The operator introduces the Humana Third Quarter 2023 Earnings Call and hands it over to Lisa Stoner, Vice President of Investor Relations. She introduces Bruce Broussard, President and CEO, and Susan Diamond, CFO, who will discuss the company's third quarter results and financial outlook for 2023. The call is being recorded for replay and participants are advised to read the cautionary statement regarding forward-looking statements. The company's press release, financial news releases, and SEC filings are available on their Investor Relations site.

The speaker, Bruce Broussard, discusses Humana's financial results for the third quarter of 2023, including adjusted earnings per share and membership growth. He mentions outperformance in Medicaid and primary care, as well as a focus on operating efficiencies. He also reaffirms the company's full year guidance and raises their estimate for individual MA membership growth. Broussard credits the company's strength and scale for their ability to achieve both earnings growth and membership growth. He concludes by mentioning their 2025 adjusted EPS target.

The speaker provides an update on the company's operations and outlook, focusing on their Medicare Advantage business. They discuss their strategy for the 2024 bids, which includes preserving key benefits and differentiating offerings to improve health outcomes and member experience. They also mention their high quality and experience ratings, with 94% of members enrolled in plans rated 4 stars or higher.

Humana has received high ratings and recognition for their Medicare Advantage plans, with a perfect 5-star rating for contracts covering 790,000 members and top rankings for customer quality and satisfaction. They are also investing in their omnichannel strategy and expect strong growth in their internal sales and payer agnostic channels. Overall, they anticipate their 2024 individual MA membership to be at or above the industry growth rate.

The primary care platform within the center well segment experienced significant growth in the quarter, with a 33% increase in centers and a 17% increase in patients. This growth was partially due to the acquisition of 24 centers from Kanav Health, with plans to consolidate and integrate them by the end of the year. The company is also focused on productivity efforts, including centralizing and streamlining administrative functions, standardizing clinic operations, and improving clinician productivity. These efforts aim to mitigate the impact of upcoming risk model changes and improve patient outcomes.

The company is implementing initiatives to improve their home health operations, including automation, consolidation, and technology solutions. One example is the use of AI-enabled digital wound management, which has led to improved efficiency and accelerated wound healing time. They are also investing in digital channels for their pharmacy, resulting in a significant increase in scripts received through these channels. The company is committed to identifying additional sources of value through cost savings and streamlining their real estate portfolio.

The company has identified operations to consolidate and improve their IT portfolio, which will result in one-time charges but will ultimately drive sustainable value for the enterprise. They also announced a leadership transition plan, with a new COO joining in 2024 and the current CEO stepping down at that time. The new COO is described as a good fit for the company's culture.

Jim, the new CEO, has a strong background in both operational industry and CEO expertise. His experience will be valuable in leading the company through challenges and helping them accelerate their integrated care strategy. Susan, the speaker, then goes on to discuss the company's financial performance in the third quarter, which was slightly above initial expectations. She mentions the company's ability to navigate higher-than-expected utilization and drive individual Medicare Advantage membership growth. The company has reaffirmed its adjusted EPS guidance for the full year, and Susan provides more details on their performance and outlook by segment, starting with the insurance segment. The insurance segment's benefit ratio exceeded expectations due to higher medical costs in the Medicare Advantage business, which was impacted by an increase in COVID admissions in the third quarter.

The company has not seen any significant changes in non-COVID utilization trends. They expect higher levels of utilization to continue for the rest of the year and are increasing their full year insurance segment benefit ratio guidance. This is due to increased individual MA membership growth, which includes a higher proportion of agents. The Medicaid business exceeded expectations due to favorable membership and cost management initiatives. The CenterWell segment also performed well in the quarter.

The primary care organization had better-than-expected results due to increased patient volume and revenue, as well as lower utilization. Patient growth has exceeded expectations and is expected to continue to grow significantly. The organization has also improved patient outcomes and satisfaction, leading to an increase in contribution margin positive centers and centers meeting the $3 million contribution margin target.

The primary care earnings in the quarter were better than expected, resulting in a 100 basis point reduction in the consolidated benefit expense ratio. The company does not anticipate this outperformance to continue into the fourth quarter. In the home care business, episodic admissions are up 8.6% and total admissions are up 5.1%, in line with expectations. The company is working to offset industry headwinds through efficiency measures. They have completed $1 billion in share repurchases and plan to repurchase $1.5 billion in 2023. The company has also made significant progress towards their 2025 adjusted EPS target of $37, with a 40% CAGR expected largely from Medicare membership, operating leverage, and capital deployment.

The company is expecting continued growth and investment in their Medicaid and CenterWell businesses, while also outperforming their goals in membership growth and productivity. They have seen higher medical costs in their Medicare managed business, but are working to mitigate their impact. They remain committed to their 2025 adjusted EPS target of $37 and have an early outlook for 2024, expecting to grow Medicare Advantage membership at or above the industry rate with a slightly higher attrition rate due to benefit design changes. However, competitor plan designs may result in less opportunity for Humana to outpace the industry growth rate.

Humana's performance in the market is expected to be at or above industry average, based on positive feedback from brokers. The company expects membership growth in their Group Medicare Advantage business, driven by small and midsized account wins. However, the overall PDP market is declining as more Medicare beneficiaries choose Medicare Advantage. Humana remains disciplined in pricing their PDP products and expects a net decline of approximately 750,000 TEP members in 2024. This is due to the company's Walmart Value plan not being as competitively priced and their basic plan exceeding the low income benchmark in 16 regions. Humana will evaluate the impact of proposed regulatory changes, which could result in higher PDP claim premiums and potentially lead to more movement towards Medicare Advantage plans. The company's focus remains on increasing mail order penetration and conversions to Medicare Advantage to create enterprise value from their PDP plan.

Humana is focused on delivering unique value to communities through their integrated physical and behavioral health model and partnerships to address health and social disparities. They are expecting to grow their Medicaid business by serving members in Indiana and Oklahoma and anticipate growth in adjusted EPS for 2024, with a target of $37 for 2025. This growth will be supported by their robust individual MA membership, mitigation activities, capital deployment, and sustainable productivity and value creation initiatives. They also anticipate taking pricing actions in response to higher utilization trends. The company thanks their 65,000 employees for their hard work.

The speaker thanks shareholders for their support and reiterates the strength of Humana's fundamentals. They discuss outperformance in the physician business and explain that higher medical trends are impacting non-risk plans more than risk providers. They attribute this to product mix and geographic location.

The company's Primary Care sector has been outperforming this year due to various factors such as positive development in the previous year and current year, as well as increased revenue and medical costs. The company also receives information from an agnostic provider, which may cause a lag in reporting certain data. The company has increased its insurance company guidance by 20 basis points, which is partly due to an uptick in COVID cases during the quarter. However, COVID cases have started to decline and there has not been an offset to this increase in costs.

The company saw an increase in utilization in the quarter due to COVID, but they decided to remain conservative in their forecast and keep the expected cover in the fourth quarter. On the non-inpatient side, the drivers of the increase are consistent with previous quarters. The company is also getting positive feedback on their marketing and distribution strategies for the 2024 AEP, with a strong presence in different broker channels. They are making adjustments to drive new sales during the AEP.

The speaker discusses the company's positioning and satisfaction among customers. They have a balanced approach to marketing and have seen good results from their external field and agnostic channels. They are 2.5 weeks into AEP and are meeting expectations, but may make adjustments in a few weeks. In the previous quarter, they were comfortable with their expectations for '24 pricing, but given recent developments, they may need to reassess.

The speaker is responding to a question about the increase in utilization and enrollment growth that is impacting the medical loss ratio. They mention the need for offsetting efficiencies and how they will need to mitigate the trend in the future. They also mention their ongoing efforts to increase productivity and the impact of enrollment growth on the MLR.

The paragraph discusses the impact of pretax adjustments on the MLR and membership growth in the third year of a plan. The company will assess the composition and retention of new members to provide updated guidance for 2024. The question then shifts to the trajectory of CenterWell, which will be affected by MA growth and decline in PDP growth. The company previously shared that middleware penetration rates for these populations are lower, and losses in 2024 will be disproportionately low income due to exceeding the benchmark. These factors are being considered in the company's thinking for 2024.

The speaker discusses the impact of changes in Healthland and the pharmacy on the company's performance in 2024 and 2025. They mention changes such as DIR changes and relooking at formularies, which may affect drug mix and pricing. They also mention a membership shift and higher MLRs for new members, which is attributed to industry trends rather than company-specific factors. The speaker also mentions that the difference in MLRs between fully capitated and fee-for-service providers has not changed significantly in the last year.

The company is seeing higher utilization and consistent trends in the new and concurrent impacts. There has been no significant change in the progression of members in risk rides. The company anticipates industry growth to be high single digit and mentions benefit design changes impacting MLR. They have made investments in OTC and Flex benefits and are monitoring monthly utilization to see if it is accelerating over the year.

Bruce Broussard and Susan Diamond from the healthcare company, Humana, discussed their growth guidance and the impact of their investments on their pricing and medical loss ratio (MLR). They believe they will grow at or equal to the industry and have received positive feedback from brokers. However, they have adjusted their growth expectations due to increased utilization of benefits, particularly in flexible benefits and dental services. This increase is not due to selection, but rather existing members utilizing their benefits at a higher rate.

The cost per visit is increasing for dental and optometric services, which is leading to higher costs for procedures like dentures. The company has made adjustments to their benefit plans to account for this and will continue to monitor utilization. There is more pressure on PPO plans than HMO plans, and the company is seeing an increase in demand for PPO plans.

The speaker discusses the factors contributing to the company's lower margin profile, including the implementation of new plan designs and a mix of HMO and PPO products. They also mention the pressure on claims review processes for physician fees and the need for improvement in utilization management practices.

The company expects to see modestly higher attrition in 2024 due to changes in benefits and increased shopping behavior. This is factored into their 2025 target of $37 and will be monitored closely.

The company has seen increased attrition due to the current environment, but not because of any major changes in their distribution channels or benefits. They anticipate a challenging rate environment in 2024 and are taking steps to mitigate the impact, but expect to fully offset it by 2026. The risk adjustment model changes may also have an impact, but the company believes they will be on par with others in the industry and their strong Stars results give them a durable advantage.

The company is planning for 2025 and is committed to delivering $37 in earnings. They will continue to grow at or above the industry rate for Medicare Advantage membership. There are unique tailwinds in 2025 that will contribute to higher earnings, such as outsized membership growth and improved performance of new agents. The company has also seen favorable net investment income.

The company has seen improvements in certain areas and is focusing on productivity to mitigate near-term pressures. They expect to continue seeing more than 20 basis points of operating leverage and will also benefit from capital deployment. They plan to take discrete pricing action for 2025 to address spots that are driving less earnings progression than expected. This may impact membership, but they are confident in their ability to generate membership growth at or above the industry rate. The last question from an analyst was about the growth of agents this year and the company's expectations for next year.

The speaker thanks the employees and shareholders for their hard work and support, and mentions that they will provide a specific answer to a question at a later time.

The company's fundamentals are strong and they are dedicated to using their size and resources to overcome current challenges and continue with their strategy. They are also committed to reaching their adjusted EPS target of $37 by 2025, with a projected growth rate of 14% annually. The conference call has now ended.

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