The Elevance Health Second Quarter Earnings Conference Call has begun, with Steve Tanal, the Vice President of Investor Relations, introducing the company's management. Gail Boudreaux, President and CEO, will begin the call by discussing the quarter and recent progress against the company's strategic initiatives, followed by John Gallina, CFO, who will discuss the financial results and outlook in greater detail. The team will then be available for Q&A and during the call, non-GAAP measures will be referenced. There are risks and uncertainties associated with the call and listeners are advised to review the risk factors discussed in the press release and SEC filings.

Elevance Health had a successful second quarter, with double-digit growth year-over-year and an increased outlook for the year. The Health Benefits business had particularly strong results, and the company is working to optimize products, pricing, and operations. To ensure continuity of coverage, Elevance Health is collaborating with state partners to contact over 1.5 million Medicaid members and educate them on the process of renewing coverage or enrolling in other plans. They are also utilizing a web-based digital decision support tool.

Carelon Services offers a tool that assesses eligibility for a variety of federal and state programs, including Medicaid, SNAP, housing, and childcare programs. Over half of the people using the tool qualify for commercial or Medicare coverage, and over 60% of those eligible for Medicaid are clicking through to their state site for recertification. Carelon is investing in integrating physical, behavioral, social, and pharmacy services to deliver whole health affordably, and is focused on connecting people to the care, support, and resources they need.

Carelon Behavioral Health has extended its leadership position through successful external business wins, and CarelonRx has grown nicely while investing in key value drivers. They are integrating the BioPlus Specialty Pharmacy and launching advanced home delivery by the end of 2023. Additionally, they have expanded their obstetrics practice consultants and quality incentive programs to additional markets, which have helped reduce pre-term births and low-birth weight deliveries and driven cost savings. These programs are now offered in 24 Medicaid and 11 commercial markets across the country.

Elevance Health is working with care provider partners to enable acute care in the home, which has been proven to reduce cost, readmissions, and time spent in bed. They have established partnerships with a number of health systems and are connected with over 1,700 hospitals. This has enabled value-based care and simplified common business practices, resulting in fewer requests for clinical information and fewer provider appeals. They are also harnessing an adaptive artificial intelligence solution to promote identification and access to whole health services during physical health procedures.

Elevance Health is using digital technologies to provide personalized care for members with chronic conditions, while also reducing the cost of care. They are also using large language models to assist their call center agents. The company is committed to environmental, social and governance frameworks, and they have been recognized for their efforts in emissions reductions. They are grateful to their associates for their hard work, which allows them to fulfill their purpose of improving the health of humanity.

John Gallina reported that the company had strong second quarter results and increased their adjusted earnings per share guidance to be greater than $32.85 in 2023. The medical membership declined by 135,000 members due to Medicaid eligibility redeterminations, but many of these consumers may re-enroll in Medicaid or ACA exchange plans. The company expects commercial membership growth to re-accelerate in the back half of this year and into 2024.

In the second quarter of 2021, Carelon saw strong growth with double digit top-line growth in CarelonRx and Carelon Services. The consolidated benefit expense ratio improved year-over-year and was driven by premium rate adjustments in the commercial risk-based business. Carelon also expects 40-45% of new beneficiaries on Medicaid to stay on Medicaid. They are well-positioned to provide those who lose Medicaid coverage with alternative plan offerings. However, a new entrant into one of their state Medicaid programs will result in a loss of 140,000 members in that state.

Elevance Health's adjusted operating expense ratio decreased by 10 basis points year-over-year due to expense leverage associated with strong revenue growth. The Health Benefits business experienced double-digit top-line growth and strong margin improvement, expanding its operating margin by 50 basis points. Carelon also had a successful quarter with healthy top-line growth for CarelonRx and Carelon Services, and an out-of-period item that had the effect of decreasing its year-on-year operating earnings growth rate. Despite an adverse court ruling, Elevance Health is reiterating its outlook for the full year consolidated benefit expense ratio.

In the second quarter of 2023, the company ended with a debt to capital ratio of 39.6%, in line with expectations. During the quarter, they repurchased 1.4 million shares of their common stock for $646 million. Days and claims payable were at 46.5 days, an increase of 0.5 days sequentially and a decrease of 1.3 days year-over-year. Operating cash flow was approximately $2 billion or 1.1 times net income in the second quarter. Year-to-date, excluding an extra payment received from CMS, their operating cash flow was $4.9 billion or 1.3 times net income.

John Gallina thanked A.J. Rice for their question and provided clarity on the performance of the medical loss ratio line and the repricing of the commercial book. He then discussed the expectations of Medicare Advantage, commercial and Medicaid and how they are taking into account utilization when making their MA bids.

The company is pleased with their results for the second quarter, which follow strong results in the first quarter. They have already included the elevated cost structure into their pricing, projections, and guidance. As a result, there is nothing surprising or different from their expectations. They raised their guidance by $0.15 and reaffirmed their original guidance for the full year 2023 benefit expense ratio, which falls within their 12% to 15% compound annual long-term growth rate target.

Gail Boudreaux and Peter Haytaian discussed Carelon and how it relates to re-contracting for PBM. They discussed their strategy of managing high cost and high trends areas and capitating risk through Elevance Health. Internally, they have finalized the post-acute care initiative for 1.2 million Medicare members, launched a durable medical equipment offering, and insourced critical services such as genetic testing and oncology.

The company is seeing a lot of success with their internal initiatives, which is translating into external opportunities, particularly with the Blues. These opportunities include home solutions, post-acute care offerings, and payment integrity innovations. Additionally, the company is launching CarelonRx Pharmacy, which is connected to Sydney, their consumer engagement platform, and will offer convenient scheduling of medications.

Pete and Gail discussed how Carelon Services and CarelonRx are differentiating themselves with access to a pharmacist 24/7, an Uber-like experience for tracking delivery, and integrating physical and behavioral health as part of their whole health strategy. They also noted that they have priced for a trend that is higher than normal.

John Gallina reaffirms that the company has raised EPS guidance and MLR guidance for the year, and is expecting healthcare costs to be elevated compared to the baseline. He also notes that the Health Benefits segment has seen a 50 basis point year-over-year improvement in margins, which would have been higher had it not been for a court ruling they disagree with.

Gail Boudreaux and Felicia Norwood discussed the progress of Medicaid redeterminations and how the acuity mix shift is tracking relative to their expectations. They also spoke about the enrollment in Florida and Texas, and whether there would be any upside to their guidance due to mid-year rate renewals.

CMS has given states guidelines to redetermine eligibility over a 14-month period, and some states have front-loaded the process. Elevance Health is prepared to collaborate with their commercial partners to help members return to Medicaid, and the rates for 2023 and 2024 are in line with expectations. Acuity is being taken into consideration when setting rates.

Carelon Services saw an overall improvement in operating gains year-over-year, however there was a margin pressure due to higher medical cost trends and the non-recurrence of an out-of-period favorable adjustment from the previous year. Peter Haytaian explains that the higher medical cost is due to specific line items such as behavioral or Rx costs.

Gail Boudreaux asked the next question, to which George Hill from Deutsche Bank responded by inquiring about the changes to the risk model announced by CMS at the beginning of April. The company is confident in achieving the 25-50 basis points improvement in margins over the year, with the difference being attributed to seasonality and more business through the government sector. In terms of the one-time issue of pharmacy, the company is performing well with a 6-6.5% margin range, but there was a one-time favorable impact last year that is not being seen this year.

John Boudreaux of UnitedHealth Group commented on the potential for higher costs if the COVID-19 pandemic had not occurred. He suggested that there may be pent-up demand as a result of the pandemic. Felicia Norwood discussed how the risk model changes for 2024 were taken into account when making bids for Medicare Advantage. She also stated that UnitedHealth Group had submitted bids that balanced growth aspirations with respect to margins and sustainability for seniors.

John Gallina addresses Lisa's question about the impact of GLP-1 drugs on medical cost trends and CarelonRx. He explains that while there may be some pent-up demand for care in certain areas, the healthcare system was largely open for business in 2022 and the overall cost structure is increasing. He states that GLP-1 drugs are just one element of the overall trend conversation and that the trend is consistent with their expectations. He concludes that there may be a small upside on CarelonRx, but not enough to change the trajectory. Gail Boudreaux then calls for the next question.

John Gallina explains that the 40-45% of Medicaid redeterminations that they expect to keep is a reasonable expectation. He also notes that states that are not "Blue states" began their redeterminations earlier in the second quarter of 2023, leading to a heavier weighting of those states in the April and May timeframe.

Gail Boudreaux reported that they have high expectations for the number of people that will end up on employer sponsored plans, ACA products, or Medicaid. They have had success in contacting individuals and have seen encouraging early signs. They will continue to update their progress as they go through the process. In response to a question about the EPS split expected for 3Q versus 4Q, Boudreaux did not provide an answer.

John Gallina and Gail Boudreaux answer a question about the cost structure for medical costs in 2023 and their projections for 2024. They mention that they have raised their EPS guidance and are comfortable with the current consensus estimates for the third quarter. They also emphasize their consistent approach to pricing and their disciplined projection of costs.

Gail Boudreaux asked Morgan Kendrick, who leads the Commercial business, to comment on the outlook for commercial membership growth. Kendrick noted that their expectations for membership growth are in line with what was projected, but that the receipts were coming in slower and decisions were being made later due to the economic shift. He also mentioned that they have had a successful run for the past several years and that there are nuances to each cycle that should be noted.

In the past year, there has been a strong retention rate for the company, and their win share continues at the same rate despite a lower pipeline and case count. Additionally, employers are consolidating their benefit partners from multiple vendors to one, which has been accelerating in the last few years. CarelonRx margins were down sequentially from the first quarter, which was driven by BioPlus rolling in.

Pete Haytaian and Gail Boudreaux discussed the outlook for CarelonRx's pharmacy business, expecting margins to be flattish for the full year despite the inclusion of BioPlus. They also discussed the pricing of biosimilar Humira, expecting to include a biosimilar or biosimilars in a similar formulary position as Humira this year. Finally, they mentioned that the addition of BioPlus has enabled them to better manage specialty pharmacy holistically.

Elevance Health has had a successful year to date and is confident in its strategy for the rest of 2023 and beyond. The company is focused on providing whole health solutions and products to meet the needs of clients, consumers, and communities. A replay of the conference is available until August 18th, 2023.

This summary was generated with AI and may contain some inaccuracies.