Q2 2024 Humana Inc Earnings Call

July 31, 2024

Operator: conference is in a listen-only mode. After the speaker's presentation, there will be a question-and-answer session. To ask a question during this session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President, Investor Relations. Please go ahead.

After the speaker's presentation, there will be a question and answer session.

To ask a question during the session you will need to press star one one on your telephone.

You will then hear an automated message advising your hand is raised.

To withdraw your question. Please press star one one again.

Please be advised that today's conference is being recorded.

I would now like to hand, the conference over to Lisa Stoner Vice President Investor Relations. Please go ahead.

Lisa Stoner: Thank you and good morning, I hope everyone had a chance to review our press release and prepared remarks as well as the letter from the CEO all of which are available on our website. We will begin this morning with brief remarks from Jim wrapped in Humana's, President and Chief Executive Officer, followed by Q&A session with them and Susan Diamond.

Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, as well as the letter from the CEO, all of which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer, followed by a Q&A session with Jim and Susan Diamond, Humana's Chief Financial Officer. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially.

Susan Diamond: Humana's Chief Financial Officer.

Speaker Change: Before we begin our discussion I need to advise call participants of our cautionary statement certain of the matters discussed in this conference call are forward looking and involve a number of risks and uncertainties actual results could differ materially investors are advised to read the detailed risk factors discussed in our latest Form 10-K R. R.

Lisa Stoner: Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission, and our Q2 2024 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission, and our Q2 2024 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

Susan Diamond: Other filings with the Securities and Exchange Commission and our second quarter 2024 earnings press release.

Susan Diamond: They relate to forward looking statements along with other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward looking statements in future filings, our communications regarding our business or results.

Susan Diamond: Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site.

Susan Diamond: Call participants should note that today's discussion include financial measures that are not in accordance with generally accepted accounting principles or GAAP management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release.

Susan Diamond: Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share.

Lisa Stoner: Any references to earnings per share, or EPS, made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Jim Rechtin.

Any references to earnings per share, or EPS, made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Jim Rechtin.

Susan Diamond: Finally, this call is being recorded for replay purposes that replay will be available on the Investor Relations page of Humana's website Humana Com later today.

Susan Diamond: With that I'll turn the call over to Jim <unk>.

Jim: Thanks, Lisa and good morning, everyone and thank you for joining us.

James Rechtin: Thanks, Lisa, and good morning, everyone. Thank you for joining us. Let me start by just saying that it's a privilege to be able to serve as Humana's President and Chief Executive Officer, and I want to say thanks to the Humana Board of Directors for providing me this opportunity. I also just want to say thanks to Bruce for the last six months of his mentorship and partnership. It's been, it's been really, really great. And I actually look forward to continuing to work with him over the next year. So Bruce and our 65,000 teammates have built a great company here, and it's pretty exciting to be a part of it. I shared some thoughts on Humana and the industry and the opportunity ahead in the letter that I posted on our investor relations website this morning.

Jim Rechtin: Thanks, Lisa, and good morning, everyone. Thank you for joining us. Let me start by just saying that it's a privilege to be able to serve as Humana's President and Chief Executive Officer, and I want to say thanks to the Humana Board of Directors for providing me this opportunity. I also just want to say thanks to Bruce for the last six months of his mentorship and partnership. It's been, it's been really, really great. And I actually look forward to continuing to work with him over the next year. So Bruce and our 65,000 teammates have built a great company here, and it's pretty exciting to be a part of it. I shared some thoughts on Humana and the industry and the opportunity ahead in the letter that I posted on our investor relations website this morning.

Jim: Start by just saying that it's a privilege to be able to serve as humana's, President and Chief Executive Officer and I.

Jim: Let's say thanks to the Humana board of directors for providing me this opportunity.

Jim: I also just want to say thanks to Bruce for.

Jim: In the last six months of his Mentorship and partnership it's been it's been really really great.

Speaker Change: And I actually look forward to continuing to work with them over the next year or so.

Speaker Change: Bruce and our 65000 teammates to build a great company here and it's pretty exciting to be a part of it.

Speaker Change: I shared some thoughts on humana and the industry and the opportunity ahead in the letter that I posted on our Investor Relations website. This morning, I encourage everyone to take a moment to read the letter.

James Rechtin: I encourage everyone to take a moment to read the letter. That goes along with our second quarter prepared remarks in the earnings release. I'm not gonna repeat what is in the letter, but I do want to hit a couple of themes. So let me start by just reinforcing what I think is basic truth about the business. It's a good business. It's good for our members, and it's good for our patients. This is well documented, in my opinion. CMS and the federal government, state government, and by extension, even taxpayers, are also our customers. I think we need to constantly remind ourselves of that. What we do creates value for those customers as well. We need a regulatory environment that allows that value to be fully realized, and that requires constant collaboration and adjustment.

I encourage everyone to take a moment to read the letter. That goes along with our Q2 prepared remarks in the earnings release. I'm not gonna repeat what is in the letter, but I do want to hit a couple of themes. So let me start by just reinforcing what I think is basic truth about the business. It's a good business. It's good for our members, and it's good for our patients. This is well documented, in my opinion. CMS and the federal government, state government, and by extension, even taxpayers, are also our customers. I think we need to constantly remind ourselves of that. What we do creates value for those customers as well. We need a regulatory environment that allows that value to be fully realized, and that requires constant collaboration and adjustment.

Speaker Change: That goes along with our second quarter prepared remarks in the earnings release Im not going to repeat what is in the letter, but I do want to hit a couple of themes.

Jim: So let me start by just reinforcing what I think is.

Jim: The truth about the business is a good business. It's good for our members and it's good for our patients. This is well documented in my opinion.

Jim: CMS and the federal government and state government and by extension even taxpayers are also our customers I think we need to constantly remind ourselves of that what we do creates value for those customers as well.

Jim: We need a regulatory environment that allowed that value to be fully realized and that requires constant collaboration and adjustments.

Jim: We need to be a proactive partner with CMS in that process and we need to do this to make sure that we've got a long term stable Medicare and Medicaid programs.

James Rechtin: We need to be a proactive partner with CMS in that process, and we need to do this to make sure that we've got a long-term, stable Medicare and Medicaid program. This is also good for investors, for all of you, and I think you guys know that the sector fundamentals have not meaningfully changed. They're still attractive, and we still have differentiated capabilities to compete in that space. We understand that there's frustration with the volatility that we've been experiencing. I want you to know that we also acknowledge that right now we are not achieving our full potential. The external environment has certainly been difficult. However, the message that I want to keep driving home is that we need to see the external environment for what it is. It's context.

We need to be a proactive partner with CMS in that process, and we need to do this to make sure that we've got a long-term, stable Medicare and Medicaid program. This is also good for investors, for all of you, and I think you guys know that the sector fundamentals have not meaningfully changed. They're still attractive, and we still have differentiated capabilities to compete in that space. We understand that there's frustration with the volatility that we've been experiencing. I want you to know that we also acknowledge that right now we are not achieving our full potential. The external environment has certainly been difficult. However, the message that I want to keep driving home is that we need to see the external environment for what it is. It's context.

Speaker Change: This is also good for investors for all of you and I think you guys know that the sector fundamentals have not meaningfully changed they are still attractive and.

Jim: We still have differentiated capabilities to compete in that space.

Jim: We understand that there is frustration with the volatility that we've been experiencing.

Jim: I want you to know that we also acknowledge that right now we are not achieving our full potential.

Jim: The external environment has certainly been difficult.

Jim: However, the message I want to keep driving home is that we need to see the external environment for what it is it's context, we need to shape. It to the degree that we can and we otherwise need to be focused on the things that we control within that context, that's our product, it's our pricing as our clinical capabilities, it's admin costs and it's growing our business.

James Rechtin: We need to shape it to the degree that we can, and we otherwise need to be focused on the things that we control within that context. That's our product, it's our pricing, it's our clinical capabilities, it's admin costs, and it's growing our business. To execute well against the things that we do control, we need to be incredibly focused on operating discipline. We're good at operating discipline, but we need to be reminding ourselves of that day in and day out as the external environment changes. We also can do a better job with multiyear planning in order to deliver consistency and performance over time. We got great teams. We know how to do this. It's simply about maintaining focus on the things that we control, even when the environment around us is shifting. Now, let me turn to second quarter performance.

We need to shape it to the degree that we can, and we otherwise need to be focused on the things that we control within that context. That's our product, it's our pricing, it's our clinical capabilities, it's admin costs, and it's growing our business. To execute well against the things that we do control, we need to be incredibly focused on operating discipline. We're good at operating discipline, but we need to be reminding ourselves of that day in and day out as the external environment changes. We also can do a better job with multiyear planning in order to deliver consistency and performance over time. We got great teams. We know how to do this. It's simply about maintaining focus on the things that we control, even when the environment around us is shifting. Now, let me turn to Q2 performance.

Jim: To execute well against the things that we do control we need to be incredibly focused on operating discipline.

Jim: We're good at operating discipline, but we need to be reminding ourselves of that day in and day out as the external environment changes.

Jim: We also can do a better job with multiyear planning in order to deliver consistency and performance over time.

Jim: We got great teams, we know how to do this it's simply about maintaining focus on the things that we control even when the environment around us is shifting.

Speaker Change: Now, let me turn to second quarter performance I'm going to give a quick headline I'm going to give some examples to support that headline and then I'm going to come back with some applications on our outlook.

James Rechtin: I'm gonna give a quick headline, I'm gonna give some examples to support that headline, and then I'm gonna come back with some implications on our outlook. The headline today is that our Q2 results exceeded expectations. We feel good about where we are at mid-year, but we did experience some medical cost pressure in the quarter. So let me expand on that a little bit. Much of the good news comes from our Medicare business, which is outperforming the expectations that we had at the beginning of the year. Our member growth is better than we expected. We raised our forecast by 75,000 members. That means that we should grow at just over 4% for the year. Our benefit ratio for the quarter was lower than we anticipated.

I'm gonna give a quick headline, I'm gonna give some examples to support that headline, and then I'm gonna come back with some implications on our outlook. The headline today is that our Q2 results exceeded expectations. We feel good about where we are at mid-year, but we did experience some medical cost pressure in the quarter. So let me expand on that a little bit. Much of the good news comes from our Medicare business, which is outperforming the expectations that we had at the beginning of the year. Our member growth is better than we expected. We raised our forecast by 75,000 members. That means that we should grow at just over 4% for the year. Our benefit ratio for the quarter was lower than we anticipated.

Jim: The headline today is that our second quarter results exceeded expectations, we feel good about where we are at mid year.

Jim: We did experience some medical cost pressure in the quarter.

Speaker Change: So let me expand on that a little bit.

Speaker Change: Much of the good news comes from our Medicare business, which is outperforming the expectations that we had at the beginning of the year.

Speaker Change: Our member growth is better than we expected we raised our forecast by 75000 members that means that we should grow at just over 4% for the year.

Speaker Change: Our benefit ratio for the quarter was lower than we anticipated.

Speaker Change: That was driven by claims development and higher than expected revenue and that was also offset by the higher inpatient costs that I referenced earlier.

James Rechtin: That was driven by claims development and higher than expected revenue, and that was also offset by the higher inpatient costs that I referenced earlier. More specifically, inpatient admissions were higher than we expected in the back half of Q2. That pressure has continued into July. For now, we believe that planning for continued pressure within our guidance is the right approach, though we also feel good that this pressure ultimately can be mitigated. We've taken several measures to mitigate that pressure. So for example, we're continuing to ensure clinical appropriateness of admissions, especially in light of the Two-Midnight Rule. We are enhancing claims audits, and we are negotiating with provider partners to achieve better clinical and contractual alignment. In Medicaid, we're excited about our continued growth through both contract wins and member growth, and we continue to wait for additional RFPs.

That was driven by claims development and higher than expected revenue, and that was also offset by the higher inpatient costs that I referenced earlier. More specifically, inpatient admissions were higher than we expected in the back half of Q2. That pressure has continued into July. For now, we believe that planning for continued pressure within our guidance is the right approach, though we also feel good that this pressure ultimately can be mitigated. We've taken several measures to mitigate that pressure. So for example, we're continuing to ensure clinical appropriateness of admissions, especially in light of the Two-Midnight Rule. We are enhancing claims audits, and we are negotiating with provider partners to achieve better clinical and contractual alignment. In Medicaid, we're excited about our continued growth through both contract wins and member growth, and we continue to wait for additional RFPs.

Jim: More specifically inpatient admissions were higher than we expected in the back half of the second quarter that pressure has continued into July for now we believe that planning for continued pressure within our guidance is the right approach.

Jim: So we also feel good that this pressure ultimately can be mitigated.

Jim: We've taken several measures to mitigate that pressure. So for example, we're continuing to ensure clinical appropriateness of admissions, especially in light of the two midnight rule. We are enhancing claims audits and we are negotiating with provider partners to achieve better clinical and contractual alignment.

Jim: In Medicaid we're excited about our continued growth through both contract wins and member growth.

Jim: And we continue to wait for additional Rfps.

Jim: We had some modest claims pressure in Medicaid, but we do not expect it to impact our full year results.

James Rechtin: We had some modest claims pressure in Medicaid, but we do not expect it to impact our full year results. In CenterWell, primary care is delivering strong clinic and patient growth, and we're confident that we're on track to mitigate V28 as it phases in. Overall, our pharmacy volumes are in line with plan, and we continue to drive lower cost to fill, particularly in our less mature specialty pharmacy business. The home business has generated high single-digit admission growth, and the team continues to improve their cost structure, anticipating continued rate pressure in that space. We continue to make progress managing our admin costs, and we're ahead of plan for the year. Broadly, we are focused on automation. This is in reducing our cost to fill in our pharmacy business, and it's also in lowering member service costs within our insurance segment.

We had some modest claims pressure in Medicaid, but we do not expect it to impact our full year results. In CenterWell, primary care is delivering strong clinic and patient growth, and we're confident that we're on track to mitigate V28 as it phases in. Overall, our pharmacy volumes are in line with plan, and we continue to drive lower cost to fill, particularly in our less mature specialty pharmacy business. The home business has generated high single-digit admission growth, and the team continues to improve their cost structure, anticipating continued rate pressure in that space. We continue to make progress managing our admin costs, and we're ahead of plan for the year. Broadly, we are focused on automation. This is in reducing our cost to fill in our pharmacy business, and it's also in lowering member service costs within our insurance segment.

Jim: And center well primary care is delivering strong clinic inpatient growth and we're confident that we're on track to mitigate the 28 as it phases in.

Jim: Overall, our pharmacy volumes are in line with plan and we continue to drive lower cost to build particularly in our less mature specialty pharmacy business.

Jim: <unk> business has generated high single digit admission growth and the team continues to improve their cost structure anticipating continued rate pressure in that space.

Jim: We continue to make progress managing our admin costs and we're ahead of plan for these broadly we are focused on automation.

Jim: This is in reducing our cost to fill in our pharmacy business and it's also in lowering member service costs within our insurance segment.

Jim: Just a few examples of the type of work actually really good work that our teams are doing.

James Rechtin: To give just a few examples of the type of work, actually really good work that our teams are doing, we're seeing an increased Medicare claims auto adjudication rate by about seventy basis points. This does improve the provider experience, and it does also reduce claim processing costs. We've optimized logistics across our specialty pharmacy facility in a way that reduces transit times and also lowers average delivery costs. We've improved our digital enrollment experience. This is leading to higher conversion rates, and again, it's lowering our distribution costs. Finally, we're making good progress on multi-year initiatives. We recently announced a partnership with Google. This will help accelerate our AI efforts, that will in turn, help reduce costs and improve the consumer experience. We're excited about a recent investment that we made in HealthPilot.

To give just a few examples of the type of work, actually really good work that our teams are doing, we're seeing an increased Medicare claims auto adjudication rate by about seventy basis points. This does improve the provider experience, and it does also reduce claim processing costs. We've optimized logistics across our specialty pharmacy facility in a way that reduces transit times and also lowers average delivery costs. We've improved our digital enrollment experience. This is leading to higher conversion rates, and again, it's lowering our distribution costs. Finally, we're making good progress on multi-year initiatives. We recently announced a partnership with Google. This will help accelerate our AI efforts, that will in turn, help reduce costs and improve the consumer experience. We're excited about a recent investment that we made in HealthPilot.

Jim: We're seeing an increased Medicare claims auto adjudication rate by about 70 basis points.

Jim: This does improve the provider experience and it does also reduce claim processing costs.

Jim: We've optimized logistics across our specialty pharmacy facility in a way that reduces transit times and also lowers average delivered cost.

Jim: We've improved our digital enrollment experience this is leading to higher conversion rates and and again, it's lowering our distribution costs.

Jim: Finally, we're making good progress on multiyear initiatives, we recently announced the partnership with Google This will help accelerate our AI efforts.

Jim: That will in turn help reduce cost and improve the consumer experience. We're excited about our recent investment that we made in health pilot help pilot uses AI to make the consumer purchasing experience better when shopping for Medicare advantage.

James Rechtin: HealthPilot uses AI to make the consumer purchasing experience better when shopping for Medicare Advantage, and we just entered into a lease agreement with Walmart that should help accelerate our primary care clinic. The implication as we look forward is that we're reaffirming our full-year 2024 adjusted EPS and benefit ratio guidance. This prudently assumes that the higher inpatient costs will continue, even as we work to mitigate that pressure. But looking ahead to 2025, we continue expansion and adjusted EPS growth as a first step on what will be a multi-year path to a normalized margin. We continue to feel good about our bid assumptions and our product portfolio as we head into AEP. I'm excited about all of the momentum and the opportunity ahead.

HealthPilot uses AI to make the consumer purchasing experience better when shopping for Medicare Advantage, and we just entered into a lease agreement with Walmart that should help accelerate our primary care clinic. The implication as we look forward is that we're reaffirming our full-year 2024 adjusted EPS and benefit ratio guidance. This prudently assumes that the higher inpatient costs will continue, even as we work to mitigate that pressure. But looking ahead to 2025, we continue expansion and adjusted EPS growth as a first step on what will be a multi-year path to a normalized margin. We continue to feel good about our bid assumptions and our product portfolio as we head into AEP. I'm excited about all of the momentum and the opportunity ahead.

Jim: And we.

Jim: We just entered into a lease agreement with Walmart that should help accelerate our primary care clinics.

Jim: The implication as we look forward is that we are reaffirming our full year 2024, adjusted EPS benefit ratio guidance.

Jim: This prudently assumes that the higher inpatient costs will continue even as we work to mitigate that pressure, but looking ahead to 2025, we continue.

Jim: Expansion and adjusted EPS growth as a first step.

Jim: What will be a multiyear path to a normalized margin we continue to feel good about our bid assumptions and our product portfolio as we head into AEP.

Jim: Excited about all of the momentum and the opportunity ahead.

Speaker Change: And so with that.

Speaker Change: I'll just remind you that we posted the prepared remarks to our Investor Relations website. So that we can spend most of our time on Q&A today.

James Rechtin: And so with that, I'll just remind you that we posted the prepared remarks to our investor relations website, so that we could spend most of our time on Q&A today, and we will now open up the lines for your questions. Operator, please introduce the first caller.

And so with that, I'll just remind you that we posted the prepared remarks to our investor relations website, so that we could spend most of our time on Q&A today, and we will now open up the lines for your questions. Operator, please introduce the first caller.

Speaker Change: And we will now open up the lines for your questions. Operator, please introduce the first caller.

Speaker Change: Our first question comes from the line of Ann Hynes with Mizuho.

Operator: Our first question comes from the line of Anne Heinz with Mizuho.

Ann Hynes: Hi can you hear me.

Speaker Change: Yes, good morning, Hi, sorry about that she cut out so.

Anne Heinz: Hi, can you hear me?

Susan M. Diamond: Yes. Morning, Anne.

Anne Heinz: Oh, hi. Sorry about that. She cut out. So maybe, going to the inpatient trends, is it really only the Two-Midnight Rule you're seeing pressure, or are there other areas of pressure, that you're seeing? Thanks.

Ann Hynes: Maybe go into the inpatient trends is it really only the two midnight rule youre seeing pressure or are there other areas of pressure that you're seeing thanks.

Ann Hynes: Yes.

Speaker Change: We didn't take that so yes, and as we described in our previous commentary both in the first quarter and then at conferences in the second quarter, we have seen some variation in our month to month inpatient result.

Susan M. Diamond: Yeah. Hi, Anne. Happy to take that. So yes, as and as we described in our previous commentary, both in the first quarter and then at conferences in the second quarter, we have seen some variation in our month-to-month inpatient results for... And then also the avoidance rates as we implemented the Two-Midnight Rule requirements, which, if you remember, that was a meaningful change, and we had to make some assumptions around how it'd impact our historical patterns. As we described in the first quarter, our avoidance rates initially were lower, but then ultimately did come in line with our expectations by the end of the first quarter. Those have remained stable and continue to be in line with what we would have expected.

Susan M. Diamond: Yeah. Hi, Anne. Happy to take that. So yes, as and as we described in our previous commentary, both in the Q1 and then at conferences in the second quarter, we have seen some variation in our month-to-month inpatient results for... And then also the avoidance rates as we implemented the Two-Midnight Rule requirements, which, if you remember, that was a meaningful change, and we had to make some assumptions around how it'd impact our historical patterns. As we described in the first quarter, our avoidance rates initially were lower, but then ultimately did come in line with our expectations by the end of the first quarter. Those have remained stable and continue to be in line with what we would have expected.

Ann Hynes: And then also the avoidance rates as we implemented the Jimmy Nightmare requirements, which if you remember that was a meaningful change in <unk>.

Ann Hynes: Some assumptions around how it impact our historical pattern.

Ann Hynes: We need to drive in the first quarter, our avoidance rates initially were lower but then ultimately did come in line with our expectations by the end of the first quarter. Those have remained stable and continue to be in line with what we would've expected.

Ann Hynes: Inpatient absolute level. However has seen some more variation and was higher in the back half of the second quarter in particular.

Susan M. Diamond: The inpatient absolute level, however, has seen some more variation and was higher in the back half of the second quarter in particular. As Jim mentioned, that has continued into July, at relatively similar levels. Based on everything that we are seeing, including the fact that these continue to be lower acuity and lower average costs, as well as the fact that we continue to see corresponding reductions in non-inpatient on observation side, it does all point to, and a belief that it is likely largely due to further impacts from the Two-Midnight Rule implementation. We would say this is also consistent with what we've seen reported from the hospital systems, with their results in terms of volume and revenue per patient, so we do believe it's all consistent. With respect to July, it is relatively consistent.

The inpatient absolute level, however, has seen some more variation and was higher in the back half of the second quarter in particular. As Jim mentioned, that has continued into July, at relatively similar levels. Based on everything that we are seeing, including the fact that these continue to be lower acuity and lower average costs, as well as the fact that we continue to see corresponding reductions in non-inpatient on observation side, it does all point to, and a belief that it is likely largely due to further impacts from the Two-Midnight Rule implementation. We would say this is also consistent with what we've seen reported from the hospital systems, with their results in terms of volume and revenue per patient, so we do believe it's all consistent. With respect to July, it is relatively consistent.

Ann Hynes: Jim mentioned that has continued into July.

Jim: Relatively similar levels based on everything that we are seeing including the fact that these continue to be lower acuity and lower average costs as well as the fact that we continue to see corresponding reductions in non inpatient on observation side. It does all point to and our belief that it is likely largely due to further impact from the two midnight rule implementation.

Jim: When you say it and this is also consistent with what we've seen reported from the hospital systems with their results in terms of volume and revenue per patient. So we do believe it's all consistent with.

Jim: With respect to July it is relatively consistent we are seeing just a slight amount of COVID-19 as well on top of that but otherwise consistent so as far as <unk>.

Susan M. Diamond: We are seeing just a slight amount of COVID as well on top of that, but otherwise consistent. So as far as, you know, everything we have visibility to right now, it does seem to have stabilized but is higher than we had anticipated entering the second quarter.

We are seeing just a slight amount of COVID as well on top of that, but otherwise consistent. So as far as, you know, everything we have visibility to right now, it does seem to have stabilized but is higher than we had anticipated entering the second quarter.

Ann Hynes: Everything we have visibility right now it does seem to have stabilized but is higher than we had anticipated entering the second quarter.

Ann Hynes: Our next question comes from the line of Sarah James with Cantor Fitzgerald.

Operator: Our next question comes from the line of Sarah James with Cantor Fitzgerald.

Sarah James: Thank you.

Sarah James: The guidance implies a good step up in second half MLR can you speak to how much of that is seasonality versus.

Sarah James: ... Thank you. The guidance implies a good step up in second half MLR. Can you speak to how much of that is seasonality versus assumed continuation of the July trend? And is there a way to break out the impact of the increased inpatient in July on the Q2 MLR?

Sarah James: Assumes continuation of the July trend is there a way to break out the impact of.

Ann Hynes: Kris and patient in July on the TQ MLR.

Speaker Change: Hey, Sir yes.

Speaker Change: Yes, so in terms of the second half MLR as he said it does anticipate that the higher inpatient volumes, which are partially offset by lower average unit cost and then those lower observations, Dave will continue into the third quarter in the back half of the year. So that is fully accounted for it to your point, there ASM workday seasonality that impacts the quarterly.

Susan M. Diamond: Hey, Sarah. Yes, so in terms of the second half MLR, as you said, it does anticipate that the higher inpatient volumes, which are partially offset by lower average unit costs and then those lower observation stays, will continue into the third quarter in the back half of the year. So that is fully accounted for. To your point, there is some workday seasonality that impacts the quarterly progression as well. For the third quarter specifically, it is contributing about 80 basis points to the expectation for the third quarter MLR, so that is accounted for as well. The offset to that is largely in the fourth quarter, where we expect to see favorable workday seasonality relative to last year. I think your second question asked whether the higher July activity impacted second quarter results, which obviously it wouldn't.

Dave: Progression as well for the third quarter, specifically it is contributing about 80 basis points.

Ann Hynes: To the expectation for the third quarter MLR, so that is accounted for as well.

Speaker Change: Offset to that is largely in the fourth quarter on where we expect to see favorable workday seasonality relative to last year. I think your second question asked whether the higher July activity impacted second quarter results, which obviously it wouldnt and that would be considered in our third quarter results.

Susan M. Diamond: That would be, you know, considered in our third quarter results.

That would be, you know, considered in our third quarter results.

Speaker Change: Right sorry.

Speaker Change: We hate to two.

Sarah James: Right. Sorry. Is there a way to quantify the July impact on MLR?

Speaker Change: Quantify the July impact.

Speaker Change: On MLR nature.

Susan M. Diamond: Oh.

Sarah James: Thank you. Sorry.

Speaker Change: Sorry say again.

Speaker Change: Our admission volumes in line with what we had anticipated based on our second quarter performance. There is a slightly higher amount due to COVID-19, which again I wouldn't say that's overly concerning to us and given its clearly COVID-19 related we would expect it not to persist for the full balance of the year with some demo guarantees and gloves.

Susan M. Diamond: No. So I would say again, the core admission volumes is in line with what we had anticipated based on the second quarter performance. There is a slightly higher amount due to COVID, which, again, I wouldn't say that's overly concerning to us, and given it's clearly COVID related, we would expect it not to persist for the full balance of the year, but something we'll certainly continue to watch.

Speaker Change: Our next question comes from the line of Andrew Mok with Barclays.

Operator: Our next question comes from the line of Andrew Mock with Barclays.

Andrew Mok: Hi, Good morning, hoping you can give a little bit more color on the MLR progression. This year youre guiding <unk> insurance MLR up about 100 basis points sequentially, but it sounds like you're leaving that assumption relatively flat is that right because I would think <unk> MLR would be even higher than <unk> MLR just based on normal seasonality.

Andrew Mock: Hi, good morning. Hoping you can give a little bit more color on the MLR progression this year. You're guiding Q3 insurance MLR up about a hundred basis points sequentially, but it sounds like you're leaving that assumption relatively flat. Is that right? Because I would think Q4 MLR would be even higher than Q3 MLR, just based on normal seasonality. Just wanna understand those two points. Thanks.

Andrew Mok: Hi, good morning. Hoping you can give a little bit more color on the MLR progression this year. You're guiding Q3 insurance MLR up about a hundred basis points sequentially, but it sounds like you're leaving that assumption relatively flat. Is that right? Because I would think Q4 MLR would be even higher than Q3 MLR, just based on normal seasonality. Just wanna understand those two points. Thanks.

Speaker Change: Wanted to understand those two points.

Ann Hynes: Yeah, when you think of the.

Speaker Change: In the back half of the year, we do anticipate higher MLR for the third quarter relative to last year relatively consistent which again includes that workday impact I just mentioned for fourth quarter. We obviously saw that very high utilization in the fourth quarter last year.

Susan M. Diamond: Yeah. When you think about this, the back half of the year, we do anticipate higher MLRs for Q3 relative to last year, relatively consistent, which again, includes that workday impact I just mentioned. For Q4, we obviously saw that very high utilization in Q4 last year. Obviously, we've jumped off of that in terms of our expectations for this year. So you see some slightly higher incremental pressure just because of the expectation of abnormal trend on top of last year's jumping off point. But because of that favorable workday seasonality that I just mentioned, it will positively impact the Q4 MLR, which is gonna offset some of that.

Ann Hynes: Obviously, we jumped off of that in terms of our expectations for this year. So you see some slightly higher incremental pressure just because of the expectation of abnormal trend on top of last year's jumping off point, but because of that favorable workday seasonality that I just mentioned it will positively impact the fourth quarter, MLR, which is going to offset some of that.

Ann Hynes: Our next question will come from the line of Justin Lake with Wolfe Research.

Operator: Our next question will come from the line of Justin Lake with Wolfe Research.

Justin Lake: Thanks, Good morning.

Justin Lake: <unk>.

Justin Lake: Thanks. Good morning. First, the higher inpatient costs. If I just run some simple math, you know, your typical seasonality, first half to second half on MLR, typically pretty flat to up slightly, let's call it, you know, zero to 50 basis points. So it looks like you're up, you know, closer to 125. So am I right in thinking that this inpatient pressure is about 100 basis points to MLR in general? If not, can you quantify it somehow for us in terms of, you know, the level of pressure that this is specifically putting on MLR, and then, you know, what's embedded in the second half relative to what you expected previously? And then, you know, you talked in the prepared remarks about being comfortable with your 2025 bids.

Speaker Change: The inpatient.

Speaker Change: <unk> cost.

Speaker Change: If I just run some simple math.

Justin Lake: Your typical seasonality first half the second half.

Speaker Change: <unk> typically pretty flat to up slightly let's call. It zero to 50 basis points. So it looks like you're up closer to 125, So am I right in thinking that this didn't patients pressure.

Speaker Change: There's about 100 basis points to MLR.

Speaker Change: If not could you quantify it somehow for us in terms of the level of pressure that this is specifically putting on MLR.

Speaker Change: What's embedded in the second half relative to what you expected previously and then.

Speaker Change: Your you talked on the prepared remarks about.

Speaker Change: Being comfortable with your 2025 bids.

Speaker Change: <unk> said this came in the back half.

Justin Lake: You said this came in the back half of the, the quarter, so that's, you know, second half of May. Those bids are due in the beginning of June. How do you get investors comfortable with the fact that your bids, you know, are, would be able to absorb this type of pressure, given that you didn't see it until right when bids were, were being submitted?

You said this came in the back half of the, the quarter, so that's, you know, second half of May. Those bids are due in the beginning of June. How do you get investors comfortable with the fact that your bids, you know, are, would be able to absorb this type of pressure, given that you didn't see it until right when bids were, were being submitted?

Speaker Change: For the quarter. So that's second half of May those bids are due in the beginning of June.

Speaker Change: How do you get investors comfortable with the fact that your bids.

Speaker Change: Or would be able to absorb this type of pressure given that you didn't see it until right with bids were.

Speaker Change: We're being submitted.

Justin Lake: Yeah, Hi, Justin so in terms of the MLR seasonality there are some impacts year over year, just because we continue to see increasing pressure last year. So it sort of impacted the progression you saw last year with respect to this year. When you think about first half and second half.

Susan M. Diamond: Yeah. Hi, Justin. So in terms of the MLR seasonality, there are some impacts year over year just because we continue to see increasing pressure last year, so it sort of impacted the progression we saw last year. With respect to this year, when you think about first half and second half, you know, there is some favorability in the first half of the year that, you know, offsets some of the higher costs that we did see beneficially impacting the benefit ratio. And those are, some of which are one time in nature where they won't run rate. Some are, you know, unique to the first quarter or the first half of the year. Typically, things you could think of like prior claim year claims development, which we've acknowledged has been favorable versus our expectations.

Justin Lake: There is some favorability in the first half of the year that.

Justin Lake: Offset some of the higher cost that you did see beneficially impacting the benefit ratio and those are some of which are onetime in nature, where they wont run rate. Some are unique to the first quarter or the first half of the year typically things. If you think of like prior claim airplanes development, which you've acknowledged has been favorable versus our expectations. It was also mentioned that we saw favorability in our 'twenty three.

Susan M. Diamond: We've also mentioned that we saw favorability in our 2023 final MRA payment, which is more one time in nature, still positive, but won't run right into the back half of the year. So some of those things are disproportionately impacting our first half MLR this year relative to some prior years, and so obviously won't repeat in the back half, which can create some differences in what we're expecting first half and second half. So within our second half assumptions, as we've said, we have assumed that the higher absolute level of inpatient volumes, plus the naturally offsetting unit costs and observation stays that we've experienced, those are all assumed to continue for the balance of the back half of the year. And then, as we've said, there are some seasonal workday seasonality impacts that are a little bit different this year. They're also embedded in that as well.

We've also mentioned that we saw favorability in our 2023 final MRA payment, which is more one time in nature, still positive, but won't run right into the back half of the year. So some of those things are disproportionately impacting our first half MLR this year relative to some prior years, and so obviously won't repeat in the back half, which can create some differences in what we're expecting first half and second half. So within our second half assumptions, as we've said, we have assumed that the higher absolute level of inpatient volumes, plus the naturally offsetting unit costs and observation stays that we've experienced, those are all assumed to continue for the balance of the back half of the year. And then, as we've said, there are some seasonal workday seasonality impacts that are a little bit different this year. They're also embedded in that as well.

Justin Lake: Mineral MRA payment, which is more onetime in nature, so positive, but won't run rate into the back half of the year. So some of those things are disproportionately impacting our first half MLR this year relative to some prior years and so obviously wont repeat in the back half, which can create some differences in what were expecting first half and second half so within our second half assumptions as we said we haven't seen that.

Justin Lake: A higher absolute level of inpatient volumes plus the naturally offsetting cost and observation stays that we've experienced those are all assumed to continue for the balance of the back half of the year and then as we said there are some fees that workday seasonality impacts that are a little bit different. This year. There are also embedded in that as well.

Speaker Change: As far as 25 bids.

Speaker Change: Well to your point, we submitted these beds prior to some of the development of inpatient pressure. So that is not explicitly contemplating it is but we would say some of the offsetting positive news the higher risk score is in the final MRA payment as well as the lower inpatient unit costs lower observations days and some of our other favorable prior year development coming from things like playing cost management and audits.

Susan M. Diamond: As far as 25 bids, you know, while to your point, we submitted these bids prior to some of the development of this inpatient pressure, so that is not explicitly contemplated in the bids. But we would say some of the offsetting positive news, the higher risk scores in the final MRA payment, as well as the lower inpatient unit cost, the lower observation stays, and some of our other favorable prior year development coming from things like claim cost management and audits, were also not contemplated in the bids and so more durable. And so all told, and considering all of those factors, we continue to feel good about the bid assumptions in the aggregate and the ability to deliver the margin and earnings ex expansion that we had always contemplated.

As far as 25 bids, you know, while to your point, we submitted these bids prior to some of the development of this inpatient pressure, so that is not explicitly contemplated in the bids. But we would say some of the offsetting positive news, the higher risk scores in the final MRA payment, as well as the lower inpatient unit cost, the lower observation stays, and some of our other favorable prior year development coming from things like claim cost management and audits, were also not contemplated in the bids and so more durable. And so all told, and considering all of those factors, we continue to feel good about the bid assumptions in the aggregate and the ability to deliver the margin and earnings ex expansion that we had always contemplated.

Speaker Change: We're also not contemplated in our beds and sell more durable and so all told and considering all of those factors. We continue to feel good about the beta assumptions in the aggregate and the ability to deliver the margin and earnings.

Speaker Change: I mentioned that we had always contemplated.

Justin Lake: Our next question comes from the line of David Windley with Jefferies.

Operator: Our next question comes from the line of David Windley with Jefferies.

Justin Lake: Hi.

David Windley: Thanks for taking my question I wanted to ask.

David Windley: Hi, thanks for taking my question. I wanted to ask a clarification and then a broader question. The clarification being, Susan, I think you had previously said that Two-Midnight Rule was worth about 50 to 75 basis points in the MLR. I wondered if you could give us an updated number on that. And then the broader question I have is, you know, over multiple years of value creation plan activity, the company's endeavored to, you know, drive efficiency and take cost out. I'm wondering if essentially you've cut the muscle, if you've cut so much cost that your kind of anticipatory mechanisms and ability to react and act quickly on elevated cost activity has been hampered by the depth to which you've cut costs. Thanks.

David Windley: Clarification, and then a broader question on clarification being.

Justin Lake: Isn't.

Speaker Change: You had previously said the two midnight rule.

Justin Lake: It was worth about 50 to 75 basis points in the MLR I wondered if you could give us an updated number on that and then the broader question I have is.

Justin Lake: Over multiple years of value creation plan activity.

Speaker Change: The company has endeavored to drive efficiency and take cost out I'm wondering if.

Speaker Change: Essentially you've cut to muscle.

Speaker Change: You've cut so much cost that you were.

Speaker Change: Kind of anticipatory mechanisms and ability to.

Speaker Change: React and act quickly on elevated cost activity has been hampered by the depth to which you've cut costs. Thanks.

Speaker Change: Yeah, David So I'll take the first question on the two midnight rule, and then hand it off to Jim for your second question. So yes, I think the impact that you referenced was what we anticipated going into the year relative to the two midnight rule, obviously as what we've seen is the higher inpatient costs are in fact attributable created two midnight rule, which again the information we have would seem to suggest that it generally is.

Susan M. Diamond: Yeah. David, so I'll take the first question on the Two-Midnight Rule and then hand it off to Jim for your second question. So yes, I think the impact that you referenced was what we anticipated going into the year, relative to the Two-Midnight Rule. Obviously, as what we've seen, if the higher inpatient costs are in fact attributable to the Two-Midnight Rule, which again, the information we have would seem to suggest that it generally is, then that would obviously have a higher impact than we'd expected. All told, you know, when you consider the positive prior year development as it respects claims and the unit cost and the observation stage, when you take all of that in total, we were able to mitigate a significant portion of that, but not all of it.

Justin Lake: Is then that would obviously have a higher impact than we had expected.

Speaker Change: <unk> when you consider the positive prior year development as it respects claims and the unit cost and the observation stays when you take all of that in total we were able to mitigate a significant portion of that but not all of it and so intra year. The remaining offset is coming from that favorable MRA, which again, we expect to continue which is why we continue to feel good about the $60 for this year and.

Susan M. Diamond: And so intra year, the remaining offset is coming from that favorable MRA, which again, we expect to continue, which is why we continue to feel good about the $16 for this year and $25 for next year. But we have inside the incremental impact for the Two-Midnight Rule, and I don't have that information sitting here today, but I'd be prepared to do that on this call.

And so intra year, the remaining offset is coming from that favorable MRA, which again, we expect to continue, which is why we continue to feel good about the $16 for this year and $25 for next year. But we have inside the incremental impact for the Two-Midnight Rule, and I don't have that information sitting here today, but I'd be prepared to do that on this call.

Speaker Change: <unk> 25 for next year, but we haven't sized that the incremental impact for the two midnight rule and I don't have that information sitting here today that I would be prepared to do that on this call.

Speaker Change: Yes, Hey, I can jump in on that.

Speaker Change: Cost management question.

James Rechtin: Yeah, and hey, I can jump in on the cost management question. First of all, it's a good question. It's one of the questions that I was asking and staring at when I first came in here seven months ago. The short answer is, I don't see any evidence that we've done anything that has cut into muscle today. That. And I think that's the most important thing. Anytime you go through a cost transformation like this, you've got some low-hanging fruit up front, and then you have a lot of harder work that is tied to the things that we talked about earlier, automation, using technology to do process redesign, et cetera. The quick hits you get quickly, and the rest of it takes real planning and investment over multiple years.

Jim Rechtin: Yeah, and hey, I can jump in on the cost management question. First of all, it's a good question. It's one of the questions that I was asking and staring at when I first came in here seven months ago. The short answer is, I don't see any evidence that we've done anything that has cut into muscle today. That. And I think that's the most important thing. Anytime you go through a cost transformation like this, you've got some low-hanging fruit up front, and then you have a lot of harder work that is tied to the things that we talked about earlier, automation, using technology to do process redesign, et cetera. The quick hits you get quickly, and the rest of it takes real planning and investment over multiple years.

Speaker Change: First of all it's good questions one of the questions that I was.

Speaker Change: Asking and staring out when I first came in and here seven months ago.

Justin Lake: The short answer is.

Speaker Change: I don't see any evidence that we've done anything that is cut into muscle today.

Justin Lake: I think that's the most important thing.

Justin Lake: Anytime you go through our cost transformation like this you've got some low hanging fruit upfront and then you have a lot of harder work that is tied to the things that we talked about earlier automation using technology to do process redesign et cetera.

Justin Lake: The quick hits, you get quickly and the rest of it takes real planning and investment over multiple years.

Speaker Change: The company has done a nice job of planting the seeds for that multiyear cost management and Theres more to do when you think about the nature of this business and what technology can do to take cost out over time. There is still more opportunity that opportunity is just going to be phased in over over multiple.

James Rechtin: The company has done a nice job of planting the seeds for that multiyear cost management, and there's more to do. When you think about the nature of this business and what technology can do to take costs out over time, there is still more opportunity. That opportunity is just gonna be phased in over multiple years. It's not gonna be the big jump that we saw a year and a half ago.

The company has done a nice job of planting the seeds for that multiyear cost management, and there's more to do. When you think about the nature of this business and what technology can do to take costs out over time, there is still more opportunity. That opportunity is just gonna be phased in over multiple years. It's not gonna be the big jump that we saw a year and a half ago.

Justin Lake: Years, it's not going to be the big jump that we saw year year to Africa.

Justin Lake: Our next question comes from AJ Rice with UBS.

Operator: Our next question comes from AJ Rice with UBS.

AJ Rice: Hi, everybody.

Speaker Change: Maybe just stepping back I know Jim in your letter you talk about the multiyear.

A.J. Rice: Hi, everybody. Maybe just stepping back. I know, Jim, in your letter, you talk about multiyear opportunity for margin recovery and some of the discussions we'd had with the company earlier in the year. The thinking was, given the market competitive environment, given, you know, some of the restrictions on tweaking benefits, that we should think of it in terms of 100 to 150 basis points of margin recovery, MLR, and then margin, maybe each year for the next few years. I wonder if you have any updated thoughts on how fast we can see that margin recovery. I know you reiterated long term, you think it could be 3% target. I think that's before investment income. Can you give us any updated thoughts on how the progression looks over the next two or three years?

AJ Rice: Opportunity for margin recovery and some of the discussions we've had with the company earlier in the year.

Speaker Change: Safety wise, given the market competitive environment given.

Justin Lake: Yeah.

Speaker Change: Some of the restrictions on tweaking benefits yet.

Speaker Change: We should think of it in terms of 100 to 150 basis points of margin recovery MLR in the margin.

Speaker Change: Each year for the next few years.

Speaker Change: I Wonder if you have any updated thoughts on how fast we can see that margin recovery I know you reiterated long term you think it could be 3% target I think thats before investment income.

Speaker Change: Can you give us any updated thoughts on how the progression looks over the next two or three years.

Speaker Change: Yes, let me hit a couple of things in there so.

James Rechtin: Yeah, let me hit a couple of things in there. So, first of all, I want to separate two concepts. We have talked about the multiyear margin recovery that is really driven by the regulatory environment, what you can do in any one year with TBC, et cetera, and we really don't have any change to the commentary that we have made on that, previously. The second thing that I referenced is multiyear planning. And when you think about multiyear planning, I'm gonna go back actually in a way to the comment that I just made.

Jim Rechtin: Yeah, let me hit a couple of things in there. So, first of all, I want to separate two concepts. We have talked about the multiyear margin recovery that is really driven by the regulatory environment, what you can do in any one year with TBC, et cetera, and we really don't have any change to the commentary that we have made on that, previously. The second thing that I referenced is multiyear planning. And when you think about multiyear planning, I'm gonna go back actually in a way to the comment that I just made.

Speaker Change: First of all.

Speaker Change: I want to separate two concepts, we have talked about.

Speaker Change: A multiyear margin recovery that is really driven by the regulatory environment. What you can do in any one year with TBC et cetera, and we really don't have any change to the commentary that we have made on that.

Speaker Change: <unk>.

Speaker Change: The second thing that I referenced is multiyear planning.

Speaker Change: And when you think about multiyear planning I'm going to go back actually in a way to the comment that I just made.

Speaker Change: If there is a place that we're going to have to be more disciplined over the coming years.

James Rechtin: If there's a place that we're gonna have to be more disciplined over the coming years, it's really in how we're measuring and evaluating the return on the expenses, whether it's capital or whether it's operating expense that we have in any given year, so that we're optimizing those decisions and then making sure that we've got the processes in place, that we're not just operating with discipline in a one-year period of time, but we're driving the accountability over years two, three, four, and five, that go back to that investment you made in year one. That's the place where I think that there's more opportunity, and, and the benefit of that is just getting to more consistent performance year over year, over year, over year, that is, you know, kind of really grounded in how do you optimize shareholder value over multiple years.

If there's a place that we're gonna have to be more disciplined over the coming years, it's really in how we're measuring and evaluating the return on the expenses, whether it's capital or whether it's operating expense that we have in any given year, so that we're optimizing those decisions and then making sure that we've got the processes in place, that we're not just operating with discipline in a one-year period of time, but we're driving the accountability over years two, three, four, and five, that go back to that investment you made in year one. That's the place where I think that there's more opportunity, and, and the benefit of that is just getting to more consistent performance year over year, over year, over year, that is, you know, kind of really grounded in how do you optimize shareholder value over multiple years.

Speaker Change: <unk> really and how we are measuring and evaluating the return on the expenses, whether it's capital or whether it's operating expense that we have in any given year.

Speaker Change: So there were optimizing those decisions and then making sure that we've got the processes in place that we're not just operating with discipline and a one year period of time, but we are driving the accountability over.

Speaker Change: Years, 234, and five that go back to that investment you made in your one.

Speaker Change: That's the place where I think that there's more opportunity in the benefit of that is just getting to more consistent performance year over year over year over year.

Speaker Change: That is kind of really grounded in how do you optimize shareholder value over multiple years.

Speaker Change: So that's a different concept or a different thing that I am commenting on in.

James Rechtin: So that's a different concept or a different thing that I am commenting on in the letter from the margin recovery, that we need to make sure that we're building into our benefits and our pricing. Sam?

So that's a different concept or a different thing that I am commenting on in the letter from the margin recovery, that we need to make sure that we're building into our benefits and our pricing. Sam?

Speaker Change: In the letter.

Speaker Change: From the margin recovery that we need to make sure that we're building into our benefits in our pricing.

Speaker Change: Sam.

Speaker Change: Our next question comes from the line of Kevin Fischbeck with Bank of America.

Operator: Our next question comes from the line of Kevin Fishbeck with Bank of America.

Speaker Change: Okay.

Kevin Fischbeck: Great. Thanks.

Kevin Fischbeck: Two quick questions, maybe just to wrap up that last point, Jim would you say that this is a.

Kevin Fishbeck: Great, thanks. Maybe two quick questions. Maybe just to wrap up that last point, Jim, would you say that this is a change for Humana that you're bringing to this? That maybe this was a shortfall, the multiyear planning was a shortfall relative to historical, or are you just saying this is something you always have to do, and you're just going to continue to do it? And then, I guess, second, on the provider business, can you comment a little bit more about the MLR trends there? Are you seeing the same inpatient pressures there, or is there anything else that you would, you know, spike out on that side of the business? Thanks.

Kevin Fischbeck: Great, thanks. Maybe two quick questions. Maybe just to wrap up that last point, Jim, would you say that this is a change for Humana that you're bringing to this? That maybe this was a shortfall, the multiyear planning was a shortfall relative to historical, or are you just saying this is something you always have to do, and you're just going to continue to do it? And then, I guess, second, on the provider business, can you comment a little bit more about the MLR trends there? Are you seeing the same inpatient pressures there, or is there anything else that you would, you know, spike out on that side of the business? Thanks.

Speaker Change: The change for Humana that youre, bringing to this that maybe this was the shortfall relative to the multiyear planning with the shortfall relative to historical or are you just saying.

Speaker Change: This is something you always have to do and just to continue to do it and then I guess second on the.

Speaker Change: On the provider business can you talk a little bit more about the MLR trends. There are you seeing the same inflation pressures there or is there anything else that you would see.

Speaker Change: Spike up on that side of the business. Thanks.

Speaker Change: Yes.

Speaker Change: First one and then I'll hand, this over to Susan to comment on the second.

James Rechtin: Yeah, I'll hit the first one, and then I'll hand this over to Susan to comment on the second. It's not so much that it's a change as it is something that we can get more disciplined about and we can get better at. The nature of this business, Medicare Advantage in particular, is that it's an annual cycle business. You guys know that. We talk about it all the time, annual repricing, annual rate notice, annual ADP and member growth. And in that environment, it can be challenging to really be disciplined about how you think about three, four, five-year investments. And again, that's not just capital investments, that's operating investments that you're making in any given year. And so it is something that the company thinks about. It's also something that the company can get better at.

Jim Rechtin: Yeah, I'll hit the first one, and then I'll hand this over to Susan to comment on the second. It's not so much that it's a change as it is something that we can get more disciplined about and we can get better at. The nature of this business, Medicare Advantage in particular, is that it's an annual cycle business. You guys know that. We talk about it all the time, annual repricing, annual rate notice, annual ADP and member growth. And in that environment, it can be challenging to really be disciplined about how you think about three, four, five-year investments. And again, that's not just capital investments, that's operating investments that you're making in any given year. And so it is something that the company thinks about. It's also something that the company can get better at.

Susan Diamond: It's not so much that it's a change as it is something that we can get more disciplined about and we can get better at that nature of this business Medicare advantage. In particular is that it's an annual cycle business you guys know that we talk about it all the time annual repricing annual rate notice annual.

Susan Diamond: AEP and member growth and in that environment, it can be challenging to.

Susan Diamond: Really be disciplined about how you think about 345 year investments and and again thats not just capital investments, that's operating operating investments that youre, making in any given year.

Speaker Change: And so it is something that the company thinks about its also something that the company can get better at.

Kevin: Yeah, and Kevin on your second question with our provider maintenance I would say at the highest level similar results to the health plan, although on the claims side I would say not quite as much inpatient pressure as we've seen and we that's consistent I think with what we talked about early in the year, where we werent thing as much pressure in their risk book.

Susan M. Diamond: Yeah, and Kevin, on your second question, with our provider business, I would say at the highest level, similar results to the health plan, although on the claims side, I would say not quite as much inpatient pressure as we've seen. That's consistent, I think, with what we talked about earlier in the year, where we weren't seeing as much pressure in the risk book from some of that inpatient activity when it started to emerge. They've also, as I've said before, consistently demonstrated a better impact to work with the hospital systems on those authorization requests and determining the appropriate level of care, which oftentimes, you know, results in not needing an inpatient stay, and again, just better than what we see on average within the health plan.

Speaker Change: Some of that inpatient activity when it started to emerge they've also as I've said before consistently demonstrated a better impact he'll work with the hospital systems on these authorization requests and determining the appropriate level of care, which oftentimes, resulting not needing inpatient stay and again just better than what we see on average within the health plan.

Speaker Change: They've also seen some payroll MRA <unk> III final on payment, but then we also acknowledged that center well because they do have an agnostic platform. They don't get the same level of real time information as we do and so we are taking a little bit of a cautious approach as we think about their performance to harden it to estimate the impact of change Thats still running through the system. So I would say generally.

Susan M. Diamond: They've also seen some favorable MRA in their 2023 final payment, but then we also acknowledge that CenterWell, because they do have an agnostic platform, they don't get the same level of real-time information as we do, and so we are taking a little bit of a, a cautious approach as we think about their performance. It's harder to estimate the impact of change that's still running through the system. So I would say, generally, not inconsistent with the health plan, but not quite at the same level.

They've also seen some favorable MRA in their 2023 final payment, but then we also acknowledge that CenterWell, because they do have an agnostic platform, they don't get the same level of real-time information as we do, and so we are taking a little bit of a, a cautious approach as we think about their performance. It's harder to estimate the impact of change that's still running through the system. So I would say, generally, not inconsistent with the health plan, but not quite at the same level.

Speaker Change: Not inconsistent with the health plan, but not quite at the same level.

Kevin: Our next question comes from the line of Joshua Raskin with Nephron research.

Operator: Our next question comes from the line of Joshua Raskin with Nephron Research.

Joshua Raskin: Hi, maybe just shifting gears can you speak about your expectations for the PDP segment in 2025, including expectations for membership and then profit and margin and then maybe based on that benchmark data that we saw this week what should we take away from the industry bids and maybe lastly, any commentary.

Joshua Raskin: Hi. Maybe just shifting gears, can you speak about your expectations for the PDP segment in 2025, including expectations for membership and then profit and margin? And then maybe based on that benchmark data that we saw this week, you know, what should we take away from the industry bids? And maybe lastly, any commentary on expectations of participation in that demonstration project?

Kevin: Expectations of participation in that demonstration project.

Speaker Change: Yeah.

Speaker Change: So hey, Josh so yeah, there's a lot going on obviously in the part D side, particularly PDP.

Susan M. Diamond: So, hey, Josh. So yeah, there's a lot going on, obviously, in the Part D side, particularly PDP. As we've said, you know, it is hard to really understand how everyone might have approached their bids for 2025, particularly in the standalone Part D space. As we said before, selection in terms of your underlying membership is really important, and we each have a little bit of a different product strategy, which may have caused us to approach the bids differently. I would say broadly, I think the industry was focused on mitigating some of the increased exposure and liability risks that we all have in the way that the program will be constructed for 2025.

Speaker Change: It is hard to you.

Speaker Change: Really understand what how everyone might have approach their bids for 2025, particularly in the Standalone part D space as we said before selection in terms of your underlying membership is really important and we each have a little bit of a different product strategy, which may have caused us to approach a bit differently I would say broadly I think the industry is focused on mitigating some of that increased exposure and.

Speaker Change: Any risks that we all have in the way that the program will be constructed for 25 with.

Speaker Change: With the information that was released this week on the benchmark.

Susan M. Diamond: With the information that was released this week on the benchmarks, you know, as we've all seen, it does suggest that the direct subsidy maybe is going to be higher than what certainly analysts had expected. It's impossible to know what, you know, each company might have anticipated, but what is nice to see that it is more reflective of some of those higher costs that we've been saying the industry is going to have to deal with in 2025. As far as the demo, honestly, there's still a lot of questions about how the demo will work, that we're all, you know, awaiting additional guidance from CMS on that, and so too early to say whether we're going to be able to participate or not.

With the information that was released this week on the benchmarks, you know, as we've all seen, it does suggest that the direct subsidy maybe is going to be higher than what certainly analysts had expected. It's impossible to know what, you know, each company might have anticipated, but what is nice to see that it is more reflective of some of those higher costs that we've been saying the industry is going to have to deal with in 2025. As far as the demo, honestly, there's still a lot of questions about how the demo will work, that we're all, you know, awaiting additional guidance from CMS on that, and so too early to say whether we're going to be able to participate or not.

Speaker Change: <unk> seen it does suggest that the direct subsidy, maybe it's going to be higher than what certainly analysts had expected it's impossible to know what each company might have anticipated, but what is nice to say that is more reflective of some of those higher costs that we've been saying the industry is going to have to deal with in 2025.

Speaker Change: As far as the demo honestly theres still a lot of questions about how the demo work that we're all awaiting additional guidance from CMS on that and so too early to say, whether we're going to be able to participate or not and.

Speaker Change: And as far as the direct impact of the direct subsidies from the benchmark again as always the case, we aren't going to comment on that specifically recognizing theres.

Susan M. Diamond: And as far as the direct impact of the direct subsidies from the benchmarks, again, as always the case, we aren't going to comment on that specifically, recognizing, you know, bids are still open, and people will be making changes in light of that. So certainly we'll talk more, you know, as we get past the bid submission timeline, but right now, for competitive reasons, we just, we won't be commenting specifically.

Speaker Change: They are still open and people will be making changes in light of that so certainly we'll talk more.

Speaker Change: As we get past the did submission timeline, but right now for competitive reasons, we just we won't be commenting specifically.

Speaker Change: Our next question comes from the line of Ben Hendrix with RBC capital markets.

Operator: Our next question comes from the line of Ben Hendricks with RBC Capital Markets.

Ben Hendrix: Thank you very much.

Speaker Change: Switching over to Medicaid It seems like a lot of your peers saw some utilization and acuity headwinds.

James Rechtin: Thank you very much. Switching over to Medicaid, it seems like a lot of your peers saw some utilization and acuity headwinds in those books, but you noted some favorability in Florida, and seems like you might have been a little bit better forecasted there. Could you talk about kind of what you're seeing specifically in that key market, and then maybe what you're noticing in some of your newer Medicaid markets in terms of utilization? Thank you.

Ben Hendrix: Thank you very much. Switching over to Medicaid, it seems like a lot of your peers saw some utilization and acuity headwinds in those books, but you noted some favorability in Florida, and seems like you might have been a little bit better forecasted there. Could you talk about kind of what you're seeing specifically in that key market, and then maybe what you're noticing in some of your newer Medicaid markets in terms of utilization? Thank you.

Speaker Change: In those books, but.

Speaker Change: Noted some favorability in Florida.

Speaker Change: And it seems like you might have been a little bit better forecasted there could you talk about kind of what youre seeing specifically in that key market and then maybe what you are noticing in some of your newer Medicaid markets in terms of utilization. Thank you.

Speaker Change: Yes, Ben so as you pointed out.

Susan M. Diamond: Yeah, Ben. So, as you pointed out, you know, we do think our results are probably a little bit different than some others have reported, and that is because I think we've always said we tried to take a conservative approach to how we thought about the impact of redeterminations, you know, assuming that ultimately we would only retain 20% of the members who gained access through the PHE and made the assumption that the acuity of those members that were retained would look like more like the historical Medicaid performance versus the lower acuity we saw through the PHE. I'd say that has all largely proven to be true. So, we called out Florida specifically because it's the best representation of that.

Speaker Change: We do think our results are probably a little bit different than some others have reported and that is because I think we've always said we tried to take a conservative approach to how we thought about the impact of Redetermination you know assuming that ultimately we would only retained 20% of the members who gained access through the phe and made the assumption that the acuity of those members that were retained wood.

Speaker Change: Like more like the historical Medicaid performance versus the lower acuity, we saw through the Phe I'd say that is all largely proven to be true. So we called out Florida, specifically, because it's the best representation of that we're obviously the largest membership and would be impacted most significantly from Redetermination and Florida is performing slightly better than our expectations. So that.

Susan M. Diamond: We're obviously the largest membership and would be impacted most significantly from redeterminations, and Florida is performing slightly better than our expectations, so that is positive. We did call out in our remarks. We are seeing in our newer states, you know, discrete pressure. It's a little bit different in each one. Oklahoma is an example, it's pharmacy-related. As we understand it, everybody's seeing that. There are risk corridors in place that mitigate the exposure on that, which is good. In Kentucky, it's behavioral related, which again, I think others have called out as well. We've, the team's working hard and has mitigation opportunities across each of those states that they're working on. And then ultimately, we do feel good about our discussions with our state partners and that ultimately, that they will adjust the rates to be reflective of those trends.

We're obviously the largest membership and would be impacted most significantly from redeterminations, and Florida is performing slightly better than our expectations, so that is positive. We did call out in our remarks. We are seeing in our newer states, you know, discrete pressure. It's a little bit different in each one. Oklahoma is an example, it's pharmacy-related. As we understand it, everybody's seeing that. There are risk corridors in place that mitigate the exposure on that, which is good. In Kentucky, it's behavioral related, which again, I think others have called out as well. We've, the team's working hard and has mitigation opportunities across each of those states that they're working on. And then ultimately, we do feel good about our discussions with our state partners and that ultimately, that they will adjust the rates to be reflective of those trends.

Speaker Change: It is positive.

Speaker Change: Did call out in our remarks, we are seeing in our newer states discrete pressure, it's a little bit different in each one Oklahoma as an example is pharmacy related as we understand it everybody, saying that their risk corridor is in place that mitigate the exposure on that which is good.

Speaker Change: In Kentucky, it's behavioral related which again I think others have called out as well.

Speaker Change: The team is working hard and has mitigation opportunities across each of those states that they are working on and then ultimately we do feel good about our discussions with our state partners and that ultimately that they will adjust their rates can be reflective of those trends. So all things being considered we still feel good about the Medicaid performance in 'twenty four relative to your expectations and then.

Susan M. Diamond: So all things being considered, we still feel good about the Medicaid performance in 2024 relative to our expectations, and then also on a go-forward basis, given all the items I just mentioned.

So all things being considered, we still feel good about the Medicaid performance in 2024 relative to our expectations, and then also on a go-forward basis, given all the items I just mentioned.

Speaker Change: Also on a go forward basis, given all the items I just mentioned.

Speaker Change: Our next question comes from the line of Stephen Baxter with Wells Fargo.

Operator: Our next question comes from the line of Stephen Baxter with Wells Fargo.

Stephen Baxter: Hi, Thanks, just a quick clarification first and then an actual question Susan I think in an earlier response, you said you feel good about the $16 of EPS. This year and then feel good about 2025, I think some misheard the comment on 2025 of the specific value your offerings and EPS expectation can you just confirm first that.

Stephen Baxter: Hi, thanks. Just a quick clarification first, and then an actual question. Susan, I think in an earlier response, you said you feel good about the $16 EPS this year and then feel good about 2025. I think some misheard the comment on 2025 as a specific value you were offering as an EPS expectation. Can you just confirm first if you were offering any kind of comment on 2025? And then my actual question is, as we think about the MLRs and the incremental margins on the few hundred thousand members in planning county exits, any sense you can give us on that?

Speaker Change: We're offering any kind of comment on 2025 and then my actual question is as we think about the MLR and the incremental margins on the few hundred thousand members and planning County exits any sense you can give us on that just trying to wonder if that's it's actually an EPS driver for you year on year or is this something that you're in.

Stephen Baxter: Just trying to wonder if it's actually an EPS driver for you year on year, or is this something that, you know, incrementally could be, you know, something you just have to manage through in context of everything else you're trying to achieve with, with bids and profitability next year? Thanks.

Just trying to wonder if it's actually an EPS driver for you year on year, or is this something that, you know, incrementally could be, you know, something you just have to manage through in context of everything else you're trying to achieve with, with bids and profitability next year? Thanks.

Speaker Change: Incrementally could be something to just have to manage through in context of everything else. We're trying to achieve with bids in profitability next year. Thanks.

Speaker Change: Yeah, So yes definitely to clarify his listener thing so yes, we feel good about the <unk> and yes, we feel good about our 2025 assumptions I did not mean to suggest that we first.

Susan M. Diamond: Yeah. So yes, definitely want to clarify. Here's what's interesting. So yes, we feel good about the $16, and yes, we feel good about our 2025 assumptions. I did not mean to suggest that we were sharing an EPS target for 2025. Obviously, we've been clear, we haven't given any forward guidance for 2025, and we would expect to do that on our normal timeline. So I was just making the point that based on everything we know, we continue to feel good about the 2024 results and what we're planning for 2025.

Speaker Change: We're showing an EPS target for 2025, obviously, you've been clear we haven't given any forward guidance for 25, and we expect to do that on a normal timeline. So I was just making the point that based on everything we know we continue to feel good about the 2024 results and what we're planning for for 25.

Speaker Change: Far as exit specifically, so as we've been saying given the TBC limitations and the trend in IRI and B 28 that were having to price for in 'twenty five that a lot of that would fully sort of be offset by the benefit changes you can make and not leave much incremental room for margin recovery in the aggregate the plane exits, though do you provide an.

Susan M. Diamond: As far as exits specifically, so as we've been saying, you know, given the TBC limitations and the trend in IRA and V28 that we're having to price for in 2025, that a lot of that would fully sort of be offset by the benefit changes you could make and not leave much incremental room for margin recovery in the aggregate. The plan exits, though, do provide an opportunity to actually get margin expansion in terms of percent and absolute earnings, because we do have plans that are running at a loss.

As far as exits specifically, so as we've been saying, you know, given the TBC limitations and the trend in IRA and V28 that we're having to price for in 2025, that a lot of that would fully sort of be offset by the benefit changes you could make and not leave much incremental room for margin recovery in the aggregate. The plan exits, though, do provide an opportunity to actually get margin expansion in terms of percent and absolute earnings, because we do have plans that are running at a loss.

Speaker Change: <unk> actually get margin expansion in terms of percent and absolutely earnings because we do have planes that are running at a loss and so as we said before we studied the performance of our plans in each market very closely and if they were performing at a loss and did not have a reasonable path to getting to at least breakeven performance in a reasonable period of time, we did.

Susan M. Diamond: As we said before, we, you know, studied the performance of our plans in each market very closely, and if they were performing at a loss and did not have a reasonable path to getting to at least break even performance in a reasonable period of time, we did, you know, consider an exit as a better solution there. So there are cases where we'll do that, and that will be incrementally positive to our earnings progression. But ultimately, as we've said, the absolute level of earnings growth is, you know, very dependent on our ultimate membership change for next year. And in this environment, we've acknowledged there's a wider range of potential outcomes, and so we'll need to see the landscape before we can comment further on member growth and then certainly EPS expectations for next year.

As we said before, we, you know, studied the performance of our plans in each market very closely, and if they were performing at a loss and did not have a reasonable path to getting to at least break even performance in a reasonable period of time, we did, you know, consider an exit as a better solution there. So there are cases where we'll do that, and that will be incrementally positive to our earnings progression. But ultimately, as we've said, the absolute level of earnings growth is, you know, very dependent on our ultimate membership change for next year. And in this environment, we've acknowledged there's a wider range of potential outcomes, and so we'll need to see the landscape before we can comment further on member growth and then certainly EPS expectations for next year.

Speaker Change: Consider an exit is a better solution. There. So there are cases, where we will do that and that will be incrementally positive to our earnings progression, but ultimately as we said the absolute level of earnings growth is very dependent on our ultimate membership change for next year in this environment. We've acknowledged there is a wider range of potential outcomes instead, we'll need to see the landscape before we can comment.

Speaker Change: They're on member growth and certainly Etfs expectations for next year.

Speaker Change: Our next question comes from the line of Scott Fidel with Stephens.

Operator: Our next question comes from the line of Scott Fidel with Stephens.

Scott Fidel: Alright. Thanks. Good morning, I was hoping you could maybe just sort of catalog or walk us through the different inputs into the $3 billion raised the revenue guidance. Obviously, you saw the updates to the MA and PDP membership changes spot.

Scott Fidel: Hi, thanks. Good morning. Was hoping you could maybe just sort of catalog or walk us through the different inputs into the $3 billion raise to the revenue guidance. Obviously saw the updates to the MA and PDP membership changes, but in isolation, those wouldn't, you know, sort of amount to for anything really close to $3 billion. So know there's probably some other drivers there, whether it's Medicaid or CenterWell. Just to be helpful, Susan, if you just walk us through those different pieces. Thanks.

Speaker Change: Isolation those dose.

Speaker Change: Amount to anything.

Speaker Change: Anything really close to $3 billion. So there's probably some other drivers there whether it's Medicaid or center well just to be helpful. Susan If you just walk us through those different pieces. Thanks.

Susan Diamond: Yeah, Hey, Scott So yes, the revenue the change to the revenue guidance is the largest driver is by far the membership when you consider the magnitude of the increase in expected membership for the year that will drive both revenue and claims right and we've said before new members on average you can think of as having little contribution, particularly added members.

Susan M. Diamond: Yeah. Hey, Scott. So, yes, the change to the revenue guidance is the largest driver, by far, the membership. When you consider the magnitude of the increase in expected membership through the year, that'll drive both revenue and claims, right? And we've said before, new members, on average, you can think of as having little contribution, particularly, you know, added membership in the back half of the year, where the commission costs run higher for that first year. So, the main driver is membership, but as we said, we did see some favorable outperformance on our 2023 final year MRA and some intra-year, you know, positivity on our revenue risk estimates as well. That's included, but I would say the majority, by far, is membership related.

Speaker Change: Keep in the back half of the year, where the commission costs were in higher for that first year. So the main driver as membership and as we said we did see some favorable outperformance on our 23 final year MRA and some intra year positivity on our revenue risk or estimates as well thats included but I would say the majority by far is membership related.

Speaker Change: Our next question comes from the line of Lance Wilkes with Bernstein.

Operator: Our next question comes from the line of Lance Wilkes with Bernstein.

Speaker Change: Yes.

Lance Wilkes: Could you.

Stephen Baxter: Yes, Jim, could you describe a little bit of how you're morphing the management process of the company and any sort of org and talent changes you're making there? And any sort of timing related to a strategic review. And, and then maybe as part of that, what are your top priorities for taking operating expenses out, both in light of the member reductions and then just obviously as part of trying to recover your margin? Thanks.

Lance Wilkes: Yes, Jim, could you describe a little bit of how you're morphing the management process of the company and any sort of org and talent changes you're making there? And any sort of timing related to a strategic review. And, and then maybe as part of that, what are your top priorities for taking operating expenses out, both in light of the member reductions and then just obviously as part of trying to recover your margin? Thanks.

Lance Wilkes: Describe a little bit of how you're morphing.

Lance Wilkes: Management process of the company and any sort of Oregon talent changes youre, making there.

Speaker Change: And any sort of timing related to our strategic review and then maybe as part of that what are your top priorities for taking operating expenses out both in light of the member reductions and then just obviously as part of trying to recover your margins. Thanks.

Lance Wilkes: Okay.

Speaker Change: Lot in there.

James Rechtin: Okay, so there's a lot in there. Let me see if I can capture this. Management process, strategic review, cost management. Did I miss anything in?

Jim Rechtin: Okay, so there's a lot in there. Let me see if I can capture this. Management process, strategic review, cost management. Did I miss anything in?

Speaker Change: Let me see if I can capture this.

Speaker Change: Management process strategic review.

Speaker Change: Cost management I Miss anything.

Speaker Change: Our margin recovery.

Speaker Change: So I'll try to hit each of those succinctly here.

Susan M. Diamond: Margin recovery.

Lance Wilkes: Margin recovery.

James Rechtin: Oh, margin recovery. Yeah. So, I'll try to hit each of those succinctly here. Management process. I think the biggest thing that we're doing around management process is actually what I referred to earlier, is trying to take up to the next level our discipline of looking out multiple years, how we're measuring performance over multiple years against the investments, the expenses, and the things we're doing in any given year, and then how do we make sure that we're driving accountability over those multiple years? I mean, that is the single biggest change. That obviously then dovetails into strategic review. We're in the midst of that. We're going a little deeper than I think we would in a normal year, largely because I'm new to the team.

Jim Rechtin: Oh, margin recovery. Yeah. So, I'll try to hit each of those succinctly here. Management process. I think the biggest thing that we're doing around management process is actually what I referred to earlier, is trying to take up to the next level our discipline of looking out multiple years, how we're measuring performance over multiple years against the investments, the expenses, and the things we're doing in any given year, and then how do we make sure that we're driving accountability over those multiple years? I mean, that is the single biggest change. That obviously then dovetails into strategic review. We're in the midst of that. We're going a little deeper than I think we would in a normal year, largely because I'm new to the team.

Lance Wilkes: Management process I think the.

Lance Wilkes: The biggest thing that we're doing around management process is actually what I referred to earlier is.

Lance Wilkes: Trying to take up to the next level, our discipline of looking out multiple years, how were measuring performance over multiple years against the investments and the expenses and the things we're doing in any given year and then how do we make sure that we're driving accountability over over those multiples.

Speaker Change: Yes, I mean that is the.

Speaker Change: The single biggest change that obviously, then dovetails into strategic review, we're in the midst of that we're going a little deeper than I think we would a normal year, largely because I'm new to the team.

Speaker Change: And we're really trying to use that process to implement those management processes that I just described.

James Rechtin: And we're really trying to use that process to implement those management processes that I just described. So we're in the middle of that process. We will have more to say about the exact timing and the exact outcomes of that, sometime early to mid-next year. The cost management, there are two different things in there. One is, how do we manage variable costs? And so the team actually has good processes around that. Of course, we're tightening them up given the range of membership outcomes that we could have this year, but that is a pretty standard process that you're simply honing, taking variable costs out with membership. And then we are diving deeper and deeper into how do you actually drive real process redesign with automation technology.

And we're really trying to use that process to implement those management processes that I just described. So we're in the middle of that process. We will have more to say about the exact timing and the exact outcomes of that, sometime early to mid-next year. The cost management, there are two different things in there. One is, how do we manage variable costs? And so the team actually has good processes around that. Of course, we're tightening them up given the range of membership outcomes that we could have this year, but that is a pretty standard process that you're simply honing, taking variable costs out with membership. And then we are diving deeper and deeper into how do you actually drive real process redesign with automation technology.

Speaker Change: No.

Speaker Change: So we're in the middle of that process, we will.

Speaker Change: Have more to say about the exact timing and the exact outcomes of that.

Speaker Change: Sometime early to mid next year.

Speaker Change: The cost management.

Speaker Change: There are two different things in there one is how do we manage variable costs and so the team actually has good processes around that of course, we're tightening them up given the.

Speaker Change: Range of membership outcomes that we could have this year.

Speaker Change: But that is a pretty standard process that youre simply honing taking variable cost out with membership.

Speaker Change: And then we are diving deeper and deeper into how do you actually drive real process redesign with automation technology I'd point back to the partnership we've got with Google around AI, what we're thinking about even.

James Rechtin: I'd point back to the partnership we've got with Google around AI, what we're thinking about even, in things like distribution costs, by being able to drive more efficient, digital distribution. All of those things are about driving long-term cost management, which hits both fixed and improves variable over time. And then, did I hit everything?

I'd point back to the partnership we've got with Google around AI, what we're thinking about even, in things like distribution costs, by being able to drive more efficient, digital distribution. All of those things are about driving long-term cost management, which hits both fixed and improves variable over time. And then, did I hit everything?

Speaker Change: In things like distribution costs by being able to drive more efficient.

Speaker Change: Digital distribution all of those things are about driving long term.

Speaker Change: Cost management, which hits, both fixed and improves variable over time.

Speaker Change: And then.

Speaker Change: I hit everything I'm going to cover our margin recovery I'm going to go back to the same.

Susan M. Diamond: Margin recovery.

James Rechtin: Oh, margin recovery. I'm gonna go back to the same place that we've been on margin recovery. It's gonna take—we expect to be at least 3% in our Medicare Advantage business. It's gonna take multiple years to get there. That is largely driven by the regulatory environment, TBC, et cetera, and that is based on some basic assumptions, kind of reasonable assumptions, about how rate and trend is gonna develop over that period of time. We think we'll be back to normal in 2027, back to a normalized margin, and, you know, that's what we've communicated in the past, been pretty deep in, into those numbers, and, you know, I feel good about the direction that the team has given.

Jim Rechtin: Oh, margin recovery. I'm gonna go back to the same place that we've been on margin recovery. It's gonna take—we expect to be at least 3% in our Medicare Advantage business. It's gonna take multiple years to get there. That is largely driven by the regulatory environment, TBC, et cetera, and that is based on some basic assumptions, kind of reasonable assumptions, about how rate and trend is gonna develop over that period of time. We think we'll be back to normal in 2027, back to a normalized margin, and, you know, that's what we've communicated in the past, been pretty deep in, into those numbers, and, you know, I feel good about the direction that the team has given.

Speaker Change: Place that we'd been on margin recovery, it's going to take.

Speaker Change: We expect to be at least 3% and our Medicare advantage business, it's going to take multiple years to get there that is largely driven by the regulatory environment, TBC et cetera, and that is based on some basic assumptions kind of reasonable assumptions about how rate and trend is going to develop over that period of time.

Speaker Change: We think we'll be back to normal in 2027 back to a normalized margin and that's what we've communicated in the past been pretty deepen into those numbers and I.

Speaker Change: I feel good about that.

Speaker Change: The direction that the team has given.

Speaker Change: Our next question comes from the line of Michael Hall with Baird.

Operator: Our next question comes from the line of Michael Ha with Baird.

Michael Hall: Thank you just a quick clarification on Opex firsthand my real question, because I know your press release, you mentioned some of your lower than planned admin expenses were considered timing in nature, but wasn't that also mentioned in <unk>. So are those timing items expected to flip back into the third quarter and fourth quarter and then my real question coming back to Justin.

Michael Ha: Thank you. Just a quick clarification on OpEx first, then my real question, because I know your press release mentioned some of your lower-than-planned admin expenses were considered timing in nature, but wasn't that also mentioned in Q1? So are those timing items expected to flip back into Q3 and Q4? And then my real question, coming back to Justin's question on bids, apologies, I may have missed part of the answer, but sounds like this elevated inpatient utilization was not embedded in 2025 bids. So if it were to persist through to 2025, and presumably, if it is an industry-wide dynamic, then I imagine your relative competitive positioning would, in theory, be unchanged. But I imagine this would also then impact your own expected MA margin recovery for next year.

Speaker Change: On bid apologies I may have missed part of the answer but it sounds like this elevated inpatient utilization not embedded in 25 bid. So if it were to persist through.

Speaker Change: <unk> through to 'twenty, five and presumably if it is an industry wide dynamic than I imagine your relative competitive positioning within theory be unchanged, but I imagine. This would also then impact your own expected MA margin recovery for next year. So all in all if it were to persist wondering if you can discuss how this could incrementally in pasture.

Michael Ha: So all in all, if it were to persist, wondering if you could discuss how this could incrementally impact your MA margin progression next year versus your prior expectations? Thank you.

So all in all, if it were to persist, wondering if you could discuss how this could incrementally impact your MA margin progression next year versus your prior expectations? Thank you.

Speaker Change: <unk> margin progression next year versus your prior expectations. Thank you.

Speaker Change: Yeah, Michael so on the Opex, Yes, we did mention those in the first quarter and then secondly, some of the favorability we've seen and administrative cost is timing in nature and that's just a different than when we projected we would have certain spend and when it is now expected to be incurred some of the areas where it is natural that you might say it is marketing and just the timing and the opportunity they see.

Susan M. Diamond: Yeah, Michael, so on the OpEx, yes, we did mention both in Q1 and then second, that some of the favorability we've seen in administrative costs is timing in nature, and that's just a difference in when we projected we would have certain spend and when it's now expected to be incurred. Some of the areas where it's natural, you might say, it is marketing and just the timing and the opportunity they see in the AEP versus OEP versus ROI, and then going into next year. IT is also one that can be difficult to predict the exact progression of when projects will be completed. So there are a number of things where, while it's favorable in the quarter, we would expect that it's still gonna be spent for the full year, and so then we'll flip out in Q3 or Q4.

Speaker Change: And the AEP versus IEP versus ROI, and then going into next year. It is also one that can be difficult to predict the exact progression of wind projects will be completed. So there are a number of things we're while it's favorable in the quarter. We would expect that it's still going to be spent for the full year and so then we will slip out in the third or fourth quarter.

Speaker Change: On the bids what we wanted to try to convey is we did not anticipate this higher utilization in our bids given when it develops relative to that the deadline for filing those beds, so that will be incremental pressure relative to our discrete medical cost assumptions in the bids. However, we also did not incorporate the lower unit costs, the lower observations days, nor the higher risk scores that we've seen.

Susan M. Diamond: On the bids, what we want to try to recognize, you know, we did not anticipate this higher utilization in our bids given when it developed relative to the deadlines for filing those bids. So that will be incremental pressure relative to our discrete medical cost assumptions in the bids. However, we also did not incorporate the lower unit costs, the lower observation stays, nor the higher risk scores that we've seen develop in the first half of the year either. And because those have largely offset, those are expected and also expected to be durable into 2025. All considered, we still feel good about the MLR expectations that we have within the collective assumptions in our 2025 bids.

On the bids, what we want to try to recognize, you know, we did not anticipate this higher utilization in our bids given when it developed relative to the deadlines for filing those bids. So that will be incremental pressure relative to our discrete medical cost assumptions in the bids. However, we also did not incorporate the lower unit costs, the lower observation stays, nor the higher risk scores that we've seen develop in the first half of the year either. And because those have largely offset, those are expected and also expected to be durable into 2025. All considered, we still feel good about the MLR expectations that we have within the collective assumptions in our 2025 bids.

Speaker Change: <unk> developed in the first half of the year, either and because those have largely offset those are expected and also expected to be durable into 25, all considered we still feel good about the MLR expectations that we have within the collective assumptions in our 2025 bids. So we are at this point much like we're assuming it will continue in the back half of the year, we've looked at our <unk>.

Susan M. Diamond: We are, at this point, you know, much like we're assuming it'll continue in the back half of the year, we've looked at our 2025 assumptions, and if that continues through the duration of 2025, with those other offsets, again, we should be back to a similar position as it respects the MLR that we had planned for within our 2025 bids.

We are, at this point, you know, much like we're assuming it'll continue in the back half of the year, we've looked at our 2025 assumptions, and if that continues through the duration of 2025, with those other offsets, again, we should be back to a similar position as it respects the MLR that we had planned for within our 2025 bids.

Speaker Change: Five assumptions and if that continues through the big duration of 25 with those other offsets again, we should be back to a similar position as it respects. The MLR that we had planned for within our 25 years.

Speaker Change: Our next question comes from the line of Jessica <unk> with Piper Sandler.

Operator: Our next question comes from the line of Jessica Tassin with Piper Sandler.

Jessica <unk>: Hi, Thanks, very much for taking my question. So I wanted to follow up on that how are the higher than anticipated risk scores that you referred to in the prepared remarks impacting your view of the V 28 headwinds in 'twenty four and 'twenty five.

Jessica Tassin: Hi, thanks very much for taking my question. I wanted to follow up on that. How are the higher-than-anticipated risk scores that you referred to in the prepared remarks impacting your view of the V28 headwinds in 2024 and 2025? And is the favorability related to any kind of specific efforts, like IAGs, and any reason why it wouldn't compound or effectively double, year over year in 2025? Thanks.

Jessica Tassan: Hi, thanks very much for taking my question. I wanted to follow up on that. How are the higher-than-anticipated risk scores that you referred to in the prepared remarks impacting your view of the V28 headwinds in 2024 and 2025? And is the favorability related to any kind of specific efforts, like IAGs, and any reason why it wouldn't compound or effectively double, year over year in 2025? Thanks.

Speaker Change: It's the favorability related to any kind of specific efforts.

Speaker Change: <unk> and any reason why it wouldn't compound or effectively double year over year in 2025.

Speaker Change: Yes, it does it get.

Speaker Change: Favorably we found the 'twenty three file is primarily related to new members in 2023.

Susan M. Diamond: Yeah, Jessica. So the favorability we saw in the 2023 file is primarily related to new members in 2023. And that's where, based on their date of enrollment, we just don't have the full claims history in order to know specifically what their subsequent year risk score will be, because we just don't have the benefit of the claim. So that, typically, if we do see favorability, is the source of it. And so that's what we've seen. It's largely within, you know, the, the membership growth was largely concentrated in those LPPO plans, so that's where we've largely seen it. I would say the V28 impact is sort of unchanged in terms of our thinking.

Speaker Change: Where based on their data and know what we just don't have the full claims history in order to know specifically what their subsequent year your risk where it will be because we just don't have the benefit of the claim so that typically if we do see favorability is the source of it.

Speaker Change: So that's what we've seen it's largely within.

Speaker Change: Membership growth was largely concentrated as oppo claims so that's where we've largely seen it.

Speaker Change: It would have I would say the V 28 impact.

Speaker Change: Is sort of unchanged in terms of our thinking is now on higher membership, but I would say the outperformance on that 23 final MRI doesn't have a literal impact in terms of our V 28 thinking about proportionately because we have more members it'll just be accounted for within that.

Susan M. Diamond: It's not now on higher membership, but I would say the outperformance on the 2023 final MRA doesn't have a literal impact in terms of our V28 thinking, but proportionately, because we have more members, it'll just be accounted for within that. In terms of the outperformance we did see, like I said, because it was related to the new members where we didn't have the full visibility, and that was not contemplated in our 2025 bids, with the visibility we now have, we would expect to see that recur into 2025 and, you know, be another mitigant to offset higher inpatient equalization, if it also happens to maintain throughout 2025.

It's not now on higher membership, but I would say the outperformance on the 2023 final MRA doesn't have a literal impact in terms of our V28 thinking, but proportionately, because we have more members, it'll just be accounted for within that. In terms of the outperformance we did see, like I said, because it was related to the new members where we didn't have the full visibility, and that was not contemplated in our 2025 bids, with the visibility we now have, we would expect to see that recur into 2025 and, you know, be another mitigant to offset higher inpatient equalization, if it also happens to maintain throughout 2025.

Speaker Change: In terms of the outperformance you didn't see like I said, because it was related to the new members, where we didn't have the full visibility and that was not contemplated in our 25 bid with the visibility. We now have we would expect to see that recur into 2025 and be another mitigate to offset higher inpatient utilization is it also happens to you maintained throughout.

Speaker Change: 25.

Speaker Change: Our next question comes from the line of John Ransom with Raymond James.

Operator: Our next question comes from the line of John Ransom with Raymond James.

John Ransom: Hey, good morning, two kind of a super high level questions.

John Ransom: Hey, good morning. Two kind of super high-level questions. It looks to me like the industry is losing the argument in Washington. You've seen a couple of things that suggest, you know, taxpayers are spending, you know, 13% or so more on Medicare Advantage than they would be on straight Medicare fee-for-service. So I wonder if you think your advocacy efforts are sufficient. And, you know, what is the kind of elevator pitch to a senator as to when he or she asks, is MA a good deal for the taxpayers, apples to apples? Because it seems like there's a split question.

John Ransom: It looks to me like.

Speaker Change: The industry is losing the argument in Washington, there you've seen a couple of.

Speaker Change: Saying that suggests taxpayers are spending 13, or so percent more on Medicare advantage than they would be on straight Medicare fee for service.

Speaker Change: So I wonder if you think youre advocacy efforts are.

Speaker Change: Sufficient and what is the kind of elevator pitch to a senator when.

Speaker Change: When he or she asks them a good deal for the taxpayers apples to apples because it seems like those are split question. The second a high level question is.

Speaker Change: If you just look at your G&A long term opportunity incorporating all the tools of AI in everything you know today, what is the kind of floor on how for how long do you think you could drive G&A over say the next five years. Thank you.

John Ransom: The second high-level question is, if you just look at your G&A, long-term opportunity, incorporating all the tools of AI and everything you have today, what is the kind of floor on how far, how low you think you could drive G&A over, say, the next five years? Thank you.

The second high-level question is, if you just look at your G&A, long-term opportunity, incorporating all the tools of AI and everything you have today, what is the kind of floor on how far, how low you think you could drive G&A over, say, the next five years? Thank you.

Speaker Change: Yes.

Speaker Change: So D C policy advocacy, how do we make the elevator pitch and then.

James Rechtin: Yeah. So DC policy advocacy, how do we make the elevator pitch, and then comment on G&A. Let me just hit the G&A one real quick. That one's a little bit easier. We are working through that, you know, that question among others right now through the strategic review that we're doing, et cetera. We'll have more to say about that next year, early to mid-next year, and so I'm gonna defer on that question for the moment. On the DC policy, so we've had a lot of conversation about that internally, and what I would keep going back to is, you know, number one, we know that we deliver value to our members and our patients. That is very well documented.

Jim Rechtin: Yeah. So DC policy advocacy, how do we make the elevator pitch, and then comment on G&A. Let me just hit the G&A one real quick. That one's a little bit easier. We are working through that, you know, that question among others right now through the strategic review that we're doing, et cetera. We'll have more to say about that next year, early to mid-next year, and so I'm gonna defer on that question for the moment. On the DC policy, so we've had a lot of conversation about that internally, and what I would keep going back to is, you know, number one, we know that we deliver value to our members and our patients. That is very well documented.

Speaker Change: Comment on G&A.

Speaker Change: Let me just hit the G&A one real quick.

Speaker Change: That was a little bit easier.

Speaker Change: We are.

Speaker Change: Working through that that question among others right now through the strategic.

Speaker Change: Review that were doing et cetera, we'll have more to say about that.

Speaker Change: Next year early to mid next year, and so I'm going to defer on that question for the moment.

Speaker Change: D C policy. So we've had a lot of conversation about that internally and what.

Speaker Change: What I would keep going back to is <unk>.

Speaker Change: One we know that we deliver value to our members and our patients that is very well documented we get better outcomes.

Speaker Change: We deliver better health security by lowering the cost to members for the care that they receive and giving them access to.

James Rechtin: We get better outcomes, we deliver better health security by lowering the cost to members for the care that they receive and giving them access to more benefits. We also know, and it's pretty well documented, that we deliver like for like benefits at a lower cost than what Original Medicare does. Those two things mean that there's a value proposition for members and for taxpayers.

We get better outcomes, we deliver better health security by lowering the cost to members for the care that they receive and giving them access to more benefits. We also know, and it's pretty well documented, that we deliver like for like benefits at a lower cost than what Original Medicare does. Those two things mean that there's a value proposition for members and for taxpayers.

Speaker Change: To more benefits.

Speaker Change: We also know and it's pretty well documented that we deliver like for like benefits.

Speaker Change: And at a lower cost than what original Medicare does.

Speaker Change: Those two things mean that there is a value proposition for members and for taxpayers.

Speaker Change: What we can do a better job of and part of what I think the entire industry needs to be focused on.

James Rechtin: What we can do a better job of, and part of, you know, what I think the entire industry needs to be focused on, is building the case for the second of those two things even more tightly, and then better explaining and understanding what of that value does accrue back today to taxpayers, what doesn't, and how do we actually collaborate with CMS to make sure that the regulatory environment allows that value to accrue back, or some of that value to accrue back. None of that should be harmful to the MA sector. In fact, I would argue that it helps the MA sector.

What we can do a better job of, and part of, you know, what I think the entire industry needs to be focused on, is building the case for the second of those two things even more tightly, and then better explaining and understanding what of that value does accrue back today to taxpayers, what doesn't, and how do we actually collaborate with CMS to make sure that the regulatory environment allows that value to accrue back, or some of that value to accrue back. None of that should be harmful to the MA sector. In fact, I would argue that it helps the MA sector.

Speaker Change: Is building the case for.

Speaker Change: The second of those two things even more tightly.

Speaker Change: And then better explaining and understanding what of that value does accrue back today to taxpayers what doesn't.

Speaker Change: How do we actually collaborate with CMS to make sure that the regulatory environment allows that value to the crew back or some of that value to accrue back <unk>.

Speaker Change: None of that.

Speaker Change: Should it should be.

Speaker Change: Harmful to the MAA sector in fact, I would argue that it helps the MAA sector are getting tighter in better in understanding the.

James Rechtin: We're getting tighter and better in understanding the impact on taxpayers, how the regulatory environment shapes that, what we can do to create a long-term value proposition for, for taxpayers that creates real stability for the Medicare and Medicaid program over time, that's good for everybody. It's good for the MA sector, it's good for the member, it's good for taxpayers, and that's, that's what we've got to focus on getting back to.

We're getting tighter and better in understanding the impact on taxpayers, how the regulatory environment shapes that, what we can do to create a long-term value proposition for, for taxpayers that creates real stability for the Medicare and Medicaid program over time, that's good for everybody. It's good for the MA sector, it's good for the member, it's good for taxpayers, and that's, that's what we've got to focus on getting back to.

Speaker Change: The impact on taxpayers, how the regulatory environment shapes that what we can do to create a long term value proposition for <unk>.

Speaker Change: For taxpayers that creates real stability for the Medicare and Medicaid program over time, that's good for everybody. It's good for the gourmet sector. It is good to remember it's good for taxpayers and that's what we've got to focus on getting back to.

Speaker Change: Our next question comes from the line of George Hill with Deutsche Bank.

Operator: Our next question comes from the line of George Hill with Deutsche Bank.

George Hill: Yes. Good morning, guys. Thanks for taking the question I guess a question as it relates to the 2025 bid strategy.

George Hill: Yeah, good morning, guys. Thanks for taking the question. I guess the question is related to the 2025 bid strategy. I guess, first of all, is there a way to characterize the approach to, like, how many beneficiaries did you guys kind of want to remove the plan or exit a plan as a way to preserve margin or pursue margin? And to what degree, I guess, on the other side, are you guys just looking to restructure plan benefits? And I think even at a higher level, the question I want to ask is, like, are you guys willing to quantify, like, how many individual MA members you provide plans for now that will not have that plan offered in 2025?

George Hill: First of all is there a way to characterize the approach to like how much how many beneficiaries did you guys kind of want to remove the plan or exit of plan as a way to preserve margin or pursue margin.

Speaker Change: To what degree I guess on the other side are you guys just looking to restructure plan benefits.

Speaker Change: And I think even at a higher level question I wanted to ask is like are you guys willing to quantify like how many individual MA members you provide plans for now.

Speaker Change: Not have that plan offered in 2025.

Speaker Change: Yes, let me jump in on this one so.

James Rechtin: Yeah, let me jump in on this one. So, the question... Well, some of this is going to be a repeat of things that we've said in the past. So we've got a set of plans that, that are not profitable, that we don't see a path to making them profitable. We have exited those. That impacts a number of our members. In most cases, in the vast majority of cases, those members will have access to another Humana plan. So there's very few actual geographies we're fully exiting. We have another set of plans that is either marginally profitable or marginally unprofitable, but we see a path to recovering the profitability of those plans, and we are working on that through reducing benefits and changing our pricing.

Jim Rechtin: Yeah, let me jump in on this one. So, the question... Well, some of this is going to be a repeat of things that we've said in the past. So we've got a set of plans that, that are not profitable, that we don't see a path to making them profitable. We have exited those. That impacts a number of our members. In most cases, in the vast majority of cases, those members will have access to another Humana plan. So there's very few actual geographies we're fully exiting. We have another set of plans that is either marginally profitable or marginally unprofitable, but we see a path to recovering the profitability of those plans, and we are working on that through reducing benefits and changing our pricing.

Speaker Change: The question well.

Speaker Change: Some of this is going to be a repeat of things that we've said in the past. So we've got a set of plans.

Speaker Change: <unk>.

Speaker Change: That are not profitable that we don't see a path to making them profitable we have exited those that impacts.

Speaker Change: A number of our members in most cases in the vast majority of cases those members will have access to another humana plan. So theres very few actual geographies were fully exited.

Speaker Change: We have another set of plans that is either marginally profitable or marginally unprofitable, but we see a path to recovering the profitability of those plans and we are working on that through.

Speaker Change: Reducing benefits and changing our pricing and then we have a set of plans that are actually quite attractive how they.

James Rechtin: Then we have a set of plans that are actually quite attractive, how they perform today, and we are protecting those plans. That is how we have approached this. Today, for competitive reasons, we're not prepared to give specific numbers of members that fall into each of those categories.

Then we have a set of plans that are actually quite attractive, how they perform today, and we are protecting those plans. That is how we have approached this. Today, for competitive reasons, we're not prepared to give specific numbers of members that fall into each of those categories.

Speaker Change: For them today, and we're protecting those plants that is how we have approached this today for competitive reasons, we're not.

Speaker Change: <unk> prepared to give specific numbers of members that fall into each of those categories.

George Hill: Yeah, and I think George just to add to what Jim said, we've given you. The overall expectation that will reduce membership a few hundred thousand members primarily related to planned exits. So you can assume right. It's not a small number within that there is an assumption that obviously, we will retain some of those members because as Jim said in almost virtually all of the counties, where we're having claims.

Susan M. Diamond: Yeah, and I think, George, just to add to what Jim said, you know, we've given you the overall expectation that we'll reduce membership a few hundred thousand members, primarily related to plan exit. So you can assume, right, it's, it's not a small number. Within that, there is an assumption that obviously we will retain some of those members, because as Jim said, in almost, you know, virtually all of the counties where we're having plan changes, there is another plan option available to our beneficiaries. So there's an inherent assumption. As Jim said, we don't want to give details right now, because again, there are still changes being made to bid submissions through the normal process. As we get later into the quarter, there may be an opportunity at another public forum once bids are filed, where we can provide some detail.

Speaker Change: Changes there is another plant option available to a beneficiary. So there is an inherent assumption as Jim said, we don't want to give details right now because again, there's still changes being made to bid submission through the normal process as we get later into the quarter. There may be an opportunity in another public forum. Once bids are filed on where we can provide some detail.

Speaker Change: Our next question comes from the line of Erin Wright with Morgan Stanley.

Operator: Our next question comes from the line of Erin Wright with Morgan Stanley.

Erin Wright: Great. Thanks for taking my question.

Erin Wright: Great, thanks for taking my question. In light of the disciplined approach that you're talking about in the ongoing strategic review, how are you thinking now about capital deployment from here? Whether it's prioritizing the alignment with the Medicaid book, and ability to service tools, or is it more on the care delivery assets, and what is your level of focus or thinking even on the organic opportunities, I guess, generally speaking, across this point? Thanks.

Erin Wright: In light of the disciplined approach that you're talking about and the ongoing strategic review.

Erin Wright: How are you thinking now about capital deployment from here, whether it's prioritizing the alignment with the Medicaid book and.

Speaker Change: <unk> ability to service tools or is it more on the care delivery assets and what is your level of focus are thinking even on the organic opportunities I guess generally speaking across at this point. Thanks.

Speaker Change: Yes.

Speaker Change: So let me start by characterizing where we believe growth opportunity is over and above what's in the Medicare book and again. This is largely consistent with what the company has done in the past.

James Rechtin: Yeah. So, so let me start by characterizing where we believe growth opportunity is over and above what's in the Medicare book. And, again, this is largely consistent with what the company has done in the past. We believe that there's growth opportunity at CenterWell. We believe there's growth opportunity in Medicaid, and to your point, there is significant, you know, kind of synergy or interrelated benefits between the Medicaid growth and the Medicare book because of duals, and between CenterWell and the Medicare book, because of the ability to impact quality and total cost of care. So we actually think that combination works, and we continue to lean into it. When we think about capital deployment, the simple rubric that we're kind of staring at is, strategically, does it align with driving lower total cost of care and/or quality?

Jim Rechtin: Yeah. So, so let me start by characterizing where we believe growth opportunity is over and above what's in the Medicare book. And, again, this is largely consistent with what the company has done in the past. We believe that there's growth opportunity at CenterWell. We believe there's growth opportunity in Medicaid, and to your point, there is significant, you know, kind of synergy or interrelated benefits between the Medicaid growth and the Medicare book because of duals, and between CenterWell and the Medicare book, because of the ability to impact quality and total cost of care. So we actually think that combination works, and we continue to lean into it. When we think about capital deployment, the simple rubric that we're kind of staring at is, strategically, does it align with driving lower total cost of care and/or quality?

Speaker Change: We believe that there is growth opportunities sooner well, we believe there is growth opportunity in Medicaid and to your point there is significant.

Speaker Change: Kind of synergy or interrelated benefits between the Medicaid grows and the Medicare book because of duals.

Speaker Change: And between center well in the Medicare book, because of the ability to impact quality and total cost of care. So we actually think that combination works and we continue to lean into it when we think about capital deployment.

Speaker Change: Yeah.

Speaker Change: The simple rubric that we're kind of staring at is strategically does it align with driving lower total cost of care and ore quality does it offer attractive return on capital and when you look at the array of opportunities.

James Rechtin: Does it offer up attractive return on capital? And when you look at the array of opportunities to invest, what drives the best return over time, right? What drives shareholder value over time? Those are the things that we're looking at, and, you know, we're looking at the same spaces that we've been looking at it in the past.

Does it offer up attractive return on capital? And when you look at the array of opportunities to invest, what drives the best return over time, right? What drives shareholder value over time? Those are the things that we're looking at, and, you know, we're looking at the same spaces that we've been looking at it in the past.

Speaker Change: To invest what drives the best return overtime right what drives shareholder value over time those are the things that we're looking at.

Speaker Change: <unk>.

Speaker Change: And we're looking at in the same spaces that we've been looking at it in the past.

Speaker Change: Our last question will come from the line of Ryan Langston with TD Cowen.

Operator: Our last question will come from the line of Ryan Langston with TD Cowen.

Ryan Langston: Hi, good morning on the inpatient activity just in the prepared remarks, you said performing higher levels of appropriateness checks and potential mitigation activities.

Ryan Langston: Hi, good morning. On the inpatient activity, just in the prepared remarks, you said performing higher levels of appropriateness checks and potential mitigation activities. I guess, is there a potential, maybe down the road, for maybe a larger than normal amount of revisions on these claims for medical necessity or the like, or at this vantage, do those kind of claims in mass look largely to be adjudicated as they are? And then I think you said that you were negotiating with providers for, you know, closer alignment. Can you elaborate on exactly what that means? Thanks.

Ryan Langston: I guess is there a potential maybe download road for maybe a larger than normal amount of revisions on these claims for medical necessity or the like or a disadvantage to those kind of claims and mass look largely to be adjudicated as they are and then I think you said that you were.

Speaker Change: Negotiating with providers for closer alignment can you elaborate on exactly what that means.

Speaker Change: Hey, Ron Yeah, I'll take the first part of that and then hand. It originally for the second on the inpatient I think as you guys are we do within our utilization management programs have what we call a front end review process that we are reviewing those authorizations in real time as they come in for things like medical necessity and site of service effectively and as I said those we did have some.

Susan M. Diamond: Hey, Ryan. Yeah, I'll take the first part of that and then hand it over to Jim for the second. On the inpatient, I think as you guys are, we do, within our utilization management programs, have a what we call a front-end review process. So we are reviewing those authorizations in real time as they come in for things like medical necessity and site of service effectively. And as I said, those... You know, we did have some, you know, changes to our expectations in how those programs would impact under the new Two-Midnight Rule. So that is operating as intended, and as we said, largely having the results we expected.

Speaker Change: Changes to our expectations and how those programs would impact under Newton two midnight rule. So that is operating as intended and as we said largely having that the results. We expected. There is also activity that we do after the claimant is comes in which we call. Our postpaid review, where there are some incremental opportunities to just review again, the more specificity on that.

Susan M. Diamond: There is also activity that we do after the claim comes in, which we call a post-pay review, where there are some incremental opportunities to just review, again, the more specificity on that claim to make sure it's appropriate. And we get value from both sides of that. But I would say we have really good information and tracking of the impact those programs are having, and I would not expect a material change to happen relative to our current expectations as a result of some of those long-standing programs.

There is also activity that we do after the claim comes in, which we call a post-pay review, where there are some incremental opportunities to just review, again, the more specificity on that claim to make sure it's appropriate. And we get value from both sides of that. But I would say we have really good information and tracking of the impact those programs are having, and I would not expect a material change to happen relative to our current expectations as a result of some of those long-standing programs.

Speaker Change: Claim to make sure its appropriate and we get value from both sides of that but I would say, we have really good information and tracking of the impact of those programs are having and I would not expect a material change to happen relative to our current expectations. As a result of some of these long standing programs.

Speaker Change: Yes, and then on the.

Speaker Change: The contract and if you think about the way that contract works at a high level you are essentially aligning on a rate and you're aligning on a set of initiatives or incentives around how to manage appropriate utilization.

James Rechtin: Yeah, and then on the contracting, if you think about the way that contracting works at a high level, you're essentially aligning on a rate, and you're aligning on a set of initiatives or incentives around how to manage appropriate utilization. And we have contracts that align those incentives very well, and we have contracts where there's an opportunity to improve that alignment around utilization and appropriate care. And so we are really looking at the contracts that perform best, and we're trying to figure out how you begin to move more of the network in that direction. Hey, so with that being our last question, let me just say a couple of quick things. I'm gonna come back to... We do feel good about where we're at mid-year.

Jim Rechtin: Yeah, and then on the contracting, if you think about the way that contracting works at a high level, you're essentially aligning on a rate, and you're aligning on a set of initiatives or incentives around how to manage appropriate utilization. And we have contracts that align those incentives very well, and we have contracts where there's an opportunity to improve that alignment around utilization and appropriate care. And so we are really looking at the contracts that perform best, and we're trying to figure out how you begin to move more of the network in that direction. Hey, so with that being our last question, let me just say a couple of quick things. I'm gonna come back to... We do feel good about where we're at mid-year.

Speaker Change: And we have.

Speaker Change: Contracts that align those incentives very well and we have contracts.

Speaker Change: Where there is an opportunity to improve that alignment around utilization inappropriate care and so we are really looking at the contracts that performed best and we're trying to figure out how you begin to move more of the network in that direction.

Speaker Change: So with that being our last question question. Let me just say a couple of quick things I'm going to come back to.

Speaker Change: We do feel good about where were at mid year, we feel good about the performance that we've seen and where that's at relative to the beginning of the year.

James Rechtin: We feel good about the performance that we've seen and where that's at relative to the beginning of the year. I am gonna reinforce that, you know, we are seeing inpatient pressure. We have seen that in particular in the back half of Q2, and now obviously a little bit into July. We're taking a cautious approach in reaffirming our $16 guidance, and we continue to feel good that we're gonna have margin expansion, EPS growth heading into 2025. So that is where we're at. We feel good. I do wanna just thank our teams. They have put a lot of work into getting us where we're at here at mid-year, and I continue to look forward to working with all of you on this phone call and our teams here at Humana. So thank you.

We feel good about the performance that we've seen and where that's at relative to the beginning of the year. I am gonna reinforce that, you know, we are seeing inpatient pressure. We have seen that in particular in the back half of Q2, and now obviously a little bit into July. We're taking a cautious approach in reaffirming our $16 guidance, and we continue to feel good that we're gonna have margin expansion, EPS growth heading into 2025. So that is where we're at. We feel good. I do wanna just thank our teams. They have put a lot of work into getting us where we're at here at mid-year, and I continue to look forward to working with all of you on this phone call and our teams here at Humana. So thank you.

Speaker Change: I am going to reinforce that we are seeing.

Speaker Change: Impatient.

Speaker Change: Pressure.

Speaker Change: Have seen that in particular in the back half of the second quarter.

Speaker Change: Now, obviously, a little bit into July we're taking a cautious approach in reaffirming our 16 guidance and we continue to feel good that we're going to have.

Speaker Change: Margin expansion EPS.

Speaker Change: <unk> growth heading into 2025, and so that is where we're at we feel good I do want to just thank our teams. They put a lot of work into getting us where we're at.

Speaker Change: Here at mid year, and I continue to look forward to working with all of you on this phone call and our teams here at Humana. So thank you.

Speaker Change: This concludes today's conference call. Thank you for participating you may now disconnect.

Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Q2 2024 Humana Inc Earnings Call

Request a DemoDemo

HUM

Humana

Earnings