The operator introduces the Elevance Health second quarter earnings conference call and reminds participants to ask only one question during the Q&A session. The company's management team, including the President and CEO, CFO, and Presidents of various business divisions, are present on the call. Non-GAAP measures and forward-looking statements will be discussed, and listeners are advised to review the risk factors. The CEO begins the call with a discussion of the quarter and progress on strategic initiatives, followed by the CFO who will provide financial results and outlook.

The company reported strong second quarter results, with 12% growth in adjusted diluted earnings per share. They have reaffirmed their full year guidance and are navigating industry-wide dynamics in their Medicaid business. The Health Benefits segment showed balance and resilience, with progress in their margin recovery initiative and strong membership growth. They have also had success in new business wins and re-procurement, including launching a program in their home state and winning a Kansas Medicaid RFP.

The paragraph discusses the progress made in Medicaid redeterminations, with a focus on proactive outreach to members and the shifting membership mix. It also mentions a recent ruling in Medicare that will help offset funding cuts and the company's disciplined approach to bids for 2025. The company is also working on scaling their Health Services businesses for growth.

In the fourth paragraph, the article discusses the strong growth in revenue and earnings for Carelon Services due to new business wins and expansion of services. The company is also investing in infrastructure and service levels to enhance consumer experiences for members. The company remains committed to its long-term growth potential and is making progress on its enterprise strategy to accelerate capabilities and services. The company's guidance for 2024 includes significant investment in growth and a focus on Carelon as the main driver for enterprise growth. The company is confident in its ability to deliver strong growth in adjusted diluted earnings per share over the long-term.

The speaker thanks the community partners and associates for their dedication and hard work in making Elevance Health a trusted health partner. They have received external recognition, such as being named one of America's Greatest Workplaces and one of the Best Companies to Work For. The CFO, Mark Kaye, reports on the company's financial results, including growth in earnings and membership. Operating revenue for the quarter was flat, but is expected to increase in the second half of the year due to growth in premiums and the acquisition of Paragon Healthcare. Carelon Services saw strong growth in operating revenue and earnings due to their risk-based services and prudent pricing.

The consolidated benefit expense ratio improved in the second quarter due to premium rate adjustments, medical management, and a shift towards commercial business. However, there was an increase in acuity in the Medicaid business. The adjusted operating expense ratio increased due to investment costs, but is expected to improve in the second half of the year. Adjusted operating gain grew, and reserves are being closely monitored. The company anticipates achieving their full year earnings guidance and has included an enterprise growth algorithm in their supplemental earnings presentation.

The company is committed to growing adjusted diluted earnings per share by at least 12% annually on average, with upper single-digit growth in operating revenue. They plan to accomplish this through membership growth, geographic expansion, and momentum in Carelon. They also aim for a 6.5% to 7% enterprise operating margin by 2027 and expect one-third of their growth rate to come from capital deployment. The company is focused on execution and operating efficiency for the remainder of the year. When asked about accelerating growth in 2025, the CEO referenced the company's enterprise growth algorithm and how it guides their approach to the business.

In 2024, the company's diverse businesses have shown resilience and growth in various macroeconomic environments. They anticipate accelerating revenue growth in all businesses in 2025, with strong momentum in their health business through targeted expansion and sustainable growth in Medicare Advantage. They also expect a return to growth in Medicaid as the redetermination cycle nears its end. The company is excited about the progress and growth of Carelon Services, particularly in the risk market, as they have been able to prove their capabilities in their own businesses before taking it to the commercial market.

The speaker responds to a question about CarelonRx and discusses the company's ability to scale, including recent acquisitions and the expected addition of a new specialty pharmacy business. They also mention their positive outlook for revenue growth in the future. The next question is about Medicaid, and the speaker asks Felicia Norwood to address it. Felicia explains that about a quarter of their book is due to set rates in the back half of the year, and they have visibility into nearly all of their Medicaid premiums for 2024. The rate conversations with states are constructive, but not all rates are final.

The company is in constant communication with states to provide them with updated information on the changing Medicaid landscape. They acknowledge the potential for a disconnect between their rates and the increasing acuity of their populations, but are working to ensure that states have the most recent data. Utilization in the quarter reflected higher acuity as expected, and they are also seeing signs of increased utilization across the broader Medicaid population. The full year outlook accounts for this shift in acuity and increased utilization, including a rate timing mismatch.

Pete Haytaian, who leads Carelon, spoke about the company's strategy in the pharmacy space. He mentioned that their value story is resonating in the marketplace and they are performing well in the core PBM down-market and middle-market. As for their diversification efforts, they have been building out their infrastructure to handle the capacity for Elevance scripts and have already started migrating scripts. They are also preparing for the close of the Kroger acquisition in Q3 or Q4 of this year.

The speaker discusses the reasons for the current burden on the company's results, including investments in Carelon for growth, below average margins in Medicaid and Medicare Advantage. They are unable to provide exact figures, but mention that these factors are impacting the company's margins and affecting their target goals.

Mark Kaye, in response to a question, declined to comment on the projected single line business operating margin for the combined Health Benefits reporting segment. However, he provided some insight into the expected Medicaid and Medicare margins for 2024, noting that Medicaid margins are expected to compress due to industry-wide dynamics and higher acuity. In contrast, Medicare margins are expected to improve, but still remain below the long-term target margin range. Gail Boudreaux added that the company is pleased with the progress of their 2024 commercial repricing initiatives and disciplined pricing practices. Felicia Norwood then commented on the dynamic nature of the Medicare Advantage market and declined to provide specific projections for 2025.

The speaker discusses the importance of being thoughtful and rational in planning for 2025, despite the current environment. They mention that Medicare Advantage enrollment is high and there is still value in what it offers. They are waiting for feedback on their bids and the industry-wide submissions before making growth expectations for 2025. They maintained a disciplined approach and focused on profitable growth and sustainability. They also mention their strong position in the DSNP business and prioritization of products based on local market dynamics. They feel good about their positioning for a sustainable business in Medicare Advantage.

In this paragraph, Gail Boudreaux and Mark Kaye discuss the trend in Medicaid and Medicare for the quarter. Mark explains that there has been a larger than typical pull-forward effect in Medicaid due to increased numbers of members losing coverage. He also mentions member mischaracterization and elevated outpatient trends in elective procedures as contributing factors. Gail then moves on to the next question, which asks for a size of the Medicaid trend increase and for expectations of government margins in Medicare Advantage and Medicaid for 2025 compared to 2024. Mark responds by saying that segment margins improved by 20 basis points in the quarter and that the first half results are consistent with initial guidance.

The company expects full year margins to end within their initial outlook, with a focus on the recovery of their Commercial business. Second quarter revenue growth is expected to be the low point for the year, with improvement in the third and fourth quarters. The company also notes that the third quarter MLR will be impacted by the Leap year, and they are making investments in their specialty strategy, including the acquisition of BioPlus in 2023. They have been building infrastructure and capacity to handle specialty prescriptions.

The speaker discusses the company's focus on migrating Elevance scripts and being opportunistic in their specialty strategy, with a recent acquisition of Kroger providing additional scale and access to new markets. They anticipate the deal to close in Q3 or Q4 of this year and are preparing for it. They also mention a focus on patient differentiation and Whole Health as they move forward. In response to a question about long-term growth targets, they mention a slight decline in health benefits long-term growth CAGR, potentially driven by MA and Medicaid, but reaffirm their long-term targets for Carelon.

The speaker discusses the positive developments that have occurred since the previous Investor Day, including the CD&R partnership, BioPlus acquisition, and pending Kroger deal. They mention that the previous targets may not have taken these developments into account and that there is now greater potential for earnings in the Carelon Services segment. The company has revised their growth targets to reflect Medicaid-related attrition and changes in the Medicare Advantage bids, but their overall path remains the same with expected growth in operating earnings and potential for capital deployment to support the Carelon businesses.

During a conference call, the operator introduces Andrew Mok from Barclays who asks about the company's Medicaid comments and their impact on MLR expectations. Mark Kaye, a company representative, responds that they expect the full year benefit expense ratio to be in the upper half of their initial guidance range due to Medicaid dynamics. The operator then introduces Ryan Langston from Cowen who asks about the favorable prior year development and any specific utilization patterns. Mark Kaye explains that the prior development should be considered in the context of the medical claims payment change in the quarter, which decreased by $1.3 billion and drove the prior year development.

The paragraph discusses the factors contributing to the increase in reserves for Medicaid membership decline, including catch-up in claims paid and improved operational environment. It also mentions that MCP remains at historically high levels, indicating prudent reserving practices and a strong balance sheet. The speaker clarifies that the larger pull-forward effect seen in the second quarter is expected to decrease as the year goes on, as redeterminations are ending. They are also working with states to adjust for timing and rate mismatches.

The speaker discusses the miscategorization of members and the need to ensure that they are placed in the appropriate cohort for rate purposes. They also mention the increase in outpatient trains and elective procedures, which was accounted for in their MLR guide for the full year. The next question asks about the $4.3 billion of timing items that impacted operating cash flow and whether they expect them to reverse in the second half of the year. The speaker explains that this includes a $3.6 billion impact from an additional month of premiums received from CMS in the previous year, and they expect operating cash flow to be slightly over $7 billion for the full year.

During the earnings call, Sarah James from Cantor Fitzgerald asked about the recent win with a Blue Cross Blue Shield partner and the company's pipeline in that market. Gail Boudreaux, the operator, and Pete Haytaian, the CEO, both responded, highlighting the company's focus on building capabilities and expanding relationships with Blues. They also mentioned strong growth in services and selling into 2025 with a focus on behavioral health, post-acute care, and Carelon Health.

Boudreaux and Kaye discuss the opportunities for growth and expansion in the company, particularly in their partnerships with Blues and other payers. They also mention their 2027 operating margin targets, which will be driven by revenue growth and margin expansion through cost management and technological advancements.

The speaker discusses the importance of effective medical management and underwriting disciplines in achieving the enterprise operating margin target. They also mention the goal of achieving a third of their adjusted diluted EPS growth rate through capital deployments. In terms of the commercial risk book, they mention strong results in the ACA and a disciplined approach to expanding the business. They also address midyear renewals and retention, with a clarification that commercial is performing better than expectations on margin while government is performing worse.

The company is expecting to renew 25% of its risk-based large group business in July and has seen positive performance and improved persistency. They are confident in their growth and expansion in this business. In terms of their cost savings plan, they are on track to achieve a gross run rate expense efficiency improvement of $750 million, which will benefit their operating performance and establish a strong foundation for growth in the future. They anticipate significant improvement in their operating expense ratio in the second half of the year and will continue to take steps to enhance operational efficiency.

The company is focused on enhancing experiences, driving costs down, and fueling future expansion through Generative AI. They have been disciplined in expense management and are now seeing the impact of AI technology in their operational areas. They are using AI to personalize interactions with members and improve access to care, while also streamlining tasks for providers. This has been a journey for the company and they are now seeing tangible results.

The speaker discusses the impact of their AI initiatives on providers, members, and associates, and how it will improve efficiency and the member experience. They also mention their focus on insourcing specialty services, specifically in the distribution side, and potential opportunities in this area. They do not mention any specific therapeutic areas they are targeting.

In response to a question about opportunities in specialties, Pete Haytaian discusses the company's focus on Elevance scripts and expanding coverage for LDDs. Gail Boudreaux emphasizes their integration strategy and the unique ability to combine specialty pharmacy with specialty services for better value. The final question is about MA bids for next year and Felicia Norwood mentions the long-term growth focus on Carelon markets and density in those markets by 2025.

The company has a strategic plan for growth in Medicare Advantage (MA) and has made deliberate decisions to exit certain markets to position themselves for long-term success. They are focused on markets with Medicare and Medicaid business, particularly in D-SNP and other SNP products. They are also working to deliver Whole Health for their complex populations. The company's footprint is focused on density in their Blue markets and strategically growing with Carelon in the future. They are confident in their enterprise strategy and the resilience of their diverse businesses.

A recording of the conference will be available for replay until August 17th, 2024. The replay system can be accessed by dialing 800-391-9851 or 203-369-3268 for international participants. The conference has now ended and participants can disconnect.

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