The operator introduces the Elevance Health third quarter earnings conference call and provides instructions for the question-and-answer portion. The company's management, including the President and CEO, CFO, and other executives, will discuss the quarter's progress and financial results. Non-GAAP measures and forward-looking statements will also be mentioned, along with a reminder to review risk factors.

Elevance Health had a strong third quarter, with GAAP earnings per share of $5.45 and adjusted earnings per share of $8.99, a 20% increase from the previous year. The company's diversified portfolio and focus on delivering whole health solutions has contributed to their success. They have increased their guidance for adjusted earnings per share for 2023 and remain committed to their long-term target growth rate. The Health Benefits division had robust results, with a focus on optimizing their businesses and responding to a changing business environment. They are on track to achieve pre-pandemic operating margins and retain customers through 2024.

The company is delivering differentiated value in the employer market through affordability, experience, and simplicity. They have become the sole source medical benefits provider for 32 national clients and are seeing employers move towards selecting them as their strategic partner for all medical benefits. The advocacy solutions business is also seeing growth with 37 new clients and 550,000 members. In the individual market, the company is experiencing strong growth in plans that offer affordable and comprehensive coverage. Their individual membership has grown by 27% and their growth rate in the ACA market is triple that of their competitors. The government business has also had a strong quarter, but is facing a membership headwind due to the pace of Medicaid redeterminations.

The company is facing challenges with Medicaid beneficiaries being terminated for administrative reasons, with many of them being under 18 years old. They are working with state partners to ensure continuity of coverage and are seeing some success in re-enrollment. In Medicare, they are disappointed with their Stars performance for the upcoming year and are investing in improvements in service, product, network access, and operations to improve their ratings.

In July of this year, the company launched a new program called My Health Advocate, which is a personalized customer service model for Medicare eligible consumers. The company has also made enhancements to their core and supplemental benefits to reduce out-of-pocket costs for prescription medications and improve overall member satisfaction. They are actively pursuing options to mitigate financial impact in 2025 and have seen strong growth in their Carelon Services, particularly in post-acute care management. The company has also expanded their services in areas such as durable medical equipment and wound care.

CarelonRx is making progress towards launching new capabilities that will improve the affordability and experience of pharmacy for members and customers. These include EnsureRx, an integrated benefit that compares the cost of covered generic medications and applies the lowest cost at any pharmacy. The program will also capture claim data to ensure safety. The integration of BioPlus is ahead of schedule and specialty scripts will be migrated next year. The advanced home delivery capability will also be launched in the fourth quarter. The company also took proactive steps to increase financial and operational flexibility and remain well-positioned to deliver on commitments to stakeholders. This included a strategic review to identify opportunities for efficiency and focus.

The company is focusing on workforce and asset optimization to become more efficient and agile. They are also investing in new technologies, such as HealthOS and AI, to improve member experiences and automate administrative tasks. The company is committed to continuous improvement and is confident in their ability to acquire Blue Cross and Blue Shield of Louisiana. They are addressing any remaining concerns with local regulators and stakeholders.

The deal offers great value for the people of Louisiana and the company is confident in their ability to deliver strong growth in adjusted earnings per share in 2024. The company was recently recognized as one of America's greatest workplaces and the number one best large workplace in healthcare. The company's strong operating results are driven by the dedication and hard work of their associates. The company's outlook for adjusted earnings per share in 2023 has been increased to be greater than $33, reflecting their long-term compound annual target of 12% to 15%. The company plans to make investments in the fourth quarter to support growth in Medicare Advantage in 2024 and beyond.

Elevance Health's earnings per share is expected to have a compound annual growth rate of 16%, the highest in the sector. The company ended the third quarter with 47.3 million members, with a year-over-year increase of 42,000 members. Medical membership declined due to eligibility redeterminations and a new entrant in one state program. However, many consumers are returning to Medicaid and transitioning to ACA exchange plans. Operating revenue for the third quarter increased by 7.2%, driven by rate increases and growth in CarelonRx. The consolidated benefit expense ratio improved by 40 basis points due to premium rate adjustments and strong performance in the government business. The company also announced a business optimization charge as part of their results.

During the quarter, the company took action to improve efficiency and focus their investments, resulting in a $700 million charge for business optimization. This will lead to annual savings of $750 million, which will be reinvested in growth opportunities. The adjusted operating expense ratio decreased by 30 basis points compared to the previous year, but excluding out-of-period expenses, it remained unchanged. The Health Benefits business saw double-digit growth and improved operating margin due to optimized premium rates and efficiency improvements.

Carelon had a strong quarter with growth in pharmacy customers and the acquisition of BioPlus leading to a 17.5% revenue increase. Operating earnings were also strong, driven by investments in specialty pharmacy and home delivery capabilities. The debt-to-capital ratio was in line with expectations and the company repurchased a significant amount of shares. Reserves remain prudent and days in claims payable are expected to normalize in the coming quarters. Operating cash flow was two times net income in the third quarter.

The company's operating cash flow would have been strong if not for a business optimization charge. They plan to make additional investments in Medicare Advantage and customer satisfaction to support future growth. Despite disappointment in recent Star quality ratings, they are committed to this line of business and are exploring options to mitigate financial impact in 2025. Looking ahead to 2024, the company expects tailwinds such as optimizing their health benefits business, improving Medicare earnings, and growth in Carelon. They also plan to enhance operating efficiency and transform their cost structure in the long term.

The company expects growth in investment income due to higher interest rates, but this will be offset by membership attrition in the Medicaid business. They will closely monitor and manage these risks and anticipate a return to growth in 2025. The company is confident in their near-term outlook and long-term growth commitments, and the current consensus estimate for 2024 is appropriate. The CFO will be stepping down after 29 years of service. The company remains committed to serving their members and meeting shareholder commitments.

The speaker expresses confidence in the company's ability to overcome challenges and praises the leadership team. They thank the audience for their support and announce their retirement in the first quarter of next year. A question is asked about the commercial margin improvement and the speaker mentions the strong performance of the health benefits businesses.

The company is on track to improve its health benefit segment margins by 30 to 60 basis points year-over-year. They are not providing specific margin information for individual lines of business, but expect continued improvement in commercial margins through their strategy of aligning pricing with costs and increasing penetration in fee-based businesses. The team has done a good job balancing membership retention and margin improvement in the commercial business. The company is also focused on improving Star scores in the Medicare business and is investing to get back to previous levels, but no specific timeline or magnitude of investments has been given.

Gail Boudreaux, CEO of Anthem, addresses concerns about the recent decline in their star ratings for Medicare Advantage plans. She states that improving stars is a top priority for the company and they are committed to offering high-quality plans for seniors. However, they experienced declines in CAP survey scores and were also impacted by a new CMS statistical methodology. Boudreaux mentions that they have already begun making investments to improve their performance, such as scaling the My Health Advocate model which has been successful in their commercial business.

The company is focused on enhancing benefits to reduce members' out-of-pocket costs and simplifying the use of over-the-counter benefits. They are also accelerating their value-based care journey and mitigating the impact of reduced quality bonus revenue in 2025. The company is confident in their earnings growth due to their diversified business model. The next question is about the front-loaded disenrollment trends in Medicaid.

Gail Boudreaux, CEO of a healthcare company, was asked about the current trend in membership and acuity mix. She explained that the Medicaid disenrollment has been front-loaded and that they are seeing a lot of administrative churn, with people losing and then reenrolling in coverage. This was not expected, but they still believe they will retain 40-45% of Medicaid members who received coverage during the PHE. On the commercial side, they are seeing strong growth in individual ACA memberships.

The paragraph discusses the impact of redeterminations on ACA products and employer-sponsored plans. It mentions that applications for ACA products have increased three times since redeterminations began, while employer-sponsored plans have slowed down. The speaker believes that by the third quarter of 2024, their initial estimates will prove to be accurate. In regards to Medicaid, the company has not seen much normalization of margins in 2023 due to good rate updates from states. However, they continue to perform well and are in line with expectations.

The speaker reiterates that there is an acuity factor in the rating formulas that was not in place in 2019, making comparisons to that year irrelevant. They are closely monitoring changes in acuity and have had productive conversations with states for renewals. They believe they can continue to deliver on Medicaid with actuarially sound rates. The next question is about efforts to mitigate headwinds in MA through contract diversification and the timeline for getting state approvals.

The speaker reiterates the importance of the acuity factor in rating formulas and the close monitoring of changes in acuity. They have had productive conversations with states for renewals and believe they can continue to deliver on Medicaid with actuarially sound rates. The next question is about mitigating headwinds in MA through contract diversification and the timeline for state approvals.

Gail Boudreaux, CEO of the company, is responding to a question about the company's plan for contract diversification in light of potential changes in the Star rating system for Medicare Advantage plans. She explains that the company has a variety of tools at its disposal to mitigate any potential impact, and that contract diversification is just one of those tools. She also mentions that about one-third of the members affected are in group contracts, which could potentially be moved to a 4-Star contract. Boudreaux emphasizes that this is just one aspect of the company's overall efforts to address the issue, and that it is a top priority for the company. The next question is about the company's recent cost-cutting measures, and Boudreaux provides more context for these actions. She explains that the company is always evaluating its cost structure, and that they took proactive and decisive action in the third quarter of 2024. These cost-cutting measures will not only help the company deliver lower costs to customers, but also address uncertainty in 2024. She also mentions that the company has made technology investments as part of these cost-cutting measures. Boudreaux is confident that the company will continue to find significant savings to offset any potential impact of the Stars system in 2025.

The company has made a charge to increase financial and operational flexibility and fulfill commitments to stakeholders. This charge focuses on cost management in three areas: modernizing infrastructure, workforce adjustments, and streamlining processes. The first part involves replacing legacy processes with digital and AI capabilities, while the second part includes eliminating redundancies and streamlining processes to improve member experiences. These changes align with the company's strategy to allow members to move between different benefit businesses.

The company has been investing in technology to automate work and optimize their cost structure. As part of this, they have made changes to their workforce and work sites, resulting in approximately $700 million of charges and a run rate of $750 million. They believe this is important for their long-term growth and affordability in healthcare. During the Medicaid redetermination process, they have seen some recapture of terminated members, but it is still too early to have definitive data. They also expect to see a 30% recapture rate in ACA plans maturing in 2024, but there may also be an increase in people seeking ACA plans in that year.

The company has seen a trend of 10% to 20% of members who lost coverage in Medicaid reenrolling with the company in the third quarter. This trend is expected to continue, but there are gaps in coverage for some members. The company is seeing an opportunity for growth in their 14 Blue states, where they have a leading market share. The majority of disenrollments are due to administrative reasons and involve children under 18. The company is working closely with states to address these issues.

The speaker, John, mentions that there has been a positive trend of Medicaid members returning and retaining coverage with Elevance. They expect this trend to continue in the future. The company is adapting their methods to reach these members and is seeing growth in the individual business. The next question is about BioPlus and the speaker confirms that they will start migrating specialty scripts away from their legacy platform in early 2021. The question also addresses the company's efforts to improve their MA and STAR ratings, specifically in regards to CAP. The speaker mentions that they are working on addressing the underperformance, which may be attributed to providers. They are also working on driving their provider network to make necessary changes for improvement.

In the past year, the company has been focused on implementing and integrating BioPlus into their specialty strategy. They have been building the infrastructure and team to handle the Elevance Health volume and are confident in their ability to do so. They are accelerating their timeline for this and are excited about the launch on January 1. The company has also looked deeply into the drivers of their three contracts and found that easier navigation for members and progress in value-based care have helped. Appeals and grievances processes were also factors in the cut points being lower than expected. The company is confident in their strategies and believes their health navigator will make a significant impact.

The speaker discusses the importance of value-based care in Medicare Advantage and the progress being made in this area. They mention working with aggregators and embedding quality and outcome measures in contracts. They also highlight opportunities for specialty care, such as in oncology, musculoskeletal, and renal areas. The speaker believes their innovation, technology, and clinical expertise will be a differentiator in this space and help improve access to care for patients.

The speaker responds to a question about the company's strategy for its Carelon and benefits segments. They mention a focus on driving affordability and improving the member experience, particularly in regards to supplemental benefits and over-the-counter products. The speaker also discusses the company's approach to integrating Carelon and benefits, with a focus on high-cost areas of healthcare. They emphasize the importance of working with health plan partners to achieve these goals.

The company has identified specialty care as a key area for growth and differentiation. They plan to take full risk on high spend areas like oncology, MSK, and renal, and use their unregulated entity Carelon to drive earnings. They will also deploy these capabilities externally through their partnership with Elevance Health. The company also plans to expand their capabilities through M&A in order to handle highly specialized areas of care.

Gail Boudreaux thanks Pete for his question and summarizes the four major areas that Carelon is working on: pharmacy, care delivery, insights, and behavioral health. She also mentions the opportunity to provide greater certainty and cost management to their owned health businesses and externally commercialize their capabilities. She then answers a question about the CFO search and expresses excitement for Mark Kaye joining the team. She notes that Mark is an actuary by training and brings valuable insight to the business.

Gail Boudreaux and John have been working together on the transition, with John continuing as an adviser. The company is experiencing great growth and has a diverse business. Mark is joining the team and Felicia Norwood is excited about AEP and believes they will see growth above the market. The company made strategic decisions to exit certain markets and focus on others. They are confident in their positioning and believe they will see solid growth in 2024.

The speaker thanks everyone for their support and talks about their focus on whole health and their commitment to meeting the needs of clients, consumers, and communities. They also mention their goal of becoming a trusted health partner and thank everyone for their interest in Elevance Health. A recording of the conference will be available for replay and the operator provides information for accessing it. The conference ends and participants may disconnect.

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