The operator introduces the Humana First Quarter 2024 Earnings Call and hands it over to Lisa Stoner, Vice President of Investor Relations. Bruce Broussard, Humana's CEO, and Jim Rechtin, Humana's President and COO, will give brief remarks, followed by a Q&A session with Susan Diamond, Humana's CFO. The operator advises participants of the cautionary statement and reminds them to read the detailed risk factors in Humana's SEC filings. Non-GAAP financial measures will be discussed and reconciliations will be included in the press release.

The conference call will focus on Q&A and is being recorded for replay. CEO Bruce Broussard highlights the company's solid start to 2024 and reaffirms their full year adjusted EPS guidance. Early medical cost trend indicators and patient growth in their primary care business are positive. The company is also proud of their continued success expanding their Medicaid platform. While the industry is facing challenges, the company remains confident in the strong fundamentals and growth outlook of the MA industry.

The company expects negative impacts on benefit levels, stability, and choice for seniors in 2025 due to the final MA rate notice not addressing current cost trends and regulatory changes. The company no longer believes their previous target range for adjusted EPS growth is appropriate and will focus on margin recovery and profitable growth through pricing actions. The 2025 adjusted EPS growth outlook will be impacted by various variables, and the company will provide updates on their bid strategy and competitor plans later in the year. The company believes there is bipartisan support for the MA program and that the fundamentals and growth outlook for MA and value-based care remain strong.

Humana's platform, focus on MA, and expanding CenterWell capabilities will allow them to compete effectively and deliver shareholder value. The outlook for Humana and the MA industry remains strong, despite current challenges. The company is committed to pricing discipline and margin recovery in the upcoming bid cycle. They are actively evaluating plan level pricing decisions and opportunities to drive productivity. The company will continue to provide updates on their performance and outlook throughout the year. The first question from a caller on the earnings call was about any changes in cost trends compared to the previous quarter.

In the prepared remarks, the company believes they took a conservative approach to reserving given the change in healthcare situation. They have good visibility to inpatient utilization, but are more dependent on claims for non-inpatient costs. In the fourth quarter, there was an unexpected uptick in inpatient utilization, which was believed to be related to the expected rule changes. In the first quarter, there was slightly higher inpatient utilization, but it improved week to week and was in line with expectations for the full quarter.

The company is cautiously optimistic about their first quarter results, but acknowledges that there is still limited visibility into future trends and costs. They are closely monitoring prior year development and have seen positive results so far, particularly in the third quarter. They have made an explicit adjustment for claims that were impacted by the change healthcare disruption, but have also added additional reserves for conservatism. They will continue to monitor and update investors on any developments throughout the year. An analyst from Bank of America has a question about the company's first quarter results.

Susan Diamond of Humana discusses the company's focus on maximizing enterprise margin and the potential for a 3% plus margin in the individual Medicare Advantage market. She also mentions the potential for higher margins if the industry normalizes to a higher level. The company is also looking to further penetrate their CenterWell capabilities for additional growth opportunities.

The speaker discusses the potential impact of creating differentiated experiences for members on claim satisfaction, patient satisfaction, and engagement. They remain optimistic about the long-term potential, but acknowledge that reaching a minimum 3% health plan margin will take longer than expected due to the final rate notice. The speaker also confirms that TBC is now more relevant to margin recovery in 2025 and that the final rate notice has affected the $6 to $10 earnings growth bridge. They will be evaluating plan and county exits where TBC limits impede their ability to price products at a reasonable margin.

The speaker discusses the company's strategy for optimizing benefit changes and improving margins in the competitive bidding process. They mention that they cannot share specific details at the moment, but will provide more information after the bids are finalized. They also mention that the final rate notice and competitor reactions will impact their ability to deliver for 2025 earnings. The speaker also notes that they do not have the TBC threshold for 2025, which could impact their margin progression. The next question is about the 3% margin target and whether it includes investment income. The speaker confirms that it does not include investment income and clarifies that the previous assumption was for a 3.5% individual MA margin within the $37 target.

The speaker discusses the key factors that will impact the company's margins and profitability, including Medicare Advantage membership, productivity and efficiency, investment income, and projected benefit changes. They also mention the potential impact of claim trend development on future years.

The company is expecting a positive impact from changes in membership going into the next year, with the final rate notice and expected changes being important factors. Plan mix and membership decline in certain areas may also affect the company's results. They are anticipating membership losses and have strategies in place to address them. The largest impact will be on the pharmacy business, which is sensitive to mix and consumer behavior.

The company will continue to monitor the impact of pharmacy and focus on the impact on primary care and home care. They will also consider making changes to benefits outside of TBC, but will only do so if it is financially sustainable and can drive profitable growth. They will also make sure that their products are properly positioned.

The company has taken measures to address the higher mix of short-stay inpatient volume versus observation stays seen earlier in the year, including training and other measures. This may have contributed to outperformance in their APT performance for the quarter and could continue to do so through the rest of the year. The increase in short stays was expected due to changes in the 2-midnight rule, and the company saw this trend continue in the quarter. Initially, avoidance rates were lower than expected, but the company has taken steps to address this.

The company saw improvement in utilization rates as their staff became accustomed to new rules, resulting in a largely in-line first quarter. They will continue to evaluate the resulting unit cost of higher incremental APTs, which could potentially be a tailwind for the year. The changes to physician payments presented a headwind, but the company is confident they can cover it through administrative savings. They are cautiously optimistic about what they are seeing on the individual MA side, but will need to further evaluate paid claims for unit cost perspective and non-inpatient trends.

A.J. Rice from UBS asks about the company's ability to improve margins in the coming years and if their outlook has changed due to recent developments. Susan Diamond responds that they still expect a gradual recovery to their 3% margin goal, but it may take longer than expected due to external factors. She also mentions that the final rate notice has affected their previous expectations for margin recovery in 2025.

In 2025, there will be limited margin recovery due to the 1/3 phase-in of V28, changes in Part D, and higher-than-expected medical costs. In 2026, there will be less headwinds and more room for pricing actions to recover margins. After 2026, there will be further opportunities for margin recovery. The company also saw favorable operating expenses for the quarter, some of which will continue for the year, while others were one-time or timing related.

The speaker discusses the timing and pacing of expenses, particularly in marketing, and how they may not recur or even reverse out throughout the year. They expect overall positive results for the year, but it wouldn't be appropriate to fully run rate the first quarter. The next question is about the value proposition for seniors in Medicare Advantage (MA) and traditional Medicare in 2025. The speaker acknowledges that there are challenges to the MA value prop due to reimbursement outlook, but also notes that seniors in traditional Medicare may face headwinds due to IRA impacts on Part D and potentially higher utilization leading to higher rate increases in Medicare Supplement. There is a contrast between CMS's statement about not seeing utilization rising in Medicare fee-for-service and what is seen in the marketplace. The question is whether MA enrollment growth relative to traditional Medicare may not necessarily moderate as much as feared due to these headwinds, or if the headwinds in MA are significant enough to cause moderation.

The value proposition for Medicare Advantage (MA) to MA is significant due to the economic benefits and additional benefits such as care coordination and dental coverage. Analysis shows that the value proposition will continue to grow, although it may be slightly less than it is currently. The disruption in the healthcare industry has had a larger impact on Medicare supplement (MedSup) plans compared to MA plans. The changes in healthcare for 2025 will also affect Part D plans, with varying degrees of impact depending on the plan.

The company believes that the Medicare Advantage (MA) industry will continue to see mid-single-digit growth in the coming years, driven by demographic growth and increased penetration of MA plans. This is due to the strong value proposition of MA plans, with additional benefits and strong actuarial value. The company expects to maintain a 3% industry margin, which is in line with industry standards. The company is not providing specific estimates on how many members will be affected by market exits, but only a small percentage of its membership is in areas being considered for exits. The company believes this will not have a significant impact on its overall membership.

Susan Diamond discusses the company's 3% margin and how it is a sustainable and reasonable level, considering the risks and regulatory capital in the insurance business. She also mentions that other national peers have similar long-term targets. She believes that the current environment will eventually lead to a return to this margin, but there may be some challenges to navigate in the near future. She also declines to comment on market exits until after the bid filing.

Bruce Broussard discusses the return on capital for the company, stating that with a 10% statutory capital and a 3% margin, there is a significant return on capital. He also mentions that this growth is organic and not through acquisitions. The next question from Nathan Rich asks about utilization and potential changes in patient acuity, as well as the EPS seasonality for the year. Susan Diamond responds that there is no significant seasonality impact and that the first quarter is in line with expectations.

The speaker discusses the impact of utilization management changes on acuity and unit costs, stating that it is too early to fully evaluate the effects. They also mention that there are no major concerns with acuity, but there is limited visibility due to recent disruptions in claims submissions. The speaker then explains the seasonal differences in EPS, attributing them to a lower proportion of MA insurance business in the first half of the year. They also mention that admin has some seasonality, but nothing unusual. The only difference this year is a positive impact on commissions due to lower enrollment. The speaker concludes by stating that these factors will be taken into consideration in their planning.

During the open enrollment period, the company saw higher membership growth than expected due to competitors' challenges, strong brand reputation, and increased sales in non-D-SNP plans. Retention was in line with expectations, and the increase was mainly driven by agents and switchers from other MA plans. The progression for the rest of the year will also be impacted by ongoing redeterminations.

The CEO transition at the company will not result in any changes to the leadership team. They are still evaluating opportunities for value creation and expect to have more information by the end of the year. The company is also evaluating changes to their bid strategy and will provide an update either in a separate press release or in their Q2 report.

The speaker discusses the impact of IRA changes on the company's stand-alone Part D strategy. They mention a higher market share of conversions from Humana PDP to MA and a focus on risk mitigation for 2025. They also mention potential premium increases for some Part D plans and the possibility of driving more opportunity for MA.

During an earnings call, Humana executives discussed their bid strategy and mentioned that they will likely provide an update on it during the second quarter call. They also acknowledged the challenges facing the Medicare Advantage industry, but expressed confidence in their company's strong fundamentals and ability to compete and deliver returns. The call concluded with a thank you to participants and an invitation to disconnect.

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