The paragraph discusses the setup of Humana's Third Quarter Earnings Call, where participants are currently in a listen-only mode. Lisa Stoner, Vice President of Investor Relations, introduces the call, mentioning that Jim Rechtin, Humana’s President and CEO, will make remarks followed by a Q&A session with other executives. The call includes cautionary statements about forward-looking discussions that involve risks and uncertainties and advises participants to refer to Humana's SEC filings for detailed risk factors. Additionally, some financial measures discussed may not conform to GAAP. Relevant documents can be accessed on Humana’s Investor Relations site.

In the conference call, James Rechtin from Humana outlines four key drivers for the company's success: delivering a Medicare product that meets consumer needs and is priced competitively, maintaining clinical excellence for strong margins, managing an efficient back office, and strategically deploying growth capital to support core businesses like Medicare Advantage, CenterWell, and Medicaid. He reports that the company exceeded expectations for the quarter and is confident in achieving at least $16 EPS for the full year. Humana is also focused on maintaining its 2024 EPS and planning for 2025 margin expansion, balancing short-term earnings with reinvestments in the business.

The paragraph discusses the company's investment strategies in growth, cost efficiency, and medical cost management, with plans for an Investor Day in May 2025 to provide more clarity on their multiyear outlook. They highlight positive developments in their Medicare products, noting significant membership growth and successful product pricing and marketing investments. The company emphasizes its strong customer experience, being ranked the top health insurer by Forrester for four consecutive years. While acknowledging challenges in achieving desired STARS results, they remain focused on delivering clinical excellence and fulfilling expectations for members, patients, and investors.

The paragraph discusses the organization's efforts to improve healthcare outcomes and reduce costs. They've made investments in provider and pharmacy networks to close care gaps and have increased member outreach, resulting in thousands of new primary care appointments. Technological advancements, such as an improved plan finder, are part of their strategy to make significant progress by 2027. They acknowledge a shorter timeframe than desired but are seeing success in cost control measures like value-based care contracts in specialties such as kidney disease and oncology. Additionally, the organization is enhancing back-office efficiency, notably by using AI to reduce the time spent on post-call documentation, contributing to a projected 30 basis point decrease in their adjusted operating cost ratio for the year.

The paragraph discusses the organization's progress in expanding senior-oriented primary care clinics, emphasizing reduced documentation time for clinicians and achieving both clinical and financial targets. They highlight a study showing improved patient experiences in these clinics and plan to add about 40 more clinics, often through acquiring and turning around underperforming ones. The organization is optimistic about patient growth but acknowledges industry challenges. They aim to balance short-term earnings with long-term investments, planning to provide 2021 guidance and strategic updates in future meetings. The paragraph concludes with a confidence in the positive outlook for Medicare Advantage (MA) and value-based care.

The paragraph features a discussion between Justin and James Rechtin about investment spending expectations for 2025. Justin inquires if a $500 million investment spending estimate is reasonable, considering previous margin improvements and admin cuts. He questions whether past cuts need to be reconsidered and the timeline for potential returns. James responds, acknowledging the uncertainties of 2025, and explains that while specific guidance will come later, they feel confident about their pricing and plan exits. He indicates that 2024's performance should be considered a baseline for 2025, implying potential for earnings per share growth.

The paragraph discusses the company's strategic approach to navigating upcoming months and years. They aim to improve visibility and confidence by analyzing factors like AEP results and medical cost trends. The focus is on making long-term investments for 2027, even if it means prioritizing this over short-term earnings growth. They aim to be prudent in decision-making, maintain a minimum level of progress, and balance setting realistic expectations with market dynamics. Although precise figures aren't available due to some uncertainties, they emphasize building credibility and adaptability over the next two years.

In the paragraph, it is discussed that there was concern about whether the necessary investments for improved core operating performance could result in year-over-year setbacks. To address this, a minimum financial target for 2025 was introduced, ensuring that pricing actions for 2025 provide the flexibility to make these investments without regression. Ann Hynes of Mizuho inquires about the stability of MLR results and their implications for 2025 bids, to which Susan Diamond responds that third-quarter claims developed as expected overall, with geographical variations, and that confidence remains in the trend assumptions and pricing approach, maintaining their targeted MLR.

The paragraph discusses the potential challenges and uncertainties regarding achieving a 3% margin target by 2027. James Rechtin acknowledges that while this target is a realistic goal, there are risks involved, particularly related to the STARS metrics. Significant improvement in STARS is necessary to meet this objective, but the company isn't setting a specific target due to various influencing factors. Susan Diamond concurs with this assessment.

The paragraph discusses the financial strategy and considerations for a company looking ahead to the year 2027. It highlights that the competitive and rate environments will continue to be crucial factors. The hope is that by 2027, any challenges posed by the Inflation Reduction Act (IRA) will have turned favorable, potentially allowing for increased margins. Some ongoing investments are expected to yield returns that support margin recovery. The conversation then shifts to Ben Hendrix from RBC Capital Markets, who questions higher specialty drug costs reported in the recent quarter. Susan Diamond responds by noting increased oncology costs and clarifies that these are not primarily due to IRA changes. Instead, they result from new treatments or expanded uses of existing ones, leading to higher-than-expected costs.

The paragraph discusses the anticipation of increased trends in the coming years due to changes in the IRA and the introduction of new therapies, which are expected to affect utilization. The speaker mentions a more thoughtful approach to guidance given the potential exposure on the plan side in 2025. Sarah James from Cantor Fitzgerald asks about the implications for crosswalk possibilities in 2026 based on geographic overlap and plan ratings, as well as clarification on MA margin in the 2025 guidance. Susan Diamond and George Renaudin respond by explaining that crosswalk possibilities will be evaluated alongside various considerations, including membership concentration, progress in STAR ratings, group contract opportunities, membership mix in 2025, and medical cost management.

The paragraph discusses the strategies and considerations for managing 2025 Medicare Advantage (MA) margins. Susan Diamond explains that while specific guidance hasn't been given, there are pressures affecting 2025 margins due to emerging trends after the 2024 bid filing, including regulatory and cost issues. The company plans to improve margins mainly through exiting unprofitable plans rather than pricing changes, as price-based margin expansion is limited. They are contemplating additional investments with some flexibility from previous pricing actions. The final margins will depend on various factors like membership growth and investment levels, with more details to be provided in future guidance.

In the article paragraph, Joshua Raskin asks about the Medicare Advantage (MA) market growth expected for 2025 and the fate of members lost due to market exits, questioning if they are shifting to other plans or reverting to fee-for-service. He inquires about the margin and benefit levels of the lost lives and retention strategies outside of market exits. George Renaudin responds, projecting a 5% to 5.5% industry growth for the coming year compared to this year's 6%. He expresses confidence in their competitive positioning and mentions efforts to enhance retention by aiding brokers and creating tools for a better consumer experience. These tools include real-time benefits access and a plan fit tool to assist in selecting appropriate plans.

The paragraph discusses the company's strategy to improve member retention and digital sales using internal team capabilities and AI tools. They highlight the positive impact of a new digital sales tool in assisting members with plan choices, leading to increased digital sales. Additionally, James Rechtin mentions anticipated industry growth of 25%, acknowledging the ongoing impact of the redetermination process on Medicare Advantage, particularly affecting dual-eligible members. He emphasizes that retaining members from unprofitable plan exits can be beneficial, as many have other plan options that contribute positively.

The paragraph discusses strategies and observations in a company's health plan performance. They made efforts to protect higher-performing plans during 2025 bids, resulting in fewer benefit cuts for those plans, whereas larger cuts targeted plans below their margin targets. The company hopes to see higher attrition in lower-performing plans but is awaiting more information. They also observed that inpatient unit costs for Medicare came in better than expected due to cautious assessment throughout the year and consistent lower costs, particularly noticing respiratory seasonality in the third quarter that also influences these costs.

The paragraph discusses the organization's approach to 2025, indicating that they have incorporated various geographical impacts and cost trends into their baseline assumptions, including final rate changes from CMS for reimbursement. They feel confident about their unit cost trend forecasts for 2025. In response to a question from Joanna Gajuk of Bank of America, Susan Diamond explains that their utilization assumptions for 2025 have increased, reflecting trends observed earlier in the year, such as the shift in service sites due to the two-midnight rule. Their utilization levels have remained consistent with these updated estimates.

The paragraph discusses the trends in utilization management and claims denial rates in the healthcare industry. The speaker expresses optimism about consistent utilization trends and the lack of major regulatory changes anticipated for 2025. George Hill from Deutsche Bank inquires about trends in inpatient claims denial rates over the past 12 months, noting that both publicly traded and private hospital companies have reported increased denial rates. Susan Diamond responds that the Humana implementation has led to more initial approvals, which should theoretically result in fewer denials and appeals. Although there were initially higher appeal rates, audits and CMS validation confirmed appropriate evaluation of clinical rules.

The paragraph discusses the impact of new rules on the rate of appeals in healthcare. Initially, higher rates were expected as providers adapted to the changes, which was incorporated into estimates early on. Some hospital systems were slower to recognize this increase, assuming a consistent volume year-over-year. The differences in handling and interpretation of rules by payers and providers are acknowledged. George Renaudin adds confidence about their own compliance, highlighted by a positive CMS audit. He also mentions ongoing discussions between clinicians to ensure clarity and consistency in understanding and applying the two-midnight rule.

In the paragraph, James Rechtin discusses the stabilization of inpatient trends since the late first to early second quarter after initially adapting to regulatory changes, resulting in challenges during the first quarter. They implemented significant changes and are now confident in their ability to project inpatient costs, such as denial rates and utilization, more accurately moving forward. Following this, an operator introduces a question from Whit Mayo regarding STARS ratings and a lawsuit or appeal related to contract 5216, suggesting that improvements are needed in both Part C and D ratings to achieve a 4-star rating. Mayo inquires about the number of call overturns required, to which Rechtin confirms that three calls across both metrics need to be overturned, with George Renaudin mentioning the need for more transparency from CMS regarding threshold calculations.

The paragraph discusses a conversation between Rice and James Rechtin about the potential impact of a successful appeal on the STARS ratings on investment plans for 2025. Rice questions whether a successful appeal would reduce the need for investment to improve STARS ratings or change the outlook for 2025 positively. Rechtin explains that the STARS issue involves two separate aspects: the ongoing appeal concerning specific metrics affecting their ratings, and the broader trend of increasingly stringent cut points and thresholds across the STARS program. These challenges influence considerations around investment and strategic goals, such as balancing enrollment with achieving a 3% margin by 2027.

The paragraph discusses the emphasis on investments in a program intended to improve performance metrics by 2026, acknowledging that the entire industry is reevaluating investment strategies to keep up with rising standards. Jim and George emphasize that investments are aimed at enhancing health outcomes for members, improving provider and member performance, and strengthening technology for operational excellence. Susan adds that while the STARS program is a significant focus, there are broader investments aimed at enhancing overall operational performance across various areas.

In the paragraph, James Rechtin addresses a question about the philosophy of balancing membership growth and margin trade-offs, especially in the context of STARS mitigation or progression. He explains that the company does not yet have a clear answer due to uncertainties in factors like the rate environment and their progress on 2027 STARS. The intent is to balance long-term earnings potential with short-term progression without harming the business long-term. David Windley from Jefferies then asks about channel investment regarding brokers' engagement with new and existing members, the cadence of membership growth during the Annual Enrollment Period (AEP) versus intra-year, and expectations for 2026 rates. James Rechtin acknowledges the multiple parts of the question.

The paragraph discusses the company's preparations for anticipated changes in the sales landscape due to industry shifts, including benefit changes and market disruptions. To address these challenges, the company is investing in both internal and external sales channels. This includes enhancing digital self-service options for members, improving tools and AI support for internal sales teams, and providing real-time data to external brokers. The company is experiencing a significant increase in sales through its internal brokerage channel, highlighting the importance of both its internal operations and external partnerships. The emphasis is on strengthening their internal channel to maintain control and build capacity in response to the expected significant changes in the market.

The paragraph discusses a conversation between Susan Diamond and David Windley about market growth expectations and future rate predictions. They anticipate a 5% to 5.5% market growth despite capacity constraints. Looking ahead to 2026, they remain cautiously optimistic about rate adjustments reflecting current trends. The discussion shifts to a question from Michael Ha regarding DSP redetermination and its impact on industry growth. Susan mentions an expected 80 basis point growth headwind due to a six-month grace period for redetermination. Michael also inquires about 2024 Star ratings and the performance on measures beyond the CAPs survey, expressing interest in achieving 80% to 90% of members in 4-Star plus plans.

The paragraph discusses the anticipated challenges and headwinds faced by D-SNP (Dual Eligible Special Needs Plans) in 2024 and 2025, due in part to the redetermination process and disruptions from Change Healthcare, which affected eligibility confirmation. Susan Diamond notes pressure in 2024 with an expected increase in 2025, impacting membership numbers as some lose eligibility. Some members might be recaptured in non-D-SNP offerings, but losses are anticipated. James Rechtin adds that while progress is being made internally, there's limited visibility on the overall industry performance and thresholds, so they refrain from speculating on industry-wide outcomes.

The speaker acknowledges the progress and efforts of their organization, Humana, but notes that more time is needed to understand future developments. They express gratitude to their 65,000 associates and the support from others, before concluding the conference call.

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