Q4 2024 Elevance Health Inc Earnings Call

Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Elevance Health fourth quarter earnings conference call. At this time, all participants are in a listen only mode. Later, we will conduct a question and answer session where participants are encouraged to present a single question.

Speaker Change: If you wish to ask a question, please press star then 1 on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star then 2. These instructions will be repeated prior to the question and answer portion of this call. As a reminder, today's conference is being recorded.

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

Speaker Change: Good morning and welcome to Elevance Health's fourth quarter 2024 earnings call. My name is Nathan Rich, Vice President of Investor Relations.

Speaker Change: With us this morning on the earnings call are Gail Boudreaux, President and CEO, Mark Kaye, our CFO, Peter Haitayan, President of Carillon, Morgan Kendrick, President of our Commercial Health Benefits Business, and Felicia Norwood, President of our Government Health Benefits Business.

Speaker Change: Gail will begin the call with a review of the progress we've made against our strategic initiatives and a discussion of the quarter and our 2025 outlook.

Mark Kaye: Mark will then discuss our financial results and guidance in greater detail. After our prepared remarks, the team will be available for Q&A.

Speaker Change: We will also be making some forward-looking statements on this call.

Speaker Change: Listeners are cautioned that these statements are subject to certain risks and uncertainties.

Speaker Change: many of which are difficult to predict and generally beyond the control of Elevans Health.

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

Gail Boudreaux: Thank you, Nate, and good morning, everyone. Before we begin, I'd like to extend our deepest sympathies to the millions of people affected by the Southern California wildfires.

Gail Boudreaux: With over 9 million members and over 6,000 Elevance Health Associates in the state of California, we are especially grateful to the first responders who are working tirelessly to support the ongoing recovery efforts.

Gail Boudreaux: At Elevance Health, our teams quickly mobilized to facilitate access to essential health resources and provide much needed aid to the communities impacted by this devastating event.

Gail Boudreaux: This moment underscores our shared humanity, reminding us that above all, we are a community dedicated to supporting people's health and well-being.

Gail Boudreaux: Our purpose as a company of improving the health of humanity remains resolute and we will demonstrate steadfast leadership in healthcare marked by compassion, dedication, and a profound commitment to improving the lives of the people we serve.

Gail Boudreaux: For our members, we play a critical role in ensuring simple, affordable, and accessible care.

Gail Boudreaux: These issues are compounded by evolving consumer expectations and the need for a more integrated approach to physical, behavioral, and social health.

Gail Boudreaux: In collaboration with our partners across the industry, we're addressing these challenges with great urgency.

Gail Boudreaux: focusing on streamlining processes, reducing costs and improving the overall experience for our members.

Gail Boudreaux: We are reimagining how we connect with consumers to personalized experiences.

Gail Boudreaux: tailor recommendations to meet their specific needs and simplify the health care journey.

Gail Boudreaux: Targeted digital interactions through our Sydney app closed critical gaps in care and saved members an estimated 1.5 million hours in 2024, time they would have otherwise spent trying to find the care they needed.

Gail Boudreaux: Health insurers play a vital role in keeping healthcare affordable by ensuring our members have access to high quality care at reasonable costs and designing benefit structures that encourage preventative care and early intervention.

Gail Boudreaux: Through the value-based partnerships we have with care providers, we reduce inefficiencies, drive better health outcomes, and lower overall costs for members.

Gail Boudreaux: In our Medicare Advantage Portfolio for 2025, 90% of our plans have no monthly premium, and nearly all plans offer $0 copays for primary care visits and access to supplemental benefits.

Gail Boudreaux: These innovative plan designs demonstrate how we align affordability with improved member health.

Gail Boudreaux: Our data demonstrates that duly eligible members who utilize supplemental benefits are 40% more likely to access preventative services.

Gail Boudreaux: and nearly 15% less likely to have an inpatient admission. Solutions like our Total Health, Total You advocacy program enable personalized outreach through digital channels and address whole person care before complex health needs arise.

Gail Boudreaux: Employers recognize the value this program brings, reflected in a net promoter score of 82.

Gail Boudreaux: For our care providers, we create a real impact on health by going beyond the contract, and we strive to be an active partner in the care of our members.

Gail Boudreaux: Our value-based programs account for nearly two-thirds of care today, with over 35% taking downside risk compared to less than 20% just three years ago.

Gail Boudreaux: Over the past year, we broadened our capabilities through the launch of Mosaic Health in partnership with CDNR.

Gail Boudreaux: Mosaic Health serves nearly 1 million consumers across 19 states and provides the foundation for us to expand our advanced primary care and physician enablement solutions to serve a growing number of people in the years to come.

Gail Boudreaux: We have invested significant resources in partnering with hospitals and physicians to provide real-time insights and tools that ease administrative burdens and allow care providers to devote more time to caring for patients.

Gail Boudreaux: In cases where we have aligned data sharing with a health system, we have nearly eliminated claims denied due to incorrect or incomplete information, significantly easing the administrative burden for these systems.

Gail Boudreaux: We are making good progress in expanding this solution to more partners.

Gail Boudreaux: When health plans and care providers have access to the same information, we make the same decision.

Gail Boudreaux: We are working in concert with our many vital partners across the healthcare ecosystem to promote solutions that enhance outcomes and empower healthier communities.

Gail Boudreaux: With this unified voice, we can more effectively advocate for holistic solutions that address the physical, behavioral, and social drivers of health.

Gail Boudreaux: We are on a promising path and will work tirelessly in the coming years to achieve our bold purpose to improve the health of humanity.

Thank you.

Gail Boudreaux: Now, turning to our results, today we reported fourth quarter GAAP diluted earnings per share of $1.81.

Gail Boudreaux: and adjusted diluted earnings per share of $3.84, consistent with the expectations we shared back in October. These results reflect the immediate actions we took in response to unprecedented cost trends in our Medicaid business.

Gail Boudreaux: Our Medicaid business serves as a cornerstone in advancing health outcomes for individuals managing chronic and complex conditions.

Gail Boudreaux: We are uniquely equipped to drive better health outcomes through complementary capabilities of our integrated health benefits and Carilon platforms.

Gail Boudreaux: Fourth quarter Medicaid cost trend remained elevated at levels aligned to the outlook we provided last quarter.

Gail Boudreaux: We are grateful for the continuous and constructive collaboration of our state partners.

Gail Boudreaux: While rates today remain insufficient to cover the elevated level of cost trend we are experiencing, we remain confident that rates will ultimately reflect the underlying acuity of our Medicaid membership over time.

Gail Boudreaux: In Medicare, benefit reductions and market exits in 2024 create a strong foundation for profitable growth.

Gail Boudreaux: During annual open enrollment this year, seniors value the stability in our benefit offerings, evidenced by improved retention.

Gail Boudreaux: We are pleased with the performance of our commercial businesses in 2024.

Gail Boudreaux: our integrated medical and pharmacy offering is resonating in the market.

Gail Boudreaux: We welcomed 18 new national accounts who chose Elevance Health for 2025, including several who selected us as the sole source provider to manage their medical and pharmacy benefits, continuing a trend we have seen the last few years.

Gail Boudreaux: We also saw record retention in our national accounts business for 2025, a testament to the differentiated value we provide the market's largest and most sophisticated clients who value simplicity and affordability.

Gail Boudreaux: Our individual exchange business experienced strong growth of more than 30% in 2024. We delivered innovative, affordable products that resonated with consumers, and as we enter 2025, we anticipate another year of strong growth in this market.

Gail Boudreaux: Turning to Carillon, in 2024, we made progress against our strategy to further scale our enterprise flywheel for growth.

Gail Boudreaux: In the fourth quarter, we closed on the acquisition of CareBridge, which will bolster our home and community-based services for chronic and complex members and serve as a foundation for Carillon's home health business.

Gail Boudreaux: CareBridge's innovative approach aligns well with our enterprise focus on whole health, utilizing technology and comprehensive clinical support to improve care quality and efficiency while enhancing patient outcomes and independence.

Gail Boudreaux: The expanding breadth and diversity of our pharmacy, advanced primary care, and home and community-based solutions will serve members and drive greater alignment with our health plans.

Gail Boudreaux: Caroline's Services experienced impressive internal and external growth in 2024, and we are positioned for revenue growth above our long-term target range for this segment in the year ahead.

Gail Boudreaux: Shifting to our expectations for 2025, we are providing guidance for adjusted diluted earnings per share to be in the range of $34.15 to $34.85.

Gail Boudreaux: We will navigate 2025 with the same focus and discipline that has been central to the long-term success of Elevance Health. We will continue to manage cost trend for our clients.

Gail Boudreaux: The actions we are taking now will enhance the long-term earnings power of our enterprise and underscore our confidence in returning to at least 12% adjusted EPS growth annually, on average, over time.

Gail Boudreaux: Finally, I would like to express my deepest gratitude to our extraordinary team of over 100,000 associates and their unwavering efforts during this dynamic period for the industry.

Gail Boudreaux: Our associates went above and beyond last year, logging over 280,000 hours of volunteer time in our communities.

setting a record for Elevance Health.

Gail Boudreaux: This remarkable dedication underscores our collective commitment to improving the health of humanity by making a tangible, positive impact on the people we are privileged to serve and the communities we call home.

Gail Boudreaux: As we advance our mission, we remain focused on being our members' lifetime trusted health partner and ensuring our work elevates health beyond healthcare.

Gail Boudreaux: I will now hand over the call to our CFO, Mark Kaye, who will provide more details on our financial results and guidance.

Mark Kaye: Thank you, Gail, and good morning, everyone. As Gail noted, we reported fourth quarter adjusted diluted earnings per share of $3.84 and full year adjusted diluted earnings per share of $33.04, with fourth quarter results consistent with our October expectations.

Mark Kaye: Our disciplined operational execution helped us navigate an elevated cost environment primarily within our Medicaid business.

Mark Kaye: We concluded the year with 45.7 million members, a decrease of 1.1 million year-over-year, but roughly flat sequentially.

Mark Kaye: This annual decline was driven by membership reductions stemming from Medicaid redeterminations and changes in our geographic footprints, partially offset by continued growth in our employer group fee-based offerings and our ACA health plan products.

Mark Kaye: These areas of growth demonstrate our ability to deliver compelling value in competitive market segments.

Mark Kaye: Turning to revenue, we generated $175.2 billion in total operating revenue for 2024, up approximately 3% from the prior year.

Mark Kaye: This top-line growth reflects premium rate adjustments in recognition of higher cost trends, as well as expanding customer relationships within our Kahlon businesses, partially offset by lower Medicaid membership.

Mark Kaye: We also benefited from acquisitions that further our goals in pharmacy services and home health.

Enhancing our enterprise flywheel.

Mark Kaye: A priority for the coming year will be integrating these assets to unlock greater value for the members we're privileged to serve, particularly as we drive ambitious growth in Kelon.

Mark Kaye: Our consolidated benefit expense ratio for the fourth quarter was 92.4%, bringing our full year ratio to 88.5%, in line with our guidance.

Mark Kaye: As noted previously, we continue to see elevated cost trends within the Medicaid population, which remains stable at the levels we experienced exiting the third quarter.

Mark Kaye: We are encouraged by the rate adjustments from our state partners, which are helping to better align premiums with current care costs.

Mark Kaye: As these adjustments become more fully reflected, we expect Medicaid margins to improve over the course of 2025.

Mark Kaye: Elevante Health's adjusted operating expense ratio stood at 9.9% for the fourth quarter and 10.6% for the full year, an improvement of 170 basis points.

Mark Kaye: and 70 basis points, respectively, versus the prior year. This reflects our continued focus on disciplined expense management and operating efficiencies.

Mark Kaye: For the year, operating cash flow was $5.8 billion, or approximately one times gap-net income.

Mark Kaye: Our year-end days in claims payable was 42.9 days, essentially flat compared to the third quarter, and aligns with our long-term target range in the low 40s.

Mark Kaye: In the fourth quarter, we opportunistically repurchased 4.5 million shares for a total of $1.8 billion, bringing full-year repurchases to $2.9 billion and exceeding our initial forecast.

Mark Kaye: We remain committed to returning capital to shareholders, while also investing in our strategic initiatives.

Mark Kaye: Looking ahead to 2025, we are introducing a range for our adjusted diluted earnings per share of $34.15 to $34.85 to provide greater specificity around our view of expected performance for the year.

Mark Kaye: We project total medical membership of $45.8 to $46.6 million by year-end 2025, driven by expected growth in our commercial fee-based membership, ACA exchange plans, and Medicare Advantage.

Mark Kaye: Following an annual enrollment period in line with our expectations, we anticipate ending 2025 with Medicare Advantage membership of $2.2 to $2.25 million, reflecting planned growth in group MA and high single-digit expansion in individual MA.

Mark Kaye: In terms of top-line performance, we anticipate operating revenue to grow in the high-single to low-double-digit percent range, bolstered by acquisitions like CareBridge.

Mark Kaye: We expect our consolidated medical loss ratio to be around 89.1%, plus or minus 50 basis points. Roughly a 60 basis point increase at the midpoint.

Mark Kaye: This incorporates the persistence of elevated cost trends, particularly within Medicaid, as well as impacts from recent acquisitions and Medicare Part D benefit redesign changes.

Mark Kaye: Our adjusted operating expense ratio is expected to be 10.4 percent, plus or minus 50 basis points, implying a slight year-over-year improvement as we pursue targeted actions to enhance our cost structure.

Mark Kaye: For 2025, we anticipate a more normalized operating cash flow of roughly $8 billion, or 1.1 times GAP-net income.

Mark Kaye: We plan to allocate approximately $2.3 billion towards share repurchases, with a bias towards the first half of the year.

Mark Kaye: Regarding earnings seasonality, we expect to earn just over 60% of our adjusted EPS in the first half of 2025, with slightly more than half of that first half figure coming in the first quarter.

Mark Kaye: I'm also pleased to announce that our Board of Directors has approved a 5% increase in our quarterly dividend to $1.71 per share, our 14th consecutive annual increase.

Mark Kaye: This speaks to our commitment to delivering strong shareholder returns and reflects the balance and resilience of our business model.

Mark Kaye: We remain confident in our ability to execute on our strategic priorities in 2025 while meeting our financial objectives.

Mark Kaye: With continued investments in our diversified business model and the expansion of Kelland's capabilities, we are building a strong foundation to deliver even greater value to our members, providers, and shareholders, and position Elevon's health for long-term sustainable growth.

Mark Kaye: Thank you for your time today. I will now turn the call back to the operator for your questions.

Mark Kaye: Ladies and gentlemen, if you wish to ask a question, please press star then 1 on your telephone keypad.

Mark Kaye: You will hear a prompt that you have been cued. You may withdraw your question at any time by pressing star then two. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each participant that may wish to participate in your

Speaker Change: this portion of the call. For our first question we'll go to the line of AJ Rice from UBS. Please go ahead.

Hi, everybody. Thanks for the comments.

Speaker Change: Maybe, I know it's not your biggest business, but there certainly has been a lot of discussion in the financial community about your Medicare Advantage business. Enrollment looks like you're targeting sort of, you know, mid-seven to

8% or so for the year if

Speaker Change: Is that fully reflective of what you've got the full view of open enrollment at this point? So you think from here, it's just agents largely? And what are you seeing as you drill down in that demographic of the types of members?

you've attracted in the Open Enrollment.

Speaker Change: Just also, I think the comment on the third quarter was that the Medicare Advantage margin

Speaker Change: and 25 might step up modestly but still be below your long-term targets for Medicare Advantage. Is that still your thinking?

Speaker Change: Well, thank you, AJ. Just a few comments. First, we feel very good about and confident in the enrollment guidance that we gave for Medicare Advantage.

Speaker Change: It did come in aligned with the expectations that we set and we had very strong member retention Which we think is a huge positive for us. So overall

Speaker Change: I'll ask Felicia to maybe give you a little bit more detail about it, but really good in terms of the positioning of product and geography and overall. And we do think that's where we'll end the year. So Felicia, maybe a little bit more guidance on that.

Felicia Norwood: Good morning, AJ and thank you for the question. You know, as Gail said, we are very pleased with the outcome of our annual enrollment period.

Felicia Norwood: performance was really aligned with our expectations, driven predominantly by strong member retention and really stability in our offerings amid significant disruptions in the market this year.

Felicia Norwood: The enrollment trends that we saw in our core markets really reflect the value that seniors place on our balanced approach. And we were very focused on our local strategy to ensure that we were effectively capturing growth opportunities where they were most favorable for us.

Felicia Norwood: We are very pleased with the product and the geographic composition of our growth. We saw very strong HMO growth by design and less PPO growth.

in the markets that we were looking for that growth.

Felicia Norwood: So, with AEP results in hand right now, we are confident around our 2025 Medicare Advantage guidance of 7 to 9 percent, which from a member growth perspective is right in line with our expectations that we provided last year.

Felicia Norwood: We're obviously going to continue to be very vigilant around how we manage growth throughout the rest of the year. As you said, there will be predominantly agents and some individuals that come in as a result of...

Felicia Norwood: and we are confident in the actions and strategies that we have to maintain growth within the guide that we provided. Thank you. I mean, AJ, on your margin question, we are positioned well to achieve margin stability.

Felicia Norwood: in 2025 through many of the factors that Felicia mentioned including discipline, cost management, and strong retention.

Thank you, Mark. AJ and Lance, next question, please.

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

Speaker Change: Great, thanks so much. Could you talk a little bit about what you were seeing in terms of utilization? In particular, perhaps you could talk to what you're seeing in trends by product like MA and commercial.

Speaker Change: and how you're thinking about that in terms of your assumptions for 25 and if you can give any commentary on categories of medical cost trend as far as like inpatient outpatient etc that'd be great thanks a lot

Vance, thanks very much for the question this morning.

Speaker Change: Cost trend in the fourth quarter developed largely as we anticipated with stability I would say across you know our lines of business.

specifically Medicaid, you know, trends remained elevated, they were stable.

Speaker Change: particularly as we've called out in prior quarters in behavioral health and inpatient services.

Speaker Change: And we think it's primarily because the ongoing impact of the membership mix changes following redeterminations is really stabilized at this point.

Speaker Change: In Medicare, cost trends, similarly in the fourth quarter, were elevated. They were manageable. We saw notable drivers here, including some of the post-acute care services. Again, very consistent with prior expectations and the way that we've priced our bids for 2025.

Speaker Change: On the commercial side, I would say performance remains strong in line with the disciplined pricing approach that we've adopted to date. And so as we think about 2025, you know, we do expect these elevated trends really to persist in the first half of the year, particularly in Medicaid.

Speaker Change: On the Medicare side, you know, they're similarly expected to remain stable at the current level. And so I would say Outlook for 25 really incorporates these dynamics. We're taking a prudent approach to guidance to ensure, again, we deliver a sustainable long-term value.

Speaker Change: Thank you, Mark. And thanks for the question, Lance. And again, I'll just reiterate, I think, what you're seeing from us is a very prudent approach in terms of very consistent what we've shared on where utilization is. Next question, please.

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

Speaker Change: Hi, thanks. Just to follow up on that, you know, you mentioned that Medicaid is an influencer of the higher year-over-year MLR that you're expecting.

Speaker Change: In 2025, I think your previous expectations you discussed last quarter were for something more stable than that, and it sounds like potentially the conversation around 1-1 rates has been pretty constructive, but I'd love to get a better sense of what explicitly you're embedding for Medicaid full-year MLR change in this guidance. Thank you.

developed in line with the expectations we communicated during October.

Speaker Change: So, specifically, trends generally remain consistent with the elevated levels we observed in September. And, again, that reflects just the stabilization of our membership base, you know, given, again, redeterminations materially completed.

Speaker Change: As we look forward to 2025, we expect these higher-than-typical Medicaid cost trends, particularly, as I mentioned a moment ago, in behavioral health and inpatient care, really to persist into the first half of 2025.

Speaker Change: And why does that matter? Well, it matters because current rates have not yet fully caught up to these cost trends. And so we're maintaining a prudent stance on how quickly the Medicaid margins are going to rebound in 2025.

Speaker Change: And this simply reflects, you know, both the elevated level of cost trend we expect to continue in the first half, but also the incremental rate adjustments that we're working on with our state partners.

Speaker Change: And so you could think about Medicaid as really being a tale of two halves, stabilization in the early part of the year, followed by improvement in the second half of the year as rate adjustments begin to more fully reflect the heightened cost pressures.

Thank you. Next question, please.

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

Lisa Gill: Good morning. I just really want to understand two things. First would be the comments around the Part D redesign. Mark, can you talk about the specific impact MLR? And then secondly, just understanding that the performance in Carillon RX going into 2025, you talk about mid-teens, growth. Can you talk about how much of that is organic, the investments that you're making when we think about the margin improvement that you're talking about for 2025?

Speaker Change: Thank you, Lisa. I'm going to have Mark address the first part of your question, then I'll ask Pete to talk about the growth, which we are really pleased with and excited about the strategies and execution Carolyn has. So, Mark, please.

Mark Kaye: Lisa, thanks very much for the question this morning. So, for 25, we're guiding to an MLR of 89.1%, and that's approximately 60 bps.

Mark Kaye, Gail Boudreaux

Speaker Change: And the second one is recent acquisitions, and the third is really a prudent view towards medical cost trends.

Speaker Change: Pete, maybe share your thoughts on Carillon. Yeah, I appreciate it. And thanks for the question. I'll talk broadly about Carillon. We're really excited about what's going on in Carillon and the growth opportunities.

Speaker Change: We came off a very, very strong 24, as I think you saw in terms of our growth.

Speaker Change: strong quarter of growth and very balanced with respect to internal versus external growth. We continue to expand a lot of our risk arrangements internally across oncology, across behavioral health, post-acute solutions.

Speaker Change: And then externally, last year we had one of our best years ever in terms of external growth, doing about 4x in terms of revenue growth versus 23. And by the way, one of the other key points that we've talked about historically, we're seeing really nice penetration as it relates to the blues.

Speaker Change: That momentum will continue into 2025. You'll see very significant growth in our service as part of the business.

Speaker Change: with over 50% growth. As Mark mentioned, we're excited about the addition of CareBridge. That certainly adds to it, but then importantly, even outside of CareBridge, our organic growth, both internal and external, on the services side is well above 20%, so very pleased with that. I think you also referenced RX, Lisa, and I feel very good about our story in RX and how our growth

Speaker Change: stories resonating in the marketplace. Momentum really does continue to build. We're working very closely with Morgan and the commercial team. And one of the things that I'll say that's really resonating in the marketplace, and it's actually enabled us to win some large accounts, up-market and national account, is this real focus on high-touch customer service and advocacy.

Speaker Change: We are really doubling down on the patient experience and making sure that they have a strong experience across

Speaker Change: both medical and pharmacy. It's what we talk about in terms of whole health and we're really pleased about how that's playing out. And then importantly, we continue to do well in our sweet spot mid-market and down-market. So I think overall a very strong story in terms of Carillon growth.

Speaker Change: Thanks, Pete, and thanks for the question, Lisa, and I'll just punctuate maybe a couple things. We're really excited about the momentum, both internally and externally in Carillon.

Speaker Change: And as you heard from Pete, a couple of things. One, deepening.

Speaker Change: our capabilities inside of Carillon so we can advance our strategy around more whole health risk. And you can see that in the numbers that we're sharing and plus what happened in 24, and then external validation with additional clients, both two areas that we've talked about strategically. So thanks very much for your question. Next question, please.

Speaker Change: Next we'll go to the line of Andrew Mock from Barclays. Please go ahead.

Speaker Change: Hi, good morning. I think there's still some confusion around your Medicare Advantage membership growth for 2025. So I was hoping you could clear some of this up and tell us what your actual AEP growth is and how much of that accounts for the full year outlook. Thanks.

Gail Boudreaux: I'm going to have Felicia share her thoughts on that. So, Andrew, you know, thank you very much for that question.

You know, our AEP growth is certainly very strong.

Gail Boudreaux: and that reflects a lot of group membership growth that came in a particular group account.

Gail Boudreaux: that, frankly, we're pleased with. That was a commercial account that we had a longstanding relationship with, so very familiar.

Gail Boudreaux: with a lot of the demographics and dynamics associated with that group. So, and then in terms of our Medicare, individual Medicare Advantage growth, it's right in line with the expectations that we provided.

Gail Boudreaux: So, in total, we are right in the range that we left you with, which is the 7% to 9% growth which we expect overall this year, and we'll continue to have in place actions.

Gail Boudreaux: to manage appropriately growth throughout the rest of the year around their Medicare Advantage business.

Speaker Change: Yes, thank you, Felicia. And Andrew, just to be clear, because I don't want any confusion.

Speaker Change: That's seven to nine percent. We essentially don't expect significant growth. We expect minimal growth for the rest of the year, which with strong retention. So just to give you some sense of our confidence in that, that's how we're projecting it. And that aligns similarly to what we've seen, for example, in 24, just given the market positioning. Next question, please.

Speaker Change: Next we'll go to the line of Ryan Langston from TD Securities. Please go ahead.

Hi, thanks. I know you

Speaker Change: Step back from the Blue Cross of Louisiana acquisition a little while ago, but I believe there's still a potential to revisit that deal. I guess, is that true? And then just maybe more broadly on the environment, you know, you closed Kroger Specialty, you closed Paragon, you closed CareBridge. Maybe just remind us on your priorities going forward into 25 and beyond on potential acquisition targets. Thank you.

Speaker Change: Thanks for the question. We really don't comment on acquisitions or our posture on that. I mean, we have a good partnership actually with Blue Cross Blue Shield of Louisiana.

Speaker Change: We work with them closely in Medicaid and some of the duals in Medicare and a number of products in Carillon. So with many of our blue partners, which you've heard us talk about, we continue to provide services because we have some really unique capabilities. Let me ask Pete to comment on your care bridge question.

Pete: Yeah, no, thanks a lot. I think, you know, your question in terms of what we're interested in, I always like to talk about, you know, strategy in terms of framing where our interests reside. And again, we've talked about that the strategy overall of Carolina is to deliver whole health.

Pete: We're really focused on affordability and empathy, and we face off with our health plan partners.

Pete: and really identify areas of complexity in health care and try to solve those with differentiated solutions and doing so at risk.

Pete: And you've seen that really play through in our transactions, be it on the pharmacy side or on the services side, and we'll continue, you know, down that path. So there are many areas of interest when you think about where specialty trend is, how that impacts the different lines of business.

the whole health experience.

Next question, please.

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

Speaker Change: seasonality for 2025 including how Q1 should look versus the full year and then on the health benefits 2025 op margin guidance

Speaker Change: looks like it's down year-over-year. You've talked of Medicaid being flat, Medicare being flat. Is that coming in commercial and maybe you can talk about what's driving that and the magnitude of it on the commercial side. Thanks.

Speaker Change: Justin, thanks very much for your question. Let me go ahead and start with the seasonality and then I'll talk a little about operating margins.

at the health benefit level after that.

Speaker Change: For seasonality, as you heard during our prepared remarks this morning, we do expect adjusted EPS to be weighted more towards the first half of the year, with slightly more than 60% of full-year earnings occurring in that period. And then within the first half, we anticipate a little bit more than half of those earnings.

Speaker Change: to then show up in the first quarter. And that reflects two things. One is, you know, typical seasonal dynamics, and then two is sort of our evolving business mix.

Speaker Change: in the first half of the year. And then with continued strong retention and disciplined pricing, we expect that's going to continue to be the same pattern in 2025.

Speaker Change: On Medicaid, margins are more back-end loaded, especially as rate updates from state partners take effect. That's our first half, second half story.

Speaker Change: And then, of course, we've also reflected the Inflation Reduction Act, Medicare Part D changes, and the benefit of a leap year in the first quarter. So a lot going on with seasonality, but let me point you to those early comments they made.

Speaker Change: On the operating margin expectations, we do expect that 25 to 50 basis points decline year over year. And there are a couple of discrete impacts outside of core operating performance, but in line with our expectations that I thought I would call out for you.

Speaker Change: The first is that we're going to be cycling the non-recurring expense benefits that we had in 2024. Second, we're going to get a little bit of membership mix impacts.

Speaker Change: through the slightly stronger relative growth in our Medicare lines of business compared to commercial, inclusive of the Medicare Part D design change. And then I would make the point sort of excluding those discrete impacts, you know, the margins across the health benefits businesses would have been stable.

Thank you. Next question, please.

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

Josh Raskin: Hi, thanks and good morning. Just within the 2025 guidance, can you speak to your expectation for commercial trend and what you priced for? And I just want to make sure I understand, are you still expecting margin improvement in commercial? I thought that was a previous expectation.

Josh Raskin: And then just on the MA side, I know the CMS data got rescinded, but it looked like your growth was already above.

Josh Raskin: you know slightly above the midpoint of full year guidance. I heard not a lot of growth the rest of the year. Could you just help us with the actions you've taken on the distribution side and maybe why you've taken some of those actions and if that's what's slowing the growth?

Josh Raskin: historical averages, but most importantly, you know, this is something that we've expected and we've accounted for.

in our pricing strategy.

Speaker Change: Morgan and Tina have taken a very disciplined approach between competitiveness and underwriting discipline.

Speaker Change: to ensure that those are priced for. It's a hard market. It's a very rational market. We feel very good about our balance of pricing and our forward-looking view of trends here. So, on the commercial side, certainly retention is strong, pricing is strong, margins remain robust.

Speaker Change: Thanks, Josh. I'll take the second part of your question, which is kind of...

Speaker Change: Part of this is, as you think about AEP, we expect the data to settle out over the next few months, so I think you'll have a better view of what AEP actually looked like.

Speaker Change: And then secondarily, just looking at our trajectory and our placement of our products in each of the businesses, and as you note, just duals and sort of that pace. That's why we feel very confident of the rest of the year growth. We still expect strong retention, but we don't expect any significant growth of new sales, for example, but other than a normal cadence, and we saw that cadence in 2024 as well.

Next question, please.

Speaker Change: Next, we'll go to the line of Dave Winley from Jeffries. Please go ahead.

Dave Winley: Thanks, thanks for taking my question. Good morning. A question on pricing, kind of a two-parter.

Dave Winley: guidance in commercial for ASO revenue or fee revenue flat your membership I think you're expecting up is there no pricing there and in Medicaid I hear you saying kind of stable MLR stable margin as we move into the early part

Dave Winley: of 2025. I think 50% of the book reprices on Jan 1, and so I'm just curious about what

Dave Winley: you know, the benefit or lack thereof from that price to actually move you into an improving pattern in your Medicaid margin. So pricing on Medicaid and ASO. Thanks.

Speaker Change: Okay, we'll try to address, there's a lot embedded in that question, maybe Mark first, then I'll ask some of the other colleagues here to join in on the rest of the answers. Mark?

Mark Kaye: We will record that premium rather than necessarily through the service fee line.

Felicia Norwood: Next will be Felicia to answer the other parts of your question. Yes, Dave, thank you for the question. You know, certainly, let me start by saying that

Felicia Norwood: We continue to be very focused on working tirelessly with our state partners to make sure that we are getting at fairly sound rates.

Felicia Norwood: When we take a look at our rating cycle, we have about 41% of our members tied to January, but then we have the rest of the rating year for the rest of our membership.

Felicia Norwood: At this point, we have visibility into about 70% of our premium.

Felicia Norwood: on the Medicaid side, and as you heard Mark mention earlier.

Felicia Norwood: January came in in line just with what we expected. Insufficient.

Felicia Norwood: but very constructive conversations and good work with our state partners. And then the July rates will be critical as well as we continue to close and narrow that gap.

Felicia Norwood: and expect to see strong improvement in the back half of the year in Medicaid.

Next question, please.

Speaker Change: Next, we'll go to the line of Joanne Gadjik from Bank of America. Please go ahead.

Joanne Gadjik: Hi, good morning. Thanks so much for taking the question. So, I was just looking at your slides and the slide that when you talk about the long-term CAGR targets, I noticed that you no longer seem to be targeting

Joanne Gadjik: to get to your margin 6.5%, 7% by 2027. So is that the way to read it? And also, I guess if that's the case, you know, when should we expect that to be achieved and what would need to happen really for the margins to get to that target? Thank you.

Joanna, great question and very sharp eyes.

Joanne Gadjik: and our goal is to deliver at least 12% average annual adjusted EPS growth. In other words, nothing has changed about our conviction in the significant embedded earnings power of our businesses.

What has evolved?

Joanne Gadjik: and specifically, you know, kill-on-growth is exceeding those original expectations and we're very pleased that the deliberate actions we've taken to enhance and deepen our risk-taking capabilities has led to an acceleration of this business. So putting it in numbers.

Joanne Gadjik: With today's 2025 revenue guidance, we anticipate Kellon services to grow at over a 30% CAGR since 2022.

Joanne Gadjik: And that's significantly above our original target range of high teens to low 20s.

Joanne Gadjik: And that's very positive for the earnings growth of Keylon, but it also shifts the near-term margin dynamics for those newer capabilities, right? Just given the normal time it's going to take for new deals to reach, for example, mature margin levels.

Joanne Gadjik: So in other words, you know, our earnings power remains strong, but the business mix and timing have changed. So I'd probably end here with, look, we remain confident in the embedded earnings power of the businesses. We'll provide a couple more details on Investor Day later this year, but this is a really representative of the change.

Thank you. Next question, please.

Speaker Change: Next we'll go to the line of Erin Wright from Morgan Stanley. Please go ahead.

Speaker Change: Great thing to follow up on Medicare Advantage I wanted to hear your thoughts on on the advanced rate notice and where it can go from here in terms of incorporating a catch-up period in the final rate notice and just

Speaker Change: bigger picture in light of that in the broader political environment, seems to be more supportive of MA, but how are you thinking about regulatory implications, I guess, across the rest of your business, and namely in Medicaid, where I guess there's a lot of questions and maybe there's no answer, but wanted to hear your initial thoughts. Thanks.

Speaker Change: Again, a very false question, Erin, we'll try to address that maybe, you know, directionally, we think, you know, it's positive, obviously it's preliminary, not final, I have Felicia share some more details on that, and we'll talk about sort of kind of how we're heading, so Felicia. Sure, Erin, thank you very much for that question. You know, we all have to keep in mind that, you know, benefit cherries choose Medicare Advantage for the value that it provides and it delivers. And over 34 million people in this country, older adults, [inaudible]

Speaker Change: persons with disabilities have proactively chosen MA. Race stability really helps us to continue to be able to provide the benefits that deliver high quality care that seniors value and depend on.

Speaker Change: Regarding the advance notice, you know, after two consecutive years of cuts to the MA program, we are very pleased to see the direction of the advance MA rate notice that came out earlier this month.

Speaker Change: Now, while the base rate reflects progress, I think, towards more adequate funding in the program.

Speaker Change: So, we look forward to working very collaboratively with the new administration in terms of our proposed recommendations on changes in the advance notice.

Speaker Change: particularly with respect to some of the reforms in the Part D risk model and other policies which we believe will improve the program long term.

Speaker Change: So we look forward to working with the administration over the next few weeks and months to make sure that the final notice advances a program that seniors in this country have certainly come to rely on.

Speaker Change: And Aaron, just briefly on your comments around sort of Medicaid and the environment there. Just a couple things. I mean, I think as you think about the deep expertise and the years that we've worked

Speaker Change: in this space. We have a long history across multiple administrations of providing critical benefits to our members and deep expertise particularly in working with the states.

Speaker Change: What I'd say we're really looking forward to is a public-private partnership.

Speaker Change: where we can work with our states and the government to bring innovative programs that we think can really benefit these members and I think provide even better value. So, we're, you know, again, it's early. There are no firm proposals. There's a lot of different discussion, but I think we're approaching this in the public-private partnership and also a long history of working across this for many, many years. Thank you. Next question, please.

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

Speaker Change: We see, you know, a continued driver of the elevated cost trend come from a couple of key categories, for example, some of the inpatient medical, a little bit of outpatient ER.

Speaker Change: But for the most part, developed exactly in line with what we expect, and I'd say the same for 2025. You know, our repricing initiatives are ongoing. We'll look to continue to expand margin via mix and penetration of some of the specialty products, but we feel very good about how we're positioned.

Speaker Change: Thank you, Mark. And just reiterating, I mean, we feel very good that we priced. It's a hardened market in commercial and have seen really strong results across our commercial business. So thank you for that question.

Next question, please.

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

Mark Kaye: subsidies as part of the upcoming political cycle. And then part two, Mark, is kind of a nuanced one.

George Hill: What percent of your exchange members have actually paid the January premiums relative to what you guys have experienced last year, given that the government's turned the income verification back on, kind of expecting a change in what people actually show up and pay the premiums. Any call would be helpful.

Gail Boudreaux: Let me have Morgan address your first question and then Mark your second. So, Morgan? So, George, thanks for the question there. First of all, we're really pleased with the commercial ACA performance.

Gail Boudreaux: That business has turned out to be quite a good one, and as you've noticed over the past several years, we've taken a very prudent, methodical approach to getting into various markets and actually growing that slowly. It's one where, you know, we've seen the trends as they are, they've been priced for.

Gail Boudreaux: This year we're particularly pleased with the fact that we've expanded into non-blue geographies and three additional markets. So we really look at this.

Gail Boudreaux: is an overall white space. Certainly, there's the opportunity to, you know, have a reduction in the actual subsidies or elimination, which would certainly shrink the market of some sorts if, indeed, that occurs. That said, we absolutely believe that this is a really, really solid market for us. We like the business. It's a complementary business for us in taking risks.

Mark Kaye: and it certainly created a promising white space for long-term growth as we continue to kind of create that harmonious connection between CARE, CAVE, and ACA. So it brings together both government and health benefits or commercial benefits, and I'll pass it to Mark for the balance of your question.

Speaker Change: George, thanks. At this time, you know, there's really no change in our effectuation rates. We're being a little bit conservative in the assumptions. I'd say the effectuation is being very consistent with what we've observed in prior years. And our guidance for membership growth that we released this morning incorporates those assumptions.

Speaker Change: of a subsidy, so it doesn't have to be an all-or-nothing decision. Adjustments can include, you know, full extension or partial. So just as we go through this process, we're obviously sharing, you know, the value that these subsidies have for our members and the impact it has to them. Next question, please.

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

Scott Fidel: I want to just get a clarification and then a question. The clarification would be I appreciate Mark's comments on the operating margin dynamics for Carillon by 27. I was hoping maybe, Mark, if you could also just elaborate on health benefits and whether those margin targets are still intact for 27 or have evolved.

Scott Fidel: And then also was just curious if you guys can give us the breakdown in the commercial risk enrollment growth guidance between commercial group and the exchanges. Thanks.

Thank you.

Scott Fidel: Thank you very much for the question this morning, Scott. Just on the health benefit margin, so again, maybe just to reiterate some of the important points from my prior commentary, so our long-term vision and margin objectives for health benefits business haven't changed.

Scott Fidel: And, you know, we do remain confident in the earnings power that's embedded in these health businesses and the growth they continue to drive for Careline.

Scott Fidel: In the interim, the change we made this quarter based in part on investor feedback was really to reflect the foster than projected, and I spoke about this a minute ago, the positive growth that we've delivered across the Kailon businesses.

and investments come together to support those long-term target margins.

Speaker Change: We'll provide more details at this year's Investor Conference about where we stand with that, and you'll hear more about the growth opportunities at that time. Yeah. Thanks, Mark. And again, you know, I guess our key message is we believe that there's really strong embedded earnings power, and Caroline has really accelerated that as well.

Scott Fidel: So that's really the message that we are trying to share today. Next question, please.

Speaker Change: Next we'll go to the line of Michael Ha from Bayard. Please go ahead.

Michael Ha: Thank you. I wanted to revisit AJ's question and ask it in a bit of a different way.

25 MA Growth Guide, Healthy Growth.

and Line of Activitations.

averting the worst-case high-grip scenarios that investors had.

Speaker Change: With that said, for the investors who may still push back and say, okay, Elevance only achieved this healthy growth level through aggressive plan suppression tactics and that the company still mispriced the business, curious to hear your response to that. I know you're still very confident, but given this context, I'm trying to get a better sense of your level of conviction and confidence on MA Martins this year. Thank you.

Speaker Change: Thank you for the question. I guess sort of just to level set kind of our view, I mean, obviously we were very specific around wanting to target certain types of growth by marketplace, geography, and product.

Speaker Change: as well as continue our growth in our strong duals business.

Speaker Change: So I guess I would reframe the answer to your question is we had really good retention and that in our individual Medicare Advantage book I think has positioned us quite well for sustainable long-term growth. So we feel all of this actually plays into our long-term strategy. We're being prudent.

Speaker Change: around where Medicare is going as Mark shared in sort of our guide around trend and want to make sure that we position that business the right way.

Speaker Change: And I think that is an inherent part of our strategy in Group MA, is to convert those members over. And we did that this year and we're really pleased with it. And we saw some stronger growth because of...

Speaker Change: the strength of the brand that we have with that customer. And again, the strong service we've delivered to this customer for many, many years. So I guess my positioning is we feel quite good about where we said we were going to guide for growth, we're ending on growth, and it is the right alignment of product and geography to match where our capabilities are.

Next question, please.

Whit Mayo: And for our last question, we'll go to the line of Whit Mayo from the Ring Partners. Please go ahead.

Whit Mayo: Thanks. I just wanted to get a quick update on the performance of your Puerto Rico MA business. How did that perform last year versus your targets and what are you thinking about growth and margins this year and whether or not that's driving any contribution to the views on stabilization and overall MA margins. Thanks.

Felicia Norwood: Well, Felicia addressed that. Thank you. So, good morning, Whit, and thank you so much for the question. As you know, as we headed into AEP of 2024, we made some strategic decisions.

Felicia Norwood: with respect to our Puerto Rico business, making significant reductions in our supplemental benefits to make sure that over time, we were balancing margin and membership.

Felicia Norwood: and I will say that the success of that was very solid. We demonstrated our ability to be able to get to a place we needed to, stabilizing that environment. It worked very well in 24 and we continued that same strategy as we headed into 2025.

Felicia Norwood: So we feel very well about how we are strategically positioned in Puerto Rico and look forward to continuing to make sure that we deliver value to the community.

Felicia Norwood: residents of Puerto Rico in the M.A. program. So thank you very much for that question. Thank you, Witt, and that'll be our last question. I want to thank everyone for joining us on the line today and for your continued interest and support in Elevance Health.

Felicia Norwood: We entered 25 resolute in our efforts to make the healthcare system simple, affordable, and accessible for our members. And we're confident that our actions will ensure meaningful impact in 2025 and position the business to return to our long-term growth algorithms over time.

Felicia Norwood: Thank you so much again for your interest in Elevance Health, and have a great rest of your week.

Speaker Change: Ladies and gentlemen, a recording of this conference will be available for replay after 11 a.m. today through February 23rd, 2025. You may access the replay system at any time by dialing 866.