead.

Thank you see you guys had some really nice margin expansion guided too for.

Speaker Change: Carillon in 2024 I was wondering if you could unpack it a little bit for us as we think through the major buckets that are causing that expansion and then also the pacing.

Gail Koziara Boudreaux: And we expect to see even greater benefits from those as we digitize and you use AI in our investments. So honestly, I think we feel that we've positioned our business very prudently and that the balance and the real resilience of our enterprise and our earnings power of our health benefits and carillon, together, give us a lot of confidence in our ability to achieve our long-term targets. So just a little bit more color on where we are. Thank you very much for the question. And next question, please? Next, we'll go to the line of Kevin Fischbeck from Bank of America. Please go ahead.

Speaker Change: Ratable as we think about the margin expansion through 2024, and then I guess further out as we get to your 2027.

Speaker Change: Thank you. Thank you, Sir I'm going to ask Pete <unk>, who leads Carolina two to comment on that and as you know we're excited about the real flywheel opportunity that we're seeing in Carolina. So Pete Yes, let me. Thank you Sarah for the question, Let me talk about Caroline services growth and we are very excited about the opportunity and the progress that we're making with respect to <unk>.

Pete: <unk> growth I think you saw that play.

Pete: Play through in 2023, we committed to double digit increase on on revenue, which we achieved and and as it relates to our 2024 guide you saw that we're talking about high teens low twenty's growth and it is really playing through our strategy that we've talked about focusing in on complex season health care high cost spend areas and really.

Kevin Mark Fischbeck: Great, thanks. I guess I wanted to ask about the MLR guidance for 2024. It sounds like you guys are expecting margin improvement in MA, you're repositioning commercial, and Medicaid is dropping pretty meaningfully. But why is MLR only flat?

Pete: Driving capitate risk in key areas to support our health plans in 'twenty three we did that with our post acute care initiative.

Mark Kay: I would think that we'd be seeing MLR improvement. Is there some offset, you know, in there? Good morning, and thank you very much for the question. Maybe let me start with 2023 just to set the context here. So our 2023 benefit expense ratio, at the end of the year, slightly better than our initial expectations at 87%. And just to remind you, that represented 60 basis points of improvement year over year, as well as falling in the lower half of our initial 2023 guidance range. As it relates to 2024, we are guiding to a flat benefit expense ratio of 87%, plus or minus 50 basis points. And our outlook here reflects a consistent approach to reserves and a prudent thought process around utilization, given the dynamic operating environment, especially for our government businesses.

Pete: Wound care and as we move forward into 2024, and Gil mentioned this in our prepared remarks, we have new offerings that our whole health full risk opportunities like oncology, assuming full risk in oncology as well as in Medicaid with behavioral health with the seriously mentally ill population. So these are significant.

Pete: Initiatives that are really propelling the trajectory of our business I would also say that.

Pete: As it relates to external growth.

Pete: We're also seeing really nice improvements from from that perspective, and really nice momentum.

Pete: Our pipeline in 'twenty three 'twenty four growth was much more significant in terms of our sales this time versus last year.

Pete: We've seen a real nice trajectory and our growth and we've had a couple of really nice notable wins with the blues I would say that as it relates to that and the opportunity with the blues. They are doing exactly what we've talked about in the past and looking closely at some of these full risk comprehensive offerings that we're delivering an elephant itself.

Pete: And then very interested in that in terms of the opportunities to create predictable stable cost of care for them. So very pleased with where we are in the trajectory of growth in Carolina.

Mark Kay: If I take a deeper look at the underlying businesses themselves, you know, the health benefits benefit expense ratio reflects that intentional management action we're taking in commercial. It will continue on through into 2024 as part of the disciplined underwriting practices and part of our margin recovery efforts. And then, certainly, on the Medicare advantage side, continued appropriate expectations around utilization and Medicare medical cost training. Thank you, Mark.

Speaker Change: Thank you next question please.

Speaker Change: Next we'll go to the line of Stephen Baxter from Wells Fargo. Please go ahead.

Stephen C. Baxter: Yeah, Hi, Thank you I'm, sorry to come back to the Medicaid Redetermination process. So entering 2023, you were expecting some normalization of the Medicaid outperformance that you saw in years prior and can you give us an update on where that landed in 2023 compared to your initial thinking and I'm just a little bit more color on what your guidance assumes for Medicare.

Stephen C. Baxter: In 2024 that puts you back at historical norms for margins or should we think should we be thinking about something else. There. Thank you.

Speaker Change: Thanks, very much for the question on Medicaid membership our outlook reflects the footprint adjustments, we spoke about on our third quarter earnings call and the continued attrition.

Mark Kay: And thanks, Kevin, for the question. Next question, please. Next, we'll go to the line of Josh Raskin from Nefron Research. Please go ahead. Hi, thanks. Good morning.

Speaker Change: <unk> Redetermination.

Joshua Raskin: I was wondering if you could speak a little bit more specifically about the growth in Medicare Advantage to start this year, although it sounds a little bit lower than expectations. And I'm curious specifically about the commentary you made around pockets of competition, maybe where you're seeing that, what you think is driving that, and then any specific comments on retention relative to expectations for this year. Well, thanks. Thanks, Josh, very much for the question. And just maybe a couple of overarching comments, because I think it's important that I'm going to ask Felicia Norwood, who leads our government business, to comment more specifically. And I think it's important to frame that, you know, we made some very specific discipline decisions and feel really good about our bids entering into this. And Felicia will tell you that we actually exited some markets very specifically that were underperforming. So I think you have to take that into account. But she'll just provide a lot more detail on kind of where we landed this year and the perspective on the market. So Felicia, please. Sure. Good morning, Josh.

Speaker Change: We believe Medicaid Redetermination is approximately two thirds complete across all Medicaid markets and in general we've seen more frontloaded this enrollment.

Speaker Change: Notably in a few large states that have elected to adopt accelerated processes and then based on the trends that we've observed relative related to these market wide coverage shifts we have adjusted our Medicaid retention assumption to be approximately 30% of our PHA.

Speaker Change: Related growth.

Speaker Change: Not planning to provide estimates for coverage transitions generally we do however believe that HCA will pick up more than you initially expected.

Speaker Change: Employer group coverage, and we're getting a little bit less than initially expected, but most importantly, these updated projections are factored into our membership guidance that we provided this morning.

Speaker Change: Thank you next question please.

Speaker Change: Next we'll go to the line of Lance Wilkes from Bernstein. Please go ahead.

Lance Arthur Wilkes: Yes, Thanks could you talk a little bit about your value based care strategies and what it would be interested in is from a contracting standpoint, how are you approaching that for 'twenty four and like M. A are you doing any sort of renegotiation to kind of hold those value based care providers.

More stable in that Youre, given the risk adjustment changes and then how is the priority for owning those sorts of assets and Carolyn <unk>.

And what's your current outlook there. Thanks.

Speaker Change: Well. Thanks for the question Lance there is quite a bit there, but I think let me start with.

Speaker Change: Now our value based strategy, we've talked about on this call a number of times and I think I would say, it's remained really consistent but we're making a lot of very good progress on that.

Speaker Change: Overall more than 60% are in value based care and in Medicare, It's even more.

Speaker Change: Specific to your question on renegotiation we have.

Speaker Change: Multiple year arrangements with our value based providers and we're always looking at a couple of things one quite frankly to make sure that it's a win win and we're aligned.

Felicia F. Norwood: And thank you very much for that question. You know, as we headed into 2024, we made some very disciplined decisions that we were going to enhance the financial performance of our Medicaid Advantage business. You know, on the mainland, we exited a scale notice, specifically certain markets that had been underperforming for us for years. And with the impending risk model revisions, we really saw no path to long-term attractive, sustainable economics in those markets.

Speaker Change: On cost quality outcomes and stars. So we spent a lot of time focusing on some of the ways that we can get data back and forth more simply we use our.

Speaker Change: We've integrated the way, we share data back and forth and that's really around closing gaps in care and quite frankly, simplifying the process under which we work with those providers.

Speaker Change: Our goal is to make that ubiquitous across all of our value based providers and so we made a lot of progress there dramatically.

Speaker Change: <unk> dramatically improved the time to action with those providers and I think that's important because honestly that gives some data to act and that improves their outcomes. We have seen our value based providers performed better in this circumstance and we think that that's that's going to remain important in terms of our strategy around.

Felicia F. Norwood: And that really represented a decline of about 84,000 members. I also want to note that we've reduced supplemental benefits in Puerto Rico, both to turn around their performance after a very challenging 2023 and to position us for the three-year phase-in of the risk model revisions, which will have a material adverse impact on Medicare Advantage on the island, in part due to the higher mix of duals that we have in Puerto Rico. So we've reset our supplemental benefits there, and in the midst of a very highly competitive bid environment, we will see membership declines of somewhere in the neighborhood of about 90,000 in 2024 in Puerto Rico. Now, while the decline is larger than we expected, it certainly has bolstered our confidence in the anticipated improvement in our benefit expense ratio in Puerto Rico. At the end of the day, what we wanted to do was to establish a very strong foundation from which we can grow in Puerto Rico long term, sustainably, and profitably. Back to the mainland.

Speaker Change: Ownership, we've talked about that we as you know we do have assets inside of Caroline I guess, where I would focus you more is around the specialty high cost complex areas of specialty because that's where we think that theres a huge differentiated focus between our technology, our clinical domain expertise and our ability to drive trend again, we don't need to own that.

Speaker Change: Providers, but we do need to have a significant role in the enablement of those care providers and we have spent time doing that we launched a number of new products. This year with oncology serious mental illness.

Speaker Change: And we're getting into other areas like musculoskeletal renal and more and I think that's where you see the significant spend areas accelerating and Caroline with its assets has a great opportunity.

Speaker Change: So we expect Caroline's care provider enablement platforms continue to contribute pretty significantly caroline's revenue meaningfully over the longer term and we're building those assets and again.

Speaker Change: Going back to my flywheel, where we think that will improve the performance of our health benefit plans. There's a lot of interest in externally in knees and Pete mentioned, we saw some nice traction in a few of these offerings this year.

Speaker Change: So overall I'd say very consistent focused around our.

Speaker Change: Value based care can't care enablement, and we feel like we're getting a lot of traction and I would focus you a lot on the specialized care specialty care, particularly on the Caroline growth opportunity. So thank you very much for the question next question. Please.

Speaker Change: Next we'll go to the line of Nathan Rich from Goldman Sachs. Please go ahead.

Felicia F. Norwood: Selling activity for AEP was actually very strong for us, as we expected. When we exclude the planned attrition on the island that we mentioned in on the mainland that I mentioned earlier, our net mainland Medicare Advantage membership would be on track to grow by high single digits this year, despite encountering greater disenrollment in certain markets due to very aggressive offerings by select competitors. At the end of the day, I think that we've made very thoughtful decisions around how we're going to position our business for long-term sustainable growth going forward. And we've done the things that we've always committed to do.

Nathan Rich: Great. Good morning, Thanks for the questions.

Nathan Rich: On the Medicare business first you know you talked about Medicare cost trend developing as expected in the fourth quarter I guess it would be curious if there are any areas that came in higher or lower than expected and what the benefit expense guidance for 2024 assumes for Medicare cost trend and then I guess higher level as you.

Nathan Rich: <unk> repositioned, the Medicare business and I understand there's there's several moving pieces over the next couple of years. What is the company's current view I guess first of the Medicare advantage market longer term, but then second.

Speaker Change: The membership growth and margin potential for <unk>, specifically within that market context. Thank you. Thank you for the question I'll ask Mark to address your first question and then I'll come back and share our long term views on Medicare.

Mark Kaye: Nathan overall utilization in the fourth quarter developed largely in line with our expectations and that's evidenced by our reported benefit expense ratio, which came in favorable as you know to consensus and really to the midpoint of our initial full year 2023 guidance range, we did see pockets of high utilization.

Felicia F. Norwood: We expect to do very well in our blue markets. We are performing better in our blue markets than the overall growth rates. And we're very much focused on balancing that perspective between margin and membership growth. So we feel good about how we're positioning our business going forward. And as we said earlier, in light of all of these dynamics, we'd expect to have flat membership in 2024. Thank you, next question, please. Next, we'll go to the line of Sarah James from Cancer Fitzgerald. Please go ahead.

Mark Kaye: Particularly in Medicare related to orthopedics, such as knee and hip replacements and other outpatient procedures, but this is broadly planned for as part of our underlying cost trend assumptions.

Mark Kaye: Literally we saw a seasonal uptick in respiratory elements, including the flu and COVID-19 as well as increased RC vaccinations, but again utilizations were aligned with what we planned.

Sarah E. James: Thank you. So you guys have some really nice margin expansion guided to for Carillon in 2024. I was wondering if you could unpack it a little bit for us, as we think through the major buckets that are causing the expansion and then also the pacing, if it's ratable, as we think about the margin expansion through 2024 and then, I guess, further out as we get to 2027. Thank you. Thank you, Sarah.

Mark Kaye: We'll continue to monitor our claims trends closely including prior authorization data and we remain confident that our Medicare advantage bids for 2024 and our pricing commercial.

Mark Kaye: Do reflect appropriate projections for utilization and medical cost trends.

Speaker Change: Mark Nathan in terms of your broader question, let me just provide a little bit of perspective, and as I think about the market. We still think Medicare advantage is a very good long term market and as I said, we're committed to driving sustainable performance for the long term.

Speaker Change: Medicare advantage deliveries really strong differentiated value for seniors I think you have to start there and as you look at the aligned incentives across the system to deliver better outcomes and better care. It is very it's a very strong marketplace and it continues to grow and importantly, its incredibly popular with seniors with greater than 50% of seniors selecting Medicare advantage.

Pete Haytaian: I'm going to ask Pete Haytaian, who leads Carillon, to comment on that. And as you know, we're excited about the real flywheel opportunity that we're seeing in Carillon. So, Pete.

Speaker Change: Today, so that against that backdrop.

Speaker Change: We know seniors value stability and their benefits year over year and the items that are most important to them and so we have as you heard from US earlier look to make sure that we are in this market for the long term balancing that stability. So with what we know what's happening in this market. We can we can make the right benefit decision.

Pete Haytaian: Yeah, let me thank you, Sarah, for the question. Let me talk about Carillon services growth. We are very excited about the opportunity and the progress that we're making with respect to, you know, services growth. I think you saw that play out in 2023.

Speaker Change: And again feel that we positioned ourselves and we're making the right strategic investments to improve our performance.

Speaker Change: We see this business maturing as mark shared in his comments as well and again been very intentional about our desire or decision to exit certain programs or my markets and plans, where we didn't think we had a long term sustainable path.

Speaker Change: Performance and that combined with the risk models made that choice and then again reposition Puerto Rico, which we believe is still a very good market, but there was some actions that we knew we had to take.

Pete Haytaian: We committed to double-digit increases in revenue, which we achieved. And as it relates to our 2024 guide, you saw that we're talking about high teens and low 20s growth. And it's really playing through our strategy that we talked about, focusing in on complexities in health care, high-cost spend areas, and really driving capitated risk in key areas to support our health plans. In 23, we did that with our post-acute care initiative, DME, and wound care.

Speaker Change: So as we look at those decisions for the long term.

Speaker Change: I'm pleased to share our business performs when you look at the mainland and take out those exits we had very strong selling season again I think that's a testament to the value of the benefits and our position and importantly, we do believe we can grow this business profitably even in a year with hyper competitive markets and certain.

Speaker Change: <unk>, where we outperformed the growth in our Blue markets, which again has always been a strategy. We've had is to go deeper in our blue markets and to gain more share, but the value of our brand as well as in other places so again.

Pete Haytaian: And as we move forward into 2024, and Gail mentioned this in her prepared remarks, we have new offerings that are whole health, full-risk opportunities, like oncology, assuming full risk in oncology, as well as in Medicaid with behavioral health for the seriously mentally ill population. So, these are significant initiatives that are really propelling the trajectory of our business. I would also say that, as it relates to external growth, we're also seeing really nice improvements from that perspective and really nice momentum. Our pipeline in 23 for 24 growth was much more significant in terms of our sales.

Speaker Change: It's a good market. We know we have some work to do in that market, but we feel we are positioning for the long term and and things that we can add distinctive value for seniors as part of our.

Speaker Change: Our focus on home health and continuation of coverage to stay blue for life and all of their coverage. So thank you very much for the question next question. Please.

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

Lisa Christine Gill: Alright, thanks, very much and good morning.

Lisa Christine Gill: I wanted to focus on the margin drivers can you maybe just spend a little time talking about the progression in 2020 for getting to those targets that you have in 'twenty five and then secondly, when I think about the margins and Carolina Rx you talked about the improving by 40 to 60 basis points.

Lisa Christine Gill: Can you talk about what the drivers are there as well is that you know Paragon health and bioplastic, which I would assume carry better margins or is there something else that that's really driving that improvement as we move into 'twenty four.

Pete Haytaian: This time compared to last year, we've seen a really nice trajectory in our growth, and we've had a couple of really nice, notable wins with the Blues. I would say that, as it relates to that and the opportunity with the Blues, they are doing exactly what we've talked about in the past and looking closely at some of these full-risk, comprehensive offerings that we're delivering in Elevance Health and then very interested in that in terms of the opportunities to create predictable, stable costs of care for them. So, I am very pleased with where we are on the trajectory of growth in Carolina. Thank you.

Speaker Change: So thank you very much for the question I'll talk about our health benefits and I'll pass it over to Pete and a couple of minutes to talk about Caroline on the health benefits side. We are seeing operating margins expand we expect to expand by 25 to 50 basis points in 2024 and <unk>.

Pete: About this is really being driven by three primary.

Pete: Categories. The first is the continued underwriting discipline and the pricing actions that we're taking commercial 2023 really marks the end of the first full year of operation of our efforts to recover margins from the pandemic are lowes and we expect those supporting initiatives really to continue through 2024, and then plus.

Stephen C. Baxter: Next question, please. Next, we'll go to the line of Stephen Baxter from Wells Fargo. Please go ahead. Yeah, hi, thank you. I just want to come back to the Medicaid redetermination process.

Pete: Into 2025 seconds.

Pete: Second one I would call your attention to here really relates to the Medicare margin expansion and here as you've heard US talk about this is about building a strong foundation for sustainable long term growth in 2024, and striking that balance between growth and margin in 2024, we leaned a little bit more towards the margin and the growth.

Stephen C. Baxter: So entering 2023, you were expecting some normalization of the Medicaid outperformance that you saw in years prior; can you give us an update on where that landed in 2023 compared to your initial thinking and then just a little bit more color on what your guidance assumes for Medicaid in 2024? Does that put you back in historical norms for margins, or should we be thinking about something else there?

Pete: You see that come through and some of our outlook projections. This morning, and then the third one I call. Your attention to is really the operating expense leverage and you see that we are gaining additional incremental leverage in 2024 without guide down to 11, 1% for the operating expense ratio.

Speaker Change: Thanks Mark.

Mark Kay: Thank you, Steven, thanks very much for the question. On Medicaid membership, our outlook reflects the footprint adjustments we spoke about on our third quarter earnings call and the continued attrition due to redeterminations. We believe Medicaid redeterminations are approximately two-thirds complete across our Medicaid markets. In general, we've seen more front-loaded disenrollment, notably in a few large states that have elected to adopt accelerated processes. And then, based on the trends that we've observed related to these market-wide coverage shifts, we have adjusted our Medicaid retention assumption to be approximately 30% of our PHE-related growth. We're not planning to provide point estimates for coverage transitions generally.

Speaker Change: At least in your question was on the trajectory of the margins and pharmacy. So.

Speaker Change: You'll recall that this year in 2023, we made pretty significant investments as it relates to the.

Speaker Change: The acceleration of bio plus an advance on delivery and that put some pressure on our margins in 2023.

Speaker Change: That will not repeat itself in 2024, we did go live with with bio plus and.

Speaker Change: On January one as well as with respect to advanced on delivery, we're really excited about that and it's moving in the right direction and over time, we've built those products for scale and as that business builds and progresses. We will continue to see margin improvement. So that that is what's what what is delivering an improvement in margin in 2000.

Speaker Change: Sure.

Speaker Change: Next question please.

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

Scott J. Fidel: Hi, Thanks, Good morning, I was hoping you could just on the commercial risk.

Mark Kay: We do, however, believe that ACA will pick up more than initially expected, while employer group coverage will gain a little bit less than initially expected. But most importantly, you know, these updated projections are factored into our membership guidance that we provided this morning. Thank you. Next question, please. Next, we'll go to the line of Lance Wilkes from Bernstein. Please go ahead.

Scott J. Fidel: Enrollment guidance, if you can break that down for us between.

Scott J. Fidel: Group and individual and then on the individual piece I'm curious in terms of what Youre thinking in terms of how much of that growth comes from the catcher's Mitt med.

Scott J. Fidel: Medicaid.

Scott J. Fidel: And then how youre thinking about the acuity of those lives that are coming into the exchanges.

Lance Arthur Wilkes: Yes, thanks. Can you talk a little bit about your value-based care strategies? And what I would be interested in is, from a contracting standpoint, how are you approaching that for 24 and like MA? Are you doing any sort of renegotiation to kind of hold those value-based care providers more stable in that you're given the risk adjustment changes? And then how does the priority for owning those sorts of assets and carillon change?

Scott J. Fidel: From Medicaid.

Scott J. Fidel: We know that.

Scott J. Fidel: Medicaid that acuity is generally rising as the Redetermination continue so I'm curious, though in terms of those lives that are transitioning into the exchanges. How are you thinking about those as being sort of higher lower or in line acuity with the legacy population exchange market excellent.

Speaker Change: Well. Thanks for the question Scott I think we've got about four or five in there. So we will we will try to try to hit the high points of your question. Let me ask Morgan and then Mark to comment on your question Morgan.

Morgan: Yes, Scott. Thanks for the question you know as we think about the ACO business. So we've talked about it for a while now we're quite bullish on that segment and as we've remarked in other quarterly reports we operate in all rating areas in our 14 geographies, where we came out and you know certainly we've seen a an expansion in the actual market share and the market growth actually in these.

Gail Koziara Boudreaux: And what's your current outlook there? Thanks. Well, thanks for the question, Lance. There's quite a bit there.

Gail Koziara Boudreaux: But I think, you know, let me start with our value-based strategy, which we talked about on this call a number of times. And I think I would say it's remained really consistent, but we're making a lot of very good progress on that. Overall, more than 60% are in value-based care, and in Medicare, it's even more.

Morgan: Geographies in fact.

Morgan: It's certainly a big driver as Medicaid Redetermination as we've indicated earlier on the call. Today. We have concluded about two thirds of those we expect that to continue in 2024 and also we'd noted in the past we've seen an elongated period of time from when someone is re determined and when they actually joined Medicare or come on in ACI product moving along that said I'm quite pleased that our group.

Gail Koziara Boudreaux: So, specific to your question on renegotiation, you know, we have multiple-year arrangements with our value-based providers, and we're always looking at a couple of things. One, quite frankly, to make sure that it's win-win and we're aligned, both on cost, quality, outcomes, and stars. So, we've spent a lot of time focusing on some of the ways that we can get data back and forth more simply. We've integrated the way we share data back and forth, and that's really around closing gaps in care and, quite frankly, simplifying the process under which we work with those providers. Our goal is to make that ubiquitous across all of our value-based providers, and so we made a lot of progress there and dramatically improved the time to action with those providers. And I think that's important because, honestly, that gives them data to act on, and that improves their outcomes.

Morgan: Both this year is outpacing our market growth. So clearly we are picking up our fair share and more quite honestly of the Medicaid Redetermination members.

Morgan: So at the end of the day. This will continue we've had a very steadfast and steady approach around the right economics and the right network strategies to draw and these members. It's very important to the business to continue and I'm going to turn that over to mark to cap to speak a little bit about the margins and the separation of the various pieces that you asked the question spot, yes, if I think about Medicaid rates in acuity the converse.

Mark: Patients with the states are ongoing and we will continue to work with them and their consultants really to ensure that all adjustments are reasonable and reflect the risks associated with ongoing redetermination in 2024, our outlook for 2024 does assume a normalization of our Medicaid margins.

Morgan: We already have line of sight into about 70% of Medicaid premiums for 2024, and we are comfortable with the actuarial soundness of the underlying rates, especially understanding the acuity full leavers versus the stairs.

Speaker Change: Thanks, Scott and I think you also asked about the acuity in the individual exchange marketplace. So I wanted to just put a fine point on that our rich.

Gail Koziara Boudreaux: We have seen our value-based providers perform better in this circumstance, and we think that that's going to remain important. In terms of our strategy around ownership, you know, we've talked about that. As you know, we do have assets inside of Carillon.

Speaker Change: The risk profile of the members were picking up certainly in 'twenty. Three obviously early in 2024 very much aligns with the expectation of what we historically had so we feel its actually rolling out to our expectations. So thank you for the question next question. Please.

Gail Koziara Boudreaux: I guess where I would focus you more is around the high-cost, complex areas of specialty because that's where we think that there's a huge differentiated focus between our technology, our clinical domain expertise, and our ability to drive trends. Again, we don't need to own the providers, but we do need to have a significant role in the enablement of those care providers, and we have spent time doing that. We launched a number of new products this year in oncology, serious mental illness, and we're getting into other areas like musculoskeletal, renal, and more. And I think that's where you see, you know, the significant spend areas accelerating, and Carillon, with its assets, has a great opportunity. So we expect Carillon's care provider enablement platforms to contribute pretty significantly to Carillon's revenue meaningfully over the longer term, and we're building those assets. I'll keep going back to my flywheel where we think that will improve the performance of our health benefit plans.

Speaker Change: Next we'll go to the line of Ben Hendrix from RBC capital markets. Please go ahead.

Ben Hendrix: Thank you very much I just wanted to follow up on the Carole on margin question on Caroline's services flat slightly down margins in the guidance just wanted to see if that the degree to which that is.

Ben Hendrix: Associated with new risk based arrangements or members membership or to the perhaps to the new behavioral benefits and kind of what are the prospects for that kind of ramping up beyond 2024. Thanks.

Speaker Change: Yeah no. Thanks, Ben for the question first of all we're very pleased with the operating performance of Carillon you saw that play through in 2023, I think we committed to 25 to 50 basis points of improvement you saw 70 basis points of improvement year over year. So that it is performing really well you answered the question ready as it relates to <unk>.

Speaker Change: 24, quite frankly, we are as Gail talked about and as I talked about earlier launching some very significant at risk product offerings, both oncology seriously mentally ill population.

Speaker Change: Well as others and that comes with a lower margin than the earlier years, but then improves over time. So that is precisely what was creating the pressure on the margin in 'twenty four yes, and just to sort of put a finer point on it we do remain confident in our long term guidance that we gave in mid to upper single digit operating margin. So as Pete said.

Speaker Change: We think the business, we're bringing on is really good we are committed to bringing in more risk business, but in the early years that does have a little bit lower profile, but overall, we feel very good about the long term next question. Please.

Nathan Rich: There's a lot of interest externally in these, and Pete mentioned we saw some nice traction in a few of these offerings this year. So overall, I'd say very consistent focus around our value-based care enablement, and we feel like we're getting a lot of traction, and I would focus you a lot on the specialized care, and specialty care, particularly the Carillon growth opportunity. So thank you very much for the question. Next question, please. Next, we'll go to the line of Nathan Rich from Goldman Sachs. Please go ahead. Great. Good morning.

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

Justin Lake: Thanks. Good morning, most of my questions have been answered, but a couple of numbers here first you reported $200 million plus a positive prior year development the quarter materially more than I think the copper to you've ever seen in Q4, just curious given the MLR was generally in line can you tell us whether there.

Justin Lake: There were any pressure areas that work to offset the benefit of lip Bu I D.

Justin Lake: In the quarter, and then with the benefits repositioning or Medicare advantage, which you've clearly done.

Justin Lake: <unk> to be within your 3% to 5% target margin year for Medicare advantage in 2004.

Speaker Change: Justin Thank you very much for the questions. This morning.

Nathan Rich: Thanks for the questions. Two on the Medicare business. First, you talked about the Medicare cost trend developing as expected in the fourth quarter. I guess I'd be curious if there are any areas that came in higher or lower than expected and what the benefit expense guidance for 2024 assumes for Medicare cost trends. And then I guess, you know, higher levels as you reposition the Medicare business, and I understand there's several moving pieces over the next couple of years. What's the company's current view, I guess, first, of the Medicare Advantage market in the long term, but then second, the membership growth and margin potential for Elevance specifically within that market context? Thank you.

Speaker Change: We're confident that our year end reserves are prudent and have been consistent with historical practice.

Speaker Change: In the quarter Youre correct that we saw positive prior year development on a gross basis.

Speaker Change: It was indeed favorable it's worth pointing out here that that was largely offset through premium rebates and colors as well.

Speaker Change: What is the re establishment of reserves for the current year.

Speaker Change: An alternative way to think about this is that our full year AR days in claims payable decreased just 0.2 days year over year.

And that's noteworthy in the context of the fact that we have observed cycle times.

Speaker Change: Actually decreased more than three days since the end of December 2022, and that should give you a feel for our comfort level around reserves on your second question just relative to the long term target margin ranges are commercial is on track to achieve our long term goals, let's say Medicaid is normalize.

Mark Kay: So, thank you for the question. I'm going to ask Mark to address your first question, and then I'll come back and share our long-term views on Medicare. Nathan, overall utilization in the fourth quarter developed largely in line with our expectations, and that's evidenced by a reported benefit expense ratio that came in favorable, as you know, to consensus and really to the midpoint of our initial full year 2023 guidance range. We did see pockets of higher utilization specifically in Medicare related to orthopedics, such as knee and hip replacements and other outpatient procedures, but this was broadly planned for as part of our underlying cost-t Similarly, we saw a seasonal uptick in respiratory ailments, including the flu and COVID, as well as increased RSV vaccinations, but again, utilization was aligned with what we planned.

Speaker Change: <unk> continues to perform well and then Medicare advantage for now is below.

Speaker Change: Our long term target margin range.

Speaker Change: Thank you next question please.

Speaker Change: Next we'll go to.

Speaker Change: The line of Gary Taylor from TD Cowen. Please go ahead.

Gary Taylor: Hi, Good morning, I, just wanted to follow up on enrollment I kind of thought the story for 23 was that what's the intentional commercial re pricing, which has been pretty successful. This year, you've lost some commercial risk enrollment because of that and I'm just trying to figure out on the million plus decline in risks.

Gary Taylor: <unk> 424, how much of that is.

Gary Taylor: Commercial risk versus the expected Medicaid redetermination.

Gary Taylor: Yeah.

Speaker Change: We're pleased with the performance of our commercial business in the fourth quarter and into 2023.

Speaker Change: We did make meaningful progress towards our margin recovery goals in the year I'd say January renewals have gone well and we certainly experienced to date higher retention than we did at the same period last year.

Speaker Change: Pricing actions as you would expect to continue to impact membership growth, but this is expected and so we're really continuing to expect approximately flat membership growth overall in our group business. This year, while continuing to improve margins in line with our stated goals.

Mark Kay: We'll continue to monitor claims trends closely, including prior authorization data. We remain confident that our Medicare Advantage bids for 2024 and our pricing commercial do reflect appropriate projections for utilization and medical cost trends. Thank you, Mark.

Speaker Change: Thank you and just again to put a fine point most of the loss in risk membership is driven by both the Medicaid redetermination and the adjustment in the footprints that we shared with you in the past so that really is the key driver next question. Please.

Nathan Rich: Nathan, in terms of your broader question, let me just provide a little bit of perspective. And as I think about the market, we still think Medicare Advantage is a very good long-term market. And as I said, we're committed to driving sustainable performance for the long term. Medicare Advantage delivers really strong, differentiated value for seniors. I think you have to start there.

Speaker Change: Next we'll go to the line of David Windley from Jefferies. Please go ahead hi.

David Howard Windley: Thanks for squeezing me in here I wanted to go to Carolina Rx on the revenue growth side high growth in 'twenty three low single digits, I think youre expecting in 'twenty four I suspect.

David Howard Windley: The bio plus acquisition and organically would have would have contributed to some of that growth in 'twenty three but.

David Howard Windley: But I don't think it bridges the full change so maybe you could you could add some color around.

The slowdown in growth the lower growth expectations for Carolina, Rx and 24.

Gail Koziara Boudreaux: And as you look at the aligned incentives across the system to deliver better outcomes and better care, it's a very strong marketplace, and it continues to grow. And importantly, it's incredibly popular with seniors, with greater than 50% of seniors selecting Medicare Advantage today. So against that backdrop, we know seniors value stability in their benefits year over year and the items that are most important to them. And so we have, as you heard from us earlier, looked to make sure that we are in this market for the long term, balancing that stability, so with what we know is happening in this market, we can make the right benefit decisions and again, feel that we have positioned ourselves and are making the right strategic investments to improve our performance.

Speaker Change: Yes, Thanks excuse me thanks, David for the question.

Speaker Change: As it relates to 2023 and the growth of around 18, 6% that did exceed our initial guidance and as you alluded to that was driven primarily by the bio plus acquisition and including bio plus and our results to a lesser extent.

Speaker Change: Drug mix and trends.

Speaker Change: But I would say as it relates to 2020 for I would say, we have tremendous momentum in the business and we're really excited about how our strategy is playing playing through.

We've talked about assuming the strategic levers that really matter in our business, we've done that with specialty pharmacy and bio plus we've done that with advanced home delivery you heard about the recent announcement of Paragon in infusion, which we're really excited about and then there are several new product launches that are resonating in the marketplace that we've talked about previously like insurer insurer.

Speaker Change: <unk> is one of the examples and.

Speaker Change: This momentum is playing through in our sales in 2024.

Speaker Change: We are having a good good season.

Speaker Change: Obviously that activity occurred in 2023.

Speaker Change: Our retention remains strong our sweet spot does remain in that three to 10000 range in terms of.

Gail Koziara Boudreaux: We see this business maturing, as Mark shared in his comments as well, and we have been very intentional about our desire or decision to exit certain programs or markets and plans where we didn't think we had a long-term sustainable path to performance. And that, combined with the risk models, made that choice and then again repositioned Puerto Rico, which we believe is still a very good market, but there were some actions that we knew we had to take.

Speaker Change: The business that were attracting.

Speaker Change: And as you know Theres, a little more reticence in terms of the larger jumbo accounts, moving but I would say that a couple of notable wins there. We saw a couple of wins in the $20 to 50000 range. So we're really excited about the momentum and carillon in what we're doing strategically and how that's playing through in the marketplace. Thank you Pete Our next question will be our last question.

Speaker Change: Okay.

Speaker Change: For our final question will go to the line of George Hill from Deutsche Bank. Please go ahead.

George Hill: Yeah. Good morning, guys and thanks for squeezing me in after Dave I'm going to come back to that MA margins, one more time and I am going to ask it to see if you can expand a little bit if theres a way to disaggregate.

Gail Koziara Boudreaux: So as we look at those decisions for the long term, as Kalisha shared, our business performed well when you look at the mainland and take out those exits. We had a very strong selling season. Again, I think that's a testament to the value of the benefits and our position, and importantly, we do believe we can grow this business profitably, even in a year with hyper-competitive markets in certain cases where we outperform the growth in our blue markets, which again, has always been a strategy we've had, to go deeper in our blue markets and to gain more share, but the value of our brand as well as in other places So again, we think it's a good market. We know we have some work to do in that market, but we feel we're positioning for the long term and think that we can add distinctive value for seniors as part of our focus on whole health and continuation of coverage to stay blue for life in all of their coverage. So, thank you very much for the question. Next question, please. Next, we'll go to the line of Lisa Gill from J.P. Morgan. Please go ahead. Thanks very much, and good morning.

George Hill: Kind of the MA margin expansion thinking about your pricing initiatives versus utilization expectation versus mix and kind of the market exits that you guys are targeting just trying to figure out kind of.

George Hill: Maybe rank order the contribution to margin expansion in MA from each of those four initiatives.

George Hill: Okay.

Speaker Change: Thanks very much for the question George we are not looking to necessarily provide individual margin guidance within the health benefits segment, and certainly we feel comfortable with where were guiding to in aggregate for 2024, and the 25 to a 50 basis point range and we think that the qualitative commentary that we've provided.

In the call today and it should give you enough to get a feel for how the management team is thinking about this given this is my first earnings call just want to spend a minute on capital deployment and before we close out here and I just wanted to make the point that I expect to continue with <unk> health's existing strategic policy around capital deployment as I believe.

Speaker Change: It really strikes the right balance between growth and the return of capital to our stockholders and just as a reminder, we are going to target, 50% of our free cash flow towards M&A organic reinvestment and approximately 50% as a return of capital to our stockholders either via the 30% for share repurchases or the 20% for dividends in each.

Speaker Change: Chair may differ but over the years, we expect to allocate capital consistent with this framework.

Speaker Change: Thank you Mark and thank you to everyone who joined US in closing we're pleased to have delivered another strong year in 2023, and we're confident that the ongoing execution of our strategy and the balance and resilience of our diverse set of businesses positions us well for 2024 and beyond.

Speaker Change: We're very excited about our future and we look forward to sharing more on our progress with you in the coming year. Thank you again for your interest in <unk> health and have a great rest of your week.

Lisa Christine Gill: I want to focus on the margin drivers. Can you maybe just spend a little time talking about the progression in 2024, getting to those targets that you have in 2025? And then, secondly, when I think about the margins in Carillon RX, you talk about them improving by 40 to 60 basis points. Can you talk about what the drivers are there as well?

Speaker Change: Ladies and gentlemen, a recording of this conference will be available for replay. After 11 am today through February 23, 2024, you may access the replay system at anytime by dialing 800.

Speaker Change: 5683942 International participants can dial Tuesday, or 33693812. This concludes our conference for today. Thank you for your participation and for using Verizon conferencing you may now disconnect.

Mark Kay: Is that, you know, Paragon Health and BioPlus, which I would assume carry better margins, or is there something else that's really driving that improvement as we move into 2024? Lisa, thank you very much for the question. I'll talk about health benefits, and I'll pass it over to Pete in a couple of minutes to talk about Kailon.

Mark Kay: On the health benefits side, we are seeing operating margins expand or expected to expand by 25 to 50 basis points in 2024. And I think about this as really being driven by three primary categories. The first is continued underwriting discipline and the pricing actions that we're taking in commercial. You know, 2023 really marks the end of the first full year of our efforts to recover margins from the pandemic era lows. And we expect those supporting initiatives to really continue through 2024 and then possibly into 2025. The second one I'd call your attention to here really relates to the Medicare margin expansion.

Mark Kay: And here, as you've heard us talk about, this is about building that strong foundation for sustainable long-term growth in 2024 and striking that balance between growth and margin. And in 2024, we leaned a little bit more towards the margin and growth. And you see that come through in some of our outlook projections this morning. And then the third one I want to call your attention to is really operating expense leverage. You can see that we are gaining additional incremental leverage in 2024, with our guide down to 11.1% for the operating expense ratio. Thanks, Mark.

Pete Haytaian: And Lisa, your question was about the trajectory of the margins in pharmacy. So you'll recall that this year, in 2023, we made pretty significant investments as relates to the acceleration of BioPlus and advanced home delivery, and that put some pressure on our margins in 2023. But that will not repeat itself in 2024.

Pete Haytaian: We did go live with BioPlus on January 1, as well as with respect to advanced home delivery. We're really excited about that. And it's moving in the right direction, and over time, we've built those products for scale. And as that business builds and progresses, we will continue to see margin improvement. So that is what is delivering the improvement in margin in 2024. Next question, please. Next, we'll go to the line of Scott Fidel from Stevens. Please go ahead. Hi, thanks. Good morning.

Scott J. Fidel: I was hoping you could, just on the commercial risk enrollment guidance, break that down for us between group and individual. And then on the individual piece, I am curious in terms of what you're thinking in terms of how much of that growth comes from the catcher's mitt of Medicaid, and then how you think about the acuity of those lives that are coming into the exchanges from Medicaid. We know that in Medicaid, acuity is generally rising as the redeterminations continue. So I'm curious, though, in terms of those lives that are transitioning into the exchanges, how are you thinking about those as being sort of higher, lower, or in line with the legacy population in the exchange market? Thanks a lot.

Scott J. Fidel: Well, thanks for the question, Scott. I think we've got about four or five in there. So we will try to try to hit the high points of your question. Now, I'll ask Morgan and then Mark to comment on your question. Morgan?

Morgan Kendrick: Yes, Scott, thanks for the question. You know, as we think about the ACA business, as we've talked about it for a while now, we're quite bullish on that segment. And as we've remarked in other quarterly reports, we operate in all rating areas in our 14 geographies where we can.

Morgan Kendrick: And, you know, certainly, we've seen an expansion in the actual market share and market growth in these geographies. In fact, you know, it's certainly a big driver of Medicaid redetermination, as we've indicated earlier on the call today, we've concluded about two-thirds of those, and we expect that to continue in 2024. And also, as we've noted in the past, we've seen an elongated period of time from when someone is redetermined and when they actually join Medicare or come on an ACA product moving along.

Morgan Kendrick: That said, I'm quite pleased that, you know, our growth this year is outpacing our market growth. So clearly, we're picking up our fair share and more, quite honestly, of the Medicaid redetermined members. So at the end of the day, this will continue. We've had a very steadfast and steady approach around the right economics and the right network strategies to draw in these members. It's very important for the business to

Morgan Kendrick: And I'm going to turn that over to Mark to speak a little bit about the margins and the separation of various pieces that you have. Yeah, if I think about Medicaid rates and acuity, you know, the conversations with the states are ongoing, and we'll continue to work with them and their consultants really to ensure that all adjustments are reasonable and reflect the risk associated with ongoing redeterminations in 2024. Our outlook for 2024 does assume a normalization of Medicaid margins. We already have line of sight into about 70% of Medicaid premiums for 2024, and we are comfortable with the actuarial soundness of the underlying rates, especially understanding the acuity of leavers versus stay-at-home. Yeah, and thanks, Scott. And I think you also asked about the acuity of the individual exchange marketplace. So I want to just put a fine point on that.

Mark Kay: Our risk profile of the members we're picking up, certainly in 23, and obviously early in 2024, very much aligns with the expectation of what we've historically had. So we feel it's actually rolling out to our expectations. Next question, please. Next we'll go to the line of Ben Hendricks from RBC Capital Markets. Please go ahead. Thank you very much.

Ben Hendricks: I just wanted to follow up on the Caroline margin question on Caroline services, flat, slightly down margins in the guidance. Just wanted to see the degree to which that is associated with new risk-based arrangements or members' membership or perhaps to the new behavioral benefits and kind of what are the prospects for that kind of ramping up beyond 2024? Thanks. Yeah, no, thanks, Ben, for the question. You know, first of all, we're very pleased with the operating performance of Carillon. You saw that play through in 2023.

Pete Haytaian: I think we committed to 25 to 50 basis points of improvement; you saw 70 basis points of improvement year over year, so it's performing really well. You've already answered the question as it relates to 2024. Quite frankly, we are, as Gail talked about, and as I talked about earlier, launching some very significant at-risk product offerings, both oncology, and seriously and mentally ill populations, as well as others. And that comes with a lower margin in the early years, but then improves over time. So that is precisely what was creating the pressure on the margin in 2024. Yeah, and just to sort of put a finer point on it, we do remain confident in our long-term guidance that we gave for mid to upper single-digit operating margins.

Pete Haytaian: So as Pete said, you know, we think the business we're bringing on is really good. We're committed to bringing in more risky business, but in the early years, that does have a little bit lower profile. But overall, we feel very good about the long term. Next question, please. Next, we'll go to the line of Justin Lake from Wolf Research. Please go ahead. Thanks. Good morning.

Justin Lake: Most of my questions have been answered, but a couple of numbers here. First, you reported $200 million plus of positive prior to your development in the quarter, materially more than I think the company has ever seen in a Q4. Just curious, given the MLR was generally in line, can you tell us whether there were any pressure areas that worked to offset the benefit of the PYD in the quarter?

Mark Kay: And then with the benefits repositioning and Medicare Advantage, which you've clearly done, do you expect to be within your 3% to 5% target margin here for Medicare Advantage in 24? Thanks. Justin, thank you very much for the questions this morning. We are confident that our year-end reserves are prudent and have been set consistent with historical practice.

Mark Kay: In the quarter, you're correct that we saw positive prior development on a gross basis, and that was indeed favorable. However, it's worth pointing out here that that was largely offset through premium rebates and collars, as well as the reestablishment of reserves for the current year. An alternative way to think about this is that, you know, our full year days in claims payable decreased just 0.2 days a year over year. And that's noteworthy in the context of the fact that we have observed cycle time to have actually decreased more than three days since the end of December 2022.

Mark Kay: And that should give you a feel for our comfort level around reserve. On your second question, just relative to the long-term target margin ranges, a commercial is on track to achieve our long-term goals. Let's say Medicaid is normalizing, but it continues to perform well. And then Medicare Advantage, for now, is below our long-term target margin. Thank you. Next question, please. Next, we'll go to... The line of Gary Taylor from TD Cowan. Please go ahead.

Gary Taylor: Hi, good morning. Um, I just wanted to follow up on enrollment. I kind of thought the story for 23 was that with the intentional commercial repricing, which has been pretty successful this year, you lost some commercial risk enrollment because of that. And I'm just trying to figure out on the million plus decline in risk enrollment for 24, how much of that is, um, commercial risk versus the expected Medicaid redetermination. We're all pleased with the performance of our commercial business in the fourth quarter and in 2023. We did make meaningful progress towards our margin recovery goals during the year. I'd say January renewals have gone well.

Mark Kay: We've certainly experienced higher retention than we did at the same period last year. Repricing actions, as you would expect, do continue to impact membership growth, but this is expected. And so we're really continuing to expect approximately flat membership growth overall in our group risk business this year while continuing to improve margins in line with our stated goals. Thank you. And just again, to put a fine point on it, most of the loss and risk membership is driven by both the Medicaid redeterminations and the adjustment in the footprints that we've shared with you in the past. So that really is the key driver. Next question, please. Next, we'll go to the line of David Windley from Jeffries.

David Howard Windley: Please go ahead. Hi, thanks for squeezing me in here. I wanted to go to Carillon RX on the revenue growth side. High growth in 23. Low single digits, I think you're expecting in 24.

Pete Haytaian: The Bioplus acquisition inorganically would have contributed to some of that growth in 2023, but I don't think it bridges the full change, so maybe you could add some color around the slowdown in growth, the lower growth expectations for Carillon RX in 2024. Yeah, thanks. Excuse me.

Pete Haytaian: Thanks, David, for the question. As relates to 2023, and the growth of around 18.6%, that did exceed our initial guidance. And as you alluded to, that was driven, you know, primarily by the BioPlus acquisition and including BioPlus in our results, to a lesser extent, drug mix and trends.

Pete Haytaian: But as it relates to 2024, I would say we have tremendous momentum in the business, and we're really excited about how our strategy is playing out. We've talked about assuming the strategic levers that really matter in our business. We did that with specialty pharmacy and BioPlus. We did that with advanced home delivery.

Pete Haytaian: You heard about the recent announcement of Paragon and Infusion, which we're really excited about. And then there are several new product launches that are responding in the marketplace that we've talked about previously, like InsureRx as one of the examples. And this momentum is playing through in our sales in 2024. We are having a good season. Obviously, that activity occurred in 2023.

Pete Haytaian: Our retention remains strong. Our sweet spot does remain in that $3,000 to $10,000 range in terms of the business that we're attracting. And as you know, there's a little more reticence in terms of the larger Jumbo accounts moving. But I would say that we saw a couple of notable wins there.

Pete Haytaian: So we're really excited about the momentum in Carillon and what we're doing strategically and how that's playing out in the marketplace. Thank you, Pete. Our next question will be our last question. For our final question, we'll go to the line with George Hill from Deutsche Bank. Please go ahead.

George Hill: Yeah, good morning, guys. And thanks for squeezing me in after Dave. I'm going to come back to my margins one more time. And I'm going to ask you to see if you can expand them a little bit, if there's a way to disaggregate them, and Doug King. Thanks very much for the question, George. We are not necessarily looking to provide individual margin guidance within the health benefits segment.

Mark Kay: Certainly, we feel comfortable with where we're guiding to in aggregate for 2024 in the 25 to 50 basis point range. And we think that the qualitative commentary that we provided in the call today should give you enough to get a feel for how the management team is thinking about this. Given this is my first earnings call, I just want to spend a minute on capital deployment before we close out here. And I just wanted to make the point that I expect to continue with Elevon Health's existing strategic policy around capital deployment, as I believe it really strikes the right balance between growth and the return of capital to our stockholders. And just as a reminder, we are going to target 50 percent of our free cash flow towards M&A or organic reinvestment, and approximately 50 percent is a return of capital to our stockholders, either via the 30 percent for share repurchases or the 20 percent for dividends. And each year may differ.

Mark Kay: But over the years, we expect to allocate capital consistent with this framework. Thank you, Mark. And thank you to everyone who joined us. In closing, we're pleased to have delivered another strong year in 2023. And we're confident that the ongoing execution of our strategy and the balance and resilience of our diverse set of businesses positions us well for 2024 and beyond. We're very excited about our future, and we look forward to sharing more on our progress with you in the coming year.

Operator: Thank you again for your interest in Elevance Health, and have a great rest of your week. Ladies and gentlemen, a recording of this conference will be available for replay after 11 a.m. today through February 23rd, 2024. You may access the replay system at any time by dialing 800-883-4222. 568 International participants can dial 203-369-3812. This concludes our conference for today. Thank you for your participation and for using Verizon Conferencing. You may now disconnect.