Humana Inc (HUM) — Q1 2020 Earnings Call Transcript

Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Brian Kane, Chief Financial Officer, will discuss our first quarter 2020 results and our updated financial outlook for 2020, as well as our pandemic relief efforts. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Our Chief Legal Officer, Joe Ventura, will also be joining Bruce and Brian for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com later today. Before we begin our discussion, I need to advise call participants of our cautionary statements. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, and other filings with the Securities and Exchange Commission, and our first quarter 2020 earnings press release as they relate to forward-looking statements. And to note in particular that these forward-looking statements could be impacted by risks related to the spread of response to the COVID-19 pandemic, including potential impacts to us of actions taken by federal, state, and local government to mitigate the spread of COVID-19 and, in turn, relax those restrictions, actions taken by us to expand benefits for our members and provide relief for the healthcare provider community in connection with COVID-19, disruptions in our ability to operate our business effectively, and negative pressure in economic, employment, and financial markets, among other factors, all of which creates additional uncertainties and risks for our business. Our forward-looking statements, therefore, should be considered in light of these additional uncertainties and risks, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release or historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Thank you, Amy. And good morning and thank you for joining us. Let me say that in these unprecedented times, we are grateful for the tireless efforts of the many clinicians who have been front and center in treating patients with COVID-19. We are all better off for their compassionate and unwavering commitment to the health of others. At Humana, we've been working relentlessly to ease some of the burden on all stakeholders by being proactive and transparent in our engagement as we navigate the global coronavirus pandemic, including the recovery and reentry efforts as we emerge into a new normal that is yet to be defined. I'm thankful for and proud of the extraordinary efforts of our associates in addressing this generational challenge. This crisis has confirmed the strength of our integrated care delivery strategy with a deep focus on member and provider experiences and a multifaceted personalized approach to care that combines digital, data analytics, and telehealth across home and clinic settings to deliver quality care and improved clinical outcomes to those we serve. As an organization focused on serving vulnerable populations, including over 8 million Medicare beneficiaries, we recognize that safety and particularly consumer confidence in the ability to once again safely begin using the healthcare system are top of mind with everyone, and we play a pivotal role in ensuring both. Humana will continue to persist in addressing health and financial concerns for members, providers, and employer groups while also supporting our associates who are critical to our success. We are being proactive in our actions to support all these stakeholders, including our outreach to nearly 500,000 members most at risk for COVID-19 across our segments as identified by their proximity to COVID-19 hotspots and those with multiple chronic conditions. One of our key learnings from the crisis is that a significant number of beneficiaries have concerns about food insecurity, social isolation, and access to needed prescription medicines. To help address these concerns around social determinants of health, we've taken several actions. Specifically, we've fulfilled orders for over 500,000 meals, initiated efforts to address loneliness by connecting members with emotional support services, like the friendship line and the National Disaster hotline, and have several pharmacy efforts underway, including early refills and increased mail order delivery. In addition, we've contributed $50 million to the Humana Foundation to support coronavirus relief and recovery efforts during and in the immediate aftermath of the health crisis, including support of healthcare workers, seniors, and those experiencing food insecurity. We, along with other payers, have taken numerous proactive steps to do our part. To address our members’ financial and health concerns, in addition to the meal delivery and the pharmacy efforts discussed previously, we waived member costs related to COVID-19 diagnostic testing and treatment, expanded access to telehealth services by waiving out-of-pocket costs for services delivered by participating in-network providers, pivoted our Medicaid long-term support services in-person care management program to a telephonic model to connect our care coaches and members via FaceTime, increased the use of digital health for military families, including behavioral services, and helped convene TRICARE policy changes, such as the enrollment waivers for military families unable to pay premiums. To support providers, we took steps to ease liquidity concerns, alleviate capacity issues across the system, and allow them to focus on the immediate needs of their patients, including releasing approximately $1 billion in advanced funding for providers at a time when cash flow is meaningfully challenged, lifting certain provider administrative requirements, simplifying and expediting claims processing, suspending in-network clinical authorization requirements, and accepting audio-only telephone visits for reimbursement equivalent to an in-person visit. Lastly, to support our employer groups, we've extended our 30-day grace period for premiums for small commercial groups facing financial hardship, temporarily waived certain active work requirements for employees to maintain coverage, and assisted small businesses with resources to help navigate the CARES Act and Paycheck Protection Program, as well as other sources of funding. Given the changes made to promote and advance the continuation of care while social distancing our providers, especially those in the capitated arrangements, we've seen incredible upticks in telehealth for both care related to COVID-19, as well as general health concerns. Telehealth visits with traditional telehealth partners have more than doubled, and the growth is even more compelling when you factor in brick-and-mortar providers that have pivoted to telehealth. Along with increases in our mail order pharmacy and early fills, allows our members with chronic conditions to continue to receive care to prevent long-term negative health implications. Since the declaration of the national emergency in mid-March, we have closed approximately 630,000 gaps in care. Furthermore, the providers in our value-based arrangements saw the benefit of predictable cash flow streams and were the fastest to innovate and create thoughtful digital telehealth strategies in response to the crisis. To underscore the meaningful and lasting impact of these actions, let me share a story from our proactive outreach to our most vulnerable members. One member emailed me to let me know that he never felt more like an important family member than the day he received a call from one of our associates. During the crisis, we were simply calling to see how he was doing and asked whether he needed anything. Thankfully, he was doing fine and even noted that the Humana mail order pharmacy had renewed his prescription the day before. Our associate had, 'made his day with one simple action,' and he describes Humana as wonderful. This is one of countless stories that show the proactive actions are having a positive impact. I share this not to pat ourselves on the back, but rather to demonstrate the importance of working together with our industry peers to deliver solutions. Building on our relationships with our members as key touchpoints for determining and meeting their needs. Perhaps what's most inspiring is the way that the healthcare sector and the general business community have come together to address the crisis and the meaningful public partnership led by the federal government. For example, providers and lab companies prioritizing COVID lab tests, manufacturers changing production lines to create respiratory equipment and ventilators, retailers expanding testing facilities by facilitating drive-thru testing sites, and nonprofits working to distribute food in their local markets. We believe this cross-industry collaboration and public-private partnership has enabled agility and innovation as we navigate this crisis and we're not done. Health plans can play a major role in developing a comprehensive and actionable plan, as we serve as a critical link between the individual and the provider, and can leverage our data capabilities to inform and guide the recovery. We will continue to invest to help our constituency during and in the aftermath of the crisis, including recovery and re-entry efforts, while also building upon the digital, data, analytics, telehealth, and value-based care advances that were accelerated due to the pandemic. These advances will help us progress our strategy as we emerge into a new normal. Before I turn the call over to Brian, I’d briefly touch on our operating performance over the last quarter. As social distancing emerged mid-March, we successfully and rapidly migrated nearly all our 46,000 associates to work-at-home settings and implemented physical distancing standards and deep cleaning to protect those essential associates on site. We also worked to secure additional personal protective equipment for our clinicians on the front lines and implemented new protocols for their safety, allowing us to keep our wholly-owned alliance and joint venture clinics open to serve the patients during the crisis. Our systems and technology are performing well, our associate engagement scores remain at best-in-class levels, and our net promoter scores continue to be strong. Now turning to our financial performance. All of our businesses started the year strong from both a strategic and financial perspective. As we navigate through these uncertain times, we believe that this underlying strength sets us up well for 2021 and beyond. As Brian will discuss in a moment, while acknowledging the uncertainties as to the duration of the crisis and to the extent that deferred procedures may resume, we are maintaining our previous full year 2020 adjusted EPS guidance range of $18.25 to $18.75. This also reflects our expected continued investment to help our constituencies and communities that may be disproportionately affected by this crisis. For example, to the extent we continue to see reduced utilization for an extended time, we are committed to taking actions similar to those we've taken to date to address health and financial concerns. These actions could include incremental benefits for members and employer groups, further clinical community support, continued assistance for payers to ensure quality care access, and further outreach to members. In closing, I want to reiterate that a meaningful public-private partnership is the key to a long-term successful response to COVID-19. The leadership of the administration, Congress, governors, and mayors across the nation, combined with the innovation of the private sector, is the right foundation to build on moving forward. Humana stands ready to be a strong and willing partner to federal, state, and local governments and community nonprofits. Together, we can take the lessons learned to reshape the healthcare system to provide meaningful access to care and to holistically manage health and lifestyle needs. We thank them for their partnership and look forward to our work together on these shared goals. With that, I'll turn the call over to Brian.

Thank you, Bruce, and good morning, everyone. I would also like to begin by acknowledging the unique and challenging times we are facing, during which we are guided by the best interest of all the constituencies that we serve. As Bruce described and as I will discuss later in my remarks, we are committed to continuing to invest to minimize the impact of this global crisis on our members, provider partners, employer groups, and the communities we serve, while advancing the long-term sustainability of our company and the healthcare system as a whole. I will first discuss our results for the quarter. Today, we reported adjusted EPS of $5.40, ahead of our previous expectations and, as Bruce indicated, reflects a strong start to the year for all of our businesses prior to the impact of COVID-19. Our January through mid-March fundamentals, including strategic, operational, and financial metrics, were solid and outperforming our previous expectations. During the last two weeks of March, the spread of COVID-19 began to affect our business. Though the impact occurred late in the quarter, such that in totality, the virus did not have a material impact on our financial results. In our retail segment, prior to COVID, the individual Medicare Advantage business was running ahead of plan with per member per month premiums and utilization favorable to expectations. The members that enrolled with us in 2019, as well as the new members who joined Humana this year, are also performing well. During the last two weeks of March and continuing into April, we experienced a meaningful decline in utilization with the exception of pharmacy costs, which ran higher than expected as our members with our encouragement refilled their prescriptions early to ensure they had an adequate supply during the crisis. With respect to membership, during the open enrollment period from January through March, we experienced better sales and higher retention than previously expected. As a result, we are increasing our full year 2020 expected individual MA membership growth through a range of 300,000 to 350,000 from our previous range of 270,000 to 330,000. Not surprisingly, sales slowed in the latter half of March through the month of April on account of COVID affecting brokers in the field as face-to-face meetings were restricted. We have also seen a decline in member terminations during this period. We will be watching these dynamics closely as the pandemic progresses and as more brokers adopt digital channels, which we are helping to facilitate. We are also reaffirming our projected full year 2020 group MA membership growth of approximately 90,000 members, as well as our expected decline in standalone PDP membership of approximately 550,000 members. With respect to Medicaid, the results include the transition of the risk for the Kentucky contract from CareSource as of January 1st, and the business is performing well. While Medicaid membership was in line with expectations pre-COVID, we are withdrawing our membership guidance for the full year 2020, acknowledging the tremendous uncertainty created by COVID-19 and the resulting economic trends. We expect these trends to be a tailwind to our previous Medicaid membership guidance of 150,000 to 200,000 for the full year, recognizing that states are not disenrolling individuals from Medicaid at this time, and more individuals are beginning to qualify for coverage each day. In our Group and Specialty segment, we are similarly pleased with our performance in the quarter. Our prior period development was favorable, and our current year metrics through mid-March were running consistent with expectations, including the benefit ratio for our fully insured commercial group medical business. In addition, our commercial medical membership was running in line with expectations. We're executing the first phase of a multiyear plan to sustainable growth following years of declining commercial membership. We've seen early traction in our prioritized markets as evidenced by improved volume of closed ratios and retention. This progress is driven by new detailed market operating plans in these prioritized markets, key hires at the market level, and targeted pricing investments to support retention. Through March, we are on track to achieve membership targets, but now we anticipate COVID-19 headwinds will be challenging for this segment, including potential small group health plan terminations and large group workforce reductions, primarily driven by the duration of the social distancing restrictions across the nation and the speed of recovery and reentry. As you will recall, we were heavily weighted to the small group business, which we expect will disproportionately be impacted by the pandemic. Accordingly, as Bruce explained, we have taken actions to assist small businesses during the crisis. Given this inherent uncertainty, we're not prepared to comment on our full year 2020 membership or pre-tax expectations post-COVID and are withdrawing our guidance for this segment. We are closely watching how unemployment trends develop, differentiating between layoffs and furloughs as furloughs enabled by the federal payroll protection program result in employees generally continuing to receive health coverage through their employer. Lastly, our Healthcare Services segment businesses were performing well prior to COVID, with pharmacy provider and home results in line with expectations and showing nice improvement year-over-year. COVID has meaningfully impacted our pharmacy business as many of our members avail themselves of the options to refill early when the pandemic spread to give them peace of mind. Though in the last few weeks of April, we have seen pharmacy use slow. We have also seen a material increase in mail order usage, which we believe offers members a better experience and higher medication adherence rates. Additionally, Kindred has been adversely impacted by the virus. In particular, new home health admissions slowed dramatically, and our provider businesses, which are largely at risk, saw lower utilization in the last two weeks of March and throughout April. I will provide more specifics around how COVID impacted the quarterly financials and our expected 2020 results. As I mentioned, the virus had an immaterial impact on the first quarter given that most of the COVID-related developments occurred late in March. Although, sadly, some of our members have been diagnosed and treated for COVID, it is a very small percentage of our membership base, in part due to the geographic hotspots for the outbreak being in areas where our membership is relatively small. As I noted, we have experienced elevated pharmacy costs as members refilled their scripts early, as well as higher administrative spending, including with the $50 million foundation donations that Bruce mentioned to assist our multiple stakeholders, as well as higher costs broadly to address the needs caused by the pandemic. In the quarter, however, these costs were offset by the deferral of medical procedures in the back half of March as the country went into lockdown. Specifically, with respect to medical utilization, we have seen overall declines by at least 30% depending on the service category. We expect the trend of lower utilization to persist while stay-at-home and other restrictions remain in place in the near term, followed by a period of recovery in utilization rates over the coming weeks as previously deferred nonessential procedures resume with a backlog of demand. We also expect testing to ramp up as more tests become available. With respect to the full year, we are reaffirming our adjusted EPS guidance of $18.25 to $18.75. However, given the likelihood of significant variability by financial statement line item, including operating costs and benefit expense, we are withdrawing all other detailed guidance points with the exception of the Medicare membership projections discussed previously. We acknowledge that a number of variables and uncertainties will impact our results, including among others; the severity and duration of the pandemic, the continued actions taken to mitigate the spread of COVID-19 and the subsequent lessening of those restrictions, the timing and degree of resumption of demand for deferred healthcare services, the ability of our commercial members to pay their premiums, the degree of diagnostic testing, and the cost and timing of any new therapeutic treatments or vaccines. All these items are highly variable and difficult to predict, and our reaffirmation of guidance is subject to the significant uncertainty associated with these items. As such, our response to this global health crisis and a subsequent recovery will continue to evolve over the coming months, and we fully expect that any impact experienced from lower utilization will be entirely offset by our support for our Medicare members, providers, employer groups, and the communities that we serve. From a seasonality perspective, we expect that a disproportionate amount of our full year 2020 earnings will now occur in the first half, heavily weighted to the second quarter. There are significant variability in quarterly estimates based on various potential scenarios and how quickly deferred utilization bounces back and our subsequent response to any imbalances that may occur, including the timing of our staged support measures. Our current expectation is that non-essential procedures will resume and ultimately ramp up in the coming weeks and months as the system could run modestly above normal levels for a period of time. The system's ability to run at greater than normal levels will be dependent on the degree of consumer confidence in once again safely using the healthcare system, as well as the system's ability to flex supply to meet demand. I will now touch briefly on our liquidity position. We significantly increased our liquidity during March with the issuance of $1.1 billion in senior notes and a $1 billion draw under our one-year term loan bank commitment we have in place. We felt it was prudent to tap the credit markets when faced with significant uncertainty from a global pandemic and volatility in the commercial paper market. As a result, while our debt to cap ratio of approximately 39% is higher than normal, we believe we are strongly positioned from a liquidity standpoint with the ability to bring the ratio down over the course of the year based on the progression of the virus and the recovery. We've approximately $2.4 billion of cash and short-term investments at our parent company and have access to an additional $2 billion under our credit agreement. I would note, however, that we expect lower dividends from our subsidiaries to the parent this year relative to the last couple of years, in light of significant membership and premium growth in 2019 and 2020. As you are aware, we are required to hold approximately $0.12 of every dollar of incremental premium as statutory capital in our subsidiaries. Finally, a quick word about our 2021 Medicare Advantage bids. The team is working extremely hard to understand the potential impacts that COVID may have on our premium and cost next year. As is customary, our philosophy is to take the prudent approach to our bids that is financially sound but also offers a compelling product to our customers. We are also proceeding under the assumption that $18.50 of 2020 EPS is the jumping-off point as we think about our 2021 adjusted EPS growth. We will provide more commentary about our 2021 pricing on our second-quarter call. With that, we will open the line up to your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Also, please note that Bruce, Amy, and I are in separate locations, but we will endeavor to make the Q&A as smooth as possible.

Let's go to the next question and we can come back to Justin.

So it does seem like COVID created some disruption in a lot of different ways. Specifically, when I think about the ways that you submit your bids and how you think about both coding and debt cap score and STARs and quality. How is that factoring into what you're thinking about 2021 bids? How does that impact your view on the ramp up of the new membership you got last year and this year, if it's difficult to get the right counter data?

First with respect to stars, there won't be a STARs impact for 2021, as that's already locked in. In fact, as you think about bonus year 2022, CMS also made some adjustments such that the HEDIS and cap scores are going to use the 2021 bonus year numbers. So that reduces the volatility around the bonus year for 2021. It does potentially impact bonus year 2023, because that's based on the service periods for 2020 and so we're working with CMS now, as well as thinking through plans as the system opens up on how to ensure that the membership receives the care they need and we close those gaps in care that drive STARs results. With respect to coding, you are correct that is one of the variables as we think about 2021 bids and the impact of COVID on those. It really will depend on how quickly the system opens up, because as you alluded to, the conditions that we document this year impact next year's payment. That's both for the significant number of new members that we received last year and this year, but also redocumenting conditions for our concurrent membership base. So it's something we're very focused on. We're obviously working hard to ensure that we can engage with all the members we can. We're embracing telehealth, which now qualifies on video telehealth for risk adjustment purposes. So as you can imagine, it's top of mind for us.

So Brian, just wanted to specifically—I know you talked about more information on the bids for 2021 as you go forward. But a couple things here. One, just on the HIP benefit, take a lot of questions around how much of that you might take to the bottom line, given you usually let it flow through historically. But I think we all expect probably less than $2 plus well into the bottom line next year. Curious if you have any updated color there? And then any early thoughts on how the potential COVID impact, depending on how long it lasts, could impact membership growth next year in terms of the ability of brokers to get in front of the seniors during this crisis?

With respect to the HIPs and the bottom line and what we take to the bottom line and what we pass back to the members, that's just not something we're prepared to comment on. What you said about all going to the bottom line won’t happen. I think we've been very clear about that. We always take a balanced approach to top and bottom line growth, and I think you'll see us take a similar approach. That's really the way we've typically managed the HIPs coming in and out and you can expect a similar balance that we try to strike, as well as ensuring that we invest in our long-term sustainability and our integrated model, which is very, very important. With respect to COVID membership, it really will depend on how long this lasts. As I mentioned in my remarks, we have seen a decline in sales because the field brokers can't get in front of members, but we've also seen a really strong telephonic sales channel and they've done quite well and continue to keep strong sales. So we're monitoring that very closely and the impact it might be. I think, again, it depends on whether this lockdown extends into the fall, or whether people will be comfortable going out and engaging with brokers in person. But we're very focused on making sure that all of our brokers have the digital capabilities to engage with our members telephonically and digitally if they can't do it in person. So, we'll see where it goes, but I think it's really too early to comment on that for 2021.

And Justin, I’d just reemphasize. We are doing a lot of planning right now to be able to plan for more electronic and virtual sales than in the past. Our market point sales and our partner are all walking side-by-side with us on this.

I guess just one quick one here. Are you hoping or advocating for bids getting pushed out and what's the likelihood of that in your mind? And then just the real question. Your business mix is obviously weighted to Medicare. So just wondering if you can give us a rough estimate of what percentage of your total consolidated medical costs you do consider elective and what has history suggested in terms of how much the further canceled procedures come back?

I'll take the first question and then I'll let Brian spend a little bit of time on the second. Obviously, we had more time with the bids. Just as we can see how this evolves, and we really would embrace that with CMS. It does create some difficulties as a result of just the timing. If we delay the bids then there's a really work process that goes through that. Ultimately, it doesn't have a lot of time separated between one to another and ends up being going right up to the September timeframe. So, we would love to see it happen. We are not planning on it happening, and we are planning to submit our bids the first weekend. Brian, do you want to talk a little bit about the utilization side?

The definition of elective procedures obviously has changed a bit. I think traditionally, we would use elective with probably in the mid-teens percentage of our spend. So a relatively low dollar spend or low percentage spend, but it’s still a high dollar spend. During this crisis, there have been a number of procedures that are necessary, but have been deferred and are not urgent. I think what you'll see is a number of those procedures start to get rescheduled and so we wouldn't consider those elective, because they have to get done but they'll just go back into the queue effectively as to when they get performed. So things like cardio procedures, as a perfect example, where they don't necessarily have to be done from an emergent perspective, but they have to get done. We wouldn't consider those elective, so really the question then is just how much of this utilization bounces back and how quickly. What we've said today is that our expectations is that there will likely be a bounce back in the coming weeks and months. It could run over a normal, I call it modest premium to what would be normal utilization but then ultimately settle back down. What will be interesting to watch is not only the confidence of members and patients coming back into the healthcare system, but also their comfort about using institutional settings versus more non-institutional settings, so embracing telehealth, the home, for example. That's something we're monitoring very closely as well to understand the demand patterns of the utilization.

So actually two questions. One, just to follow up quickly on that last question. Just overall for a more senior population and more Medicare-focused book of business. Would you expect elective procedure percent of total cost to be lower for the senior population versus a more diversified population overall? Or would you be sort of in line with overall averages?

I would say it should be lower, just given just the nature of the chronic conditions of the members that we serve. So we would expect the percentage of truly electives to be less.

And the question I really want to ask that was really just around your comment that your JV and physician clinics kind of remained open during the crisis. Given that some other physician practices may have closed at least temporarily. I don’t know if you’re able to reconcile whether you've actually taken any share within the ambulatory setting and knowing that your volume might still be down versus your baselines if overall utilization is just down overall. Just any extra color around just how you're kind of performing relative to the overall physician practice environment right now might be sort of helpful?

Our clinics are closed from the standpoint that they are all value-based payments and really for the most part of full risk model. They are also in that relationship are very oriented to a much more holistic and proactive care models of those to fit in a care model, and the main reason we stayed open is to ensure that we do keep that activity out there. Our members are attributed to our clinics and therefore, they are more oriented to our sales side as they begin to come in and as they've selected both their insurance plan and then also selecting the particular clinic that they want to join. So the share does not move as quick as a fee-for-service volume base, where if someone's not open, they need to go down the street to go to another area; that's just not the way this business model works. The beauty of this is our clinics remaining open is that they're very active in preventing downstream costs from happening and maturing and the progression of specific diseases, and they can get to much more proactive as is our outreach program. They're much more oriented to how do we care in this time where a lot of providers are closed.

I want to follow up on the line question around provider groups. Not necessarily the ones that are capitated that continue to receive their monthly payments, but more around other groups that you're using in your networks. Curious what sort of stresses you're seeing? I know you talked about accelerating payments. Were those sort of prepayments of fee-for-service costs typically, or was that just the capitated groups and maybe any comments on network disruption and how you're dealing with that?

Yes, a few things there. First, we did accelerate payments for all providers, so firstly, we didn't differentiate between one provider or not and how we accelerated the payments. The same thing on the removal of any kind of authorization and any administrative matters that were getting in the way of getting access to care. The second thing is, we did accelerate as part of our payments in the area of bonus payments for performance and risk providers. They were one of the only ones that would benefit from that. But the primary acceleration came from just accelerating our payment faster than what we normally do. From a sort of network stability, we haven't fully been able to assess that, because we're waiting for the system to open back up. We obviously have fulfilled a lot of the care gaps temporarily through telehealth and other means to ensure that we're continuing to maintain the access to health in the area. I think over the coming months, we'll see what that disruption is and have a better impact on that. But in general, I will tell you, we do see some providers and some significant financial challenges, and we’ve assisted them in many different ways. But I suspect that we'll have longer-term impact, both in how people operate their business, and they will see more come to value-based payment models and in addition maybe some of the older physicians deciding to retire.

Maybe staying on telehealth for a second here. A lot of the regulations were relaxed to deal with this, obviously the pandemic, and you mentioned how you're accelerating your efforts here. If I'm not mistaken, a lot of these rules obviously were not necessarily intended, right? Opening it up in Medicare fee-for-service, obviously, Medicare Advantage was planned, but other areas like in home health allowing first-time visits in home health to be done virtually, etc. When this kind of passes, what parts of these regulations do you think will stay? And are there ones that you think the federal government will kind of reinforce again? I know some of the HIPAA rules on licensing and things like that have been sort of not enforced right now. Maybe give a sense of how you think things will shape up in this area once we get past the worst of it.

I can't give specifics on every one of them. But I would say in general, what we're hoping and working with the governmental partners on, I think a number of these will stay and be waived permanently, because I do believe what has come out of this circumstance is a renewed focus on how do we expand the access points for members, specifically members that don't have transportation and are limited in mobility. I do believe that will structurally change the way care is provided in the long run. In addition, what we've seen is as a result of the circumstances that physicians embracing telehealth has actually increased greatly for many that were not interested in at the outset. I think both of those constraints waivers that have been allowed us to be much more flexible in our approach and in addition our physicians being more comfortable using it. I think we'll continue to go forward and I think we'll see structural changes. I do think some of the protection areas, as you identified, the HIPAA area, I think some areas to ensure for check between a visit, like a home health that requires a home visit, I think there will be a combination of those that will continue and probably be a little more restrictive. But in general, we’re going to see more support for telehealth on both the regulation side and on the physician adaptability.

Maybe just a specific question and then a broader one on the commercial business. Can you give us any updated numbers as to how many people or what percentage are taking advantage of grace periods in terms of paying premiums and has that increased in a meaningful way? And then I appreciate the comments on the virtual care and telemedicine. Is there any other areas where you would say in these early days did you think about how this crisis is impacting the healthcare system that would be worth highlighting as potential changes long-term that could persist after the crisis?

So on the commercial side with respect to the grace period, we've seen some. I'd rather not give the specifics. We are still seeing payments for effectively April effectives, and we're getting into May effectives. We have worked with certain of our customers to provide that grace period, but I'd rather not give a percentage. Obviously, it's an increase from what we typically see. But I think it's still early candidly in terms of where that might shake out, particularly as this wears on, you could see more of that. I'd say it's been reasonably modest, but nonetheless, we've been working with a number of our customers in that regard.

And maybe I would say a few things there. I would say first, as you mentioned telehealth. I also would say home is continuing to be an area where we're seeing a lot more interest in the ability to provide more acute services. Those services are primary care services that would normally be in an office setting, even getting to a hospital in the home area even if that's in the home. What we're seeing in our business is the ability to offer alternative settings to the telehealth side. For our organization, I think that we really saw in this crisis is the ability to be much more personalized and direct in the cohorts that we were focused on to be able to provide a care model as much more adjusted to the condition and the needs of the individual. It became focused on how do we deliver that in a way that has got a number of different services to it. So that's the analytic area. In addition, the care plan and the other area are also important. The providers that provide that. We saw a much deeper opportunity to be most helpful with our members in a much more proactive fashion. I would really emphasize the value-based payment model. What we have seen and heard back from providers, from both sides—the fee-for-service traditional model and also the members, I mean the physicians that have relationships with us that are risk-based—on the risk-based side they say, 'I’m thankful I was in a risk-based model where, A, I was getting a consistent cash flow being paid as a percentage of premiums. In addition, I was able to be much more proactive and going and reaching out to my patients. I had both had the motivation and the reason to do it that allowed me to not only have the cash flow but also have the proactive nature of it.' This feedback from both groups shows the awareness of what value-based relations shifts are, and the ability to leverage that. So in summary, I would say telehealth, home, analytics, and value-based payments.

I wanted to just ask a question, just knowing it's hard to ask non-COVID questions. But just interested in your assessment of the final 2021 rates. In particular, how comfortable are you at this point in terms of how CMS addressed ESRD for next year? I know that prior to the preliminary rates, you had expressed quite a bit of concern, and then you sounded a bit more comfortable after the prelims came out. So just interested in where your sentiments are now and now post the final rates.

With respect to broad rates, obviously they're less than the last two years, but still from a historical perspective largely in line. It does vary year-over-year. The rates are below our trend, and so that forces us to ensure that we're being effective at matching the health of our members and ensuring that their medical costs stay in line with the rates that we get. That’s always a challenge. Obviously, we’d like to see higher rates, because our unmanaged trends are meaningfully higher than the rates that were provided. But nonetheless, we understand year-to-year it's going to vary. With respect to ESRD, there was a modest increase from the preliminary to the final and potentially more meaningful if these are finalized. We’re hopeful that they will be around the network adequacy rules and what would qualify for dialysis, allowing us to use more innovative sites of care for dialysis. We’ve been a strong proponent of those. It's clearly something that we're very focused on for our 2021 pricing. The teams have worked very hard to do everything they can to ensure that we can provide really good care for our members in a cost-efficient way. We're working through that, but it's something that we're eagerly anticipating the final network adequacy rules being finalized.

I'm wondering if you guys can help us think about the sizing of the impact of extended length of stay at acute due to the CDC guidelines on requiring two negative tests before patients can be admitted into a SNF or an IRF. Are you seeing that pressure your hospital costs or extend lengths of stay?

Sarah, I don't know the answer to that. I have not heard that directly, but we can come back to you and get you the answer.

As Brian articulated in his opening comments, for us, we have seen not a significant number of COVID cases, so the impact would be small in any event.

Continuing on the telehealth theme, I know you guys have this innovative product on hand, a partnership with Doctor on Demand, but that is sort of a telemedicine-first type of product. How are you thinking about expanding that or bringing it to the Medicare book now that more seniors have been forced into adopting and understanding telemedicine? So how much of a priority is that when you think about your 2021 product profile?

I would say telehealth has—this has been an important attribute within our method plan even before this, so we're very oriented to incorporating telehealth in there. With that being said, I think it's less about getting it into the benefit and more about getting adaptability with our members. What we do find is that the adaptability of pure telehealth with video is much less than what you’re seeing in the commercial space as a result of both access to technology and just the comfort of using technology. Thus, one of the areas that we're working hard on is to continue to find ways that we can increase the adoption of pure telehealth as opposed to just telephonic. For us, it's not as much about the benefit itself, but as much as how we can get people to use it and utilize it. We have a number of initiatives going on even before this, but now even more intensely after the crisis.

So two questions here. One, when we think about the benefit from telehealth, you talked about the fact that primary care physicians are now feeling more comfortable incorporating it into the workflow. Part of it is necessity; part of it is also the fact that now their reimbursement rates have been brought up to the same level. So as you think about kind of benefit design for the future, do you expect that component of primary care rates for televisits or some sort of virtual visit to be in line with the current level to really encourage them to continue to use telehealth and advocate it to their patients? That's one. The second question is around testing. We've been hearing in the last few days a lot about drug retailers and labs and some plans working together on both molecular and serology testing. Any color, any plans of what you're doing in that area?

The first question around the telehealth visit and they're going to be equal to an in-office visit—we have to study that. I think there's a number of motivations outside of just payment for using telehealth. The awareness of the power of telehealth is increasing among physicians, and their workflow has been adapted for it. I don't know if this payment has to be at that level or not. I think we'll find the right motivators for that, because everyone is keen on continuing to find more distributed touchpoints for healthcare. We'll keep you guys updated on that. I don't have a full analysis on that, so that one we’ll talk about in the future. Regarding the serology testing, we are very supportive of it. We feel that the serology testing is an important part of being able to reopen the economy and be aware of who’s safe to go into both the healthcare system and the public sector. We are very supportive of our lab partners and, in addition, our distributors being able to deliver those tests and to work with them. I would say one of the things that we continue to try and understand is how impactful they are because of their accuracy and, in addition, the percentage of the population that is truly immune to this. I think we are eagerly watching some studies out there, such as Providence on the West Coast doing a study with their providers to better understand how the test works. I know there's a large study in the New York City area that is ongoing. We will be very supportive, and it's the right thing to do, but we are also observing its effectiveness.

I guess my first question would be, could you talk about what you saw in the Q1 reselection season as it relates to the Medicare Advantage individual market? I thought that you guys raised the outlets there. I guess was that related to more people opting into Humana plans during the reselection season? My follow-up would be, you alluded to trying to step up electronic selection in the MA open enrollment period process, and I would appreciate any comments around the plan to expect to make there in the back half of the year.

Yes. As we mentioned, the open enrollment period, which you're referring to from January to March, we did see higher sales and better term, so lower terminations than we had expected. I think the broker teams have done a great job in conveying to potential members our value proposition, and they have exceeded our expectations retaining our members. That's why we were able to raise guidance today in terms of Medicare growth. As COVID really started, social distancing forced some of our brokers to engage potential members from a distance. We've had to encourage them and work with them to adopt digital channels—telephonic, digital, any way we can get to potential members, not in person. For some of our distribution channels, that's a very different distribution mechanism. We will continue using these as the year progresses, especially if this continues, as Kevin asked earlier. We’re prepared to have a strong annual enrollment period for 2021. Members may become more receptive to digital channels and telephonic sales. We've seen a significant migration from in-person to more telephonic and digital channels. We think that's a good thing and expect it to continue. COVID could potentially accelerate that trend.

Bruce, were you able to rejoin? I think Bruce accidentally got disconnected, and I want to make sure he got back on.

Most of my questions have been answered. I just wanted to maybe have you help us think about a little further out, 2021 and 2022. I know, Brian, you said $18.50 would be the jumping-off point from 2020, which I think sort of alludes to the possibility you might over-earn this year if utilization remains low. That raises the possibility you might under-earn next year if cost trends are higher and then maybe everything will be back to normal in 2022. Does that rough framework make sense, and how does the one-year MA rebate play into that? We have a little bit of concern that if utilization remains really low this year, you could end up paying a rebate, but you don't get that back if cost trends are higher because the recovery rolls into 2021. So as we think about this normalized earnings, does that make sense or do you have any additional color you’d provide?

Well, I guess I would say that 2020 is going to be a unique year for sure. We’ve said very clearly that we anticipate staying within our guidance range of $18.25 to $18.75. There are a number of variables that can impact that and so we're going to manage that. It's important to ensure our various constituents are looked after. We plan to provide support there. I think as you roll forward to 2021, assuming things stabilize and get back to normal, it's possible to anchor off the $18.50 and think about 2020 as a more traditional year, then price off that. To the extent there are MA rebates or other challenges, I think we would effectively reset expectations back at the $18.50 baseline for 2020. We're thinking about our pricing cautiously and we're trying to be prudent as we anticipate the potential for COVID impacts on 2021.

I'm wondering, is it possible in the first couple of months before you started to see a little bit of COVID impact to tell whether the repositioning in your PDP business actually achieved what you wanted it to achieve? How that might influence further strategy for 21 bids, and do you think that you can return that to membership growth going forward?

I'll say a few things about PDP. I think as we indicated on our fourth quarter call, we did see meaningful growth in the new plan we set up at the low price point, and that actually did quite well. The determinations really came from the plan, and we had to increase in the premiums, significant increasing the premiums there and I would say that we had to raise our estimates as a result of that. As we’ve entered the first quarter, we've continued to see the same aspect of that, and we love to be in the lower premium plan that competes, entering the bid season that is something we're constantly analyzing and seeing how we could be in the lower price premium plan. I would say in general that what we are seeing in PDP, and you saw an industry decrease in membership overall, is that we're starting to see that there's more movement into Medicare Advantage and away from just the PDP side. We see that as a positive, not only industry-wide, but more importantly, as we look at our numbers, we've seen some great conversions coming from PDP to MA-PDP. As we think about Part D, we look at that as an opportunity to grow. It's very competitive going to both the share and we anticipate going into next year. But we see the real value as continuing to pay what more and more of our members under Medicare Advantage.

Just wondering if you could provide a little bit more color on something Brian was mentioning. As it relates to the drop-off you're potentially going to see here in utilization, you've made some comments about providing additional support for members, providers, and I believe the community. Just what does that actually mean going forward? How do you decide sort of who's getting what and how and when? Just providing a little bit more color on how you're kind of balancing that offset there?

Yes, we believe first just to put context around it, and continuing to support the broad constituents—those providers and our members to community support. That is just an area that I would like to say that’s sort of the broad area. As we think about what the most salient aspects are, we found that access to food was very, very important. Social isolation and behavioral health were important, ensuring people had access to pharmacy and the continuation of ability to receive care—this is also a key focal point. We look at the same thing as supporting that. We believe that the mobility of our most vulnerable patients will continue to be challenged as a result of that, and we believe that all of those things contribute to potential decline in health outcomes. We’re trying to address food access and social determinants of health. We'll continue to invest in areas around if we see benefits needing to change and encourage ways to ensure there aren't financial barriers. We’ll focus on that as we try to address any depressed utilization. As we see the recovery phase evolve, we’ll stage our investment accordingly.

Bruce, you're breaking up a little bit there. So I just want to make sure, Steve, that you have any follow-ups or anything you might have missed.

No, I don't think so. I think he provided color. Thank you.

I just have one question. With some of the MedSup and Medigap plans being phased out, is that having any impact on seniors’ buying decisions around those plans versus MA coverage? Do you think that the potential economic challenges may influence any changes that favor MA over Medigap? Just kind of curious your perspective on that dynamic.

I would say the phase-out of the effectively full coverage plans on our MedSup is more on the margin. There might be some marginal transfer to MA. There still are very rich plans on the MedSup side that allow people, if they want MedSup, to get it. They're not full coverage, but very close with the deductible. I think there's probably some benefit, but it's on the margin. I think the question is as you go into economic uncertainty, any benefit may depend on the member, but in many cases, MA saves members money. From that perspective, I think on the margin we could see incremental growth because of any economic downturn on the MA side. But again, I think it's on the margin that would be our assessment there.

To my teammates, employees, and associates. I want to thank you for the transition and really for your reach to our members. I can't thank enough local partners and federal stakeholders that have found ways to help the system respond much more quickly in addition to have much more impact. Lastly, we always appreciate our shareholders and their continued support this year, especially during the crisis. With that, I hope everyone stays safe.