Molina Healthcare Inc (MOH) — Q3 2023 Earnings Call Transcript

Good morning, and welcome to Molina Healthcare’s third quarter 2023 earnings call. Joining me today are Molina’s President and CEO, Joe Zubretsky; and our CFO, Mark Keim. A press release announcing our third quarter earnings was distributed after the market closed yesterday and is available on our Investor Relations website. Shortly after the conclusion of this call, a replay will be available for 30 days. The numbers to access the replay are in the earnings release. For those of you who listen to the rebroadcast of this presentation, we remind you that all of the remarks made are as of today, Thursday, October 26, 2023, and have not been updated subsequent to the initial earnings call. On this call, we will refer to certain non-GAAP measures. A reconciliation of these measures with the most directly comparable GAAP measures can be found in our third quarter 2023 earnings release. During the call, we will be making certain forward-looking statements including, but not limited to, statements regarding our 2023 guidance, Medicaid redeterminations, our recent RFP awards and related revenue growth, our 2024 outlook, our recent acquisitions and M&A activity, our long-term growth strategy, and our embedded earnings power and margins. Listeners are cautioned that all of our forward-looking statements are subject to certain risks and uncertainties that could cause our actual results to differ materially from our current expectations. We advise listeners to review the risk factors discussed in our Form 10-K annual report filed with the SEC as well as our risk factors listed in our Form 10-Q and Form 8-K filings with the SEC. After the completion of our prepared remarks, we will open the call to take your questions. I will now turn the call over to our Chief Executive Officer, Joe Zubretsky. Joe?

Thank you, Joe, and good morning. Today, I will provide updates on several topics, including our financial results for the third quarter 2023, our full year 2023 guidance, Medicaid redeterminations, our growth initiatives, and our strategy for sustaining profitable growth alongside our 2024 premium outlook. Let me start with our third quarter performance. Last night, we reported adjusted earnings per diluted share for the third quarter of $5.05, reflecting a 16% year-over-year growth on $8.2 billion of premium revenue. Our results demonstrate the continued execution of our strategy for sustaining profitable growth. Our third quarter consolidated MCR stood at 88.7% and our adjusted pretax margin was 4.6%, which illustrates strong medical and operating cost management. Our year-to-date consolidated MCR of 87.8% aligns with our long-term target range, while our 5.1% pretax margin is above the high end of that range. We note that investment income continues to bolster our year-over-year earnings growth and already strong margin profile. Our Medicaid business performed as we expected, with an MCR of 88.8%, which remains within our long-term target range. The medical cost trend, including the net effect of redetermination acuity shifts and corridors in several states, was within our expectations. However, Medicare’s results came in below expectations, with a reported MCR of 92.4%. In the quarter, we experienced higher utilization of outpatient, professional, and in-home services, which we addressed in our 2024 bids. Our marketplace, with a reported MCR of 78.9%, continues to perform well. Medical cost trends are in line with our pricing assumptions, and our improved risk adjustment performance is significant. In summary, our third quarter results build on our strong first half performance. Turning now to our 2023 guidance. Based on our third quarter results, we are affirming our full year 2023 adjusted earnings per share guidance of at least $20.75, reflecting 16% growth year-over-year, consistent with our long-term earnings per share growth target of 15% to 18%. Our fourth quarter outlook accounts for our year-to-date performance and considerations for seasonality and conservatism. Regarding Medicaid redeterminations, as of July, all our Medicaid states have begun disenrolling members. Despite this activity, our third quarter Medicaid membership was nearly unchanged from the second quarter. Growth from the initiation of the Iowa contract and the closing of the My Choice Wisconsin acquisition offset the 200,000 member decrease from the net impact of redeterminations and new enrollment. While many uncertainties remain on the ultimate impact of redetermination, we now believe it prudent to lower our retention assumption from 50% to 40%. Mark will address implications for revenue and our unchanged outlook for $38 billion in premium revenue for next year during his remarks. While the medical cost profile of members who have left the Medicaid roles continues to be more favorable than our portfolio average, combining that with the impact of corridor offsets in several states, our overall Medicaid MCR remained within expectations. Mark will provide more detail on redeterminations shortly. Now, shifting to our growth initiatives and strategies for sustaining profitable growth, beginning with our recent state wins, the implementation of our new California contract is on track, which will nearly double the size of our current membership in the state and add approximately $2 billion in annual premium, scheduled for a January 1, 2024 start date. In July, we finalized our contract for the Texas STAR+ program, retaining our entire existing footprint. With numerous new entrants likely attracting low share, we anticipate our share of membership in the state to grow, driving incremental annual premium revenue of around $400 million. Additionally, in July, we successfully launched our Iowa health plan, serving approximately 180,000 members as expected. Our Nebraska implementation is set for a successful launch on January 1, 2024, and will contribute an estimated annual premium of $600 million. In August, we announced we will once again serve Medicaid beneficiaries in New Mexico. We expect this new contract to begin mid-2024 and generate approximately $500 million in annual premium revenue. However, in Indiana, the state deemed us not to have met the readiness requirements for a Medicaid contract due to our Medicare DSNP product availability timeline. Although we were proud to have won the initial award, we are disappointed about not meeting that one requirement. Even with the developments in Indiana and the changing assumptions for redetermination retention, our new contract wins and reprocurements keep us on track for approximately $38 billion of premium revenue in 2024, as previously forecasted. On the M&A activity front, our acquisition of My Choice Wisconsin was closed in early September, contributing approximately 40,000 mostly MLTSS members and around $1 billion in annual premium revenue. The regulatory approval process for the Bright Medicare acquisition is also proceeding as planned, and we expect to close by the first quarter of 2024. Looking ahead to 2024, if we close the Bright Medicare acquisition on time, we remain confident that the known building blocks will lead us to approximately $38 billion of premium revenue in 2024, marking a growth of 19% year-over-year, even prior to executing additional strategic initiatives. While many positive earnings catalysts are aligned for the upcoming year, there are also some factors that are still developing. As customary, we will provide specific earnings guidance in February. Earlier this year, we communicated our long-term financial targets, centered around a compound annual growth rate of 15% to 18% in earnings per share. With the visibility into our earnings trajectory, we are comfortable reaffirming our commitment to this target over the next three years. I want to extend my gratitude to our management team, who tirelessly work to deliver these results. Our team has evolved to keep pace with our growth and execute every stage of our strategy. I would also like to highlight our executive team changes, with promotions of Jim Woys and Mark Keim to Senior Executive Vice President, with Jim adding the title of Chief Operating Officer. Two Molina veterans, Deb Bacon and Dave Reynolds will lead our flagship Medicaid business. We are enhancing management talent across our Medicare and Marketplace divisions and expanding our integration platform to support our substantial growth. Marc Russo will be leaving the company, and we thank him for his service. I want to express my appreciation to our nearly 18,000 associates who are dedicated to providing access to high-quality healthcare for our members. It is my privilege to work alongside such a committed and capable team of professionals. In summary, we are pleased with our performance this quarter, maintaining our robust margin profile during this unprecedented industry-wide redetermination process while continuing to generate double-digit growth. With that, I will turn the call over to Mark for additional insights on the financials. Mark?

Thanks, Joe, and good morning everyone. Today, I’ll discuss some additional details on our third quarter performance, balance sheet, 2023 guidance, and embedded earnings. I’ll also provide an update on redeterminations, our 2024 premium revenue outlook, and initial thoughts on the drivers of 2024 earnings. Starting with our third quarter results, we reported adjusted earnings per share of $5.05 and a consolidated MCR of 88.7%. For our Medicaid segment, the MCR was 88.8%. This MCR included a moderate impact from the net effect of redetermination acuity shifts and corridors in several states, as well as a slight elevation due to a provisional retroactive rate adjustment in New York State. The major medical cost categories within our Medicaid segment largely align with our expectations and the normal quarter-to-quarter trend fluctuations. In Medicare, our reported MCR was 92.4%, which is above our long-term target range. The continued increase in utilization of outpatient, professional, and in-home services can be observed in this quarter reflecting trends emerging in previous ones, enabling us to inform our 2024 bids and benefit design. We are optimistic that our 2024 bids will meet the target margins next year. For the Marketplace, the reported MCR stood at 78.9%. This strong result reflects our pricing strategy aimed at returning this business to target margins. Our focused approach on silver and renewal members has resulted in excellent performance and risk adjustment. Based on our year-to-date performance, we are well positioned to exceed our mid-single-digit target margins for the year. Furthermore, we recorded a non-recurring charge in the quarter related to our Texas Marketplace risk adjustment receivable from 2022 due to financial difficulties of a major program participant in that state. We have estimated the shortfall in collections, and while we’ve made our best estimate, we will explore regulatory avenues to recover the full receivable due to us. Since this charge is unusual and a one-time effect, it has been excluded from our adjusted earnings. Our adjusted G&A ratio for the quarter was 7.1%, consistent with our expectations. This includes new business implementation expenses for the new contracts in Iowa and other agreements beginning in 2024. Now let’s discuss our balance sheet. Our capital foundation is strong. We harvested around $175 million of subsidiary dividends in the quarter and employed a similar amount for our Wisconsin acquisition, leaving our parent company cash balance largely unchanged at about $0.5 billion. Debt at the end of the quarter remained stable at 1.6 times trailing 12-month EBITDA, with the debt-to-cap ratio at 38.3%. After accounting for parent company cash, these ratios drop to 1.3 times and 33.2%, indicating our low leverage position and ample cash and capital capacity for further growth and investment. Our reserve approach continues to align with prior quarters, and we maintain confidence in the strength of our reserve position. Days in claims payable at the end of the quarter were 51, elevated from normal due to the integration of My Choice Wisconsin and our new Iowa plan. Adjusted for these temporary impacts, our reported DCP would align with Q1 and Q2 levels. Now let’s discuss our 2023 guidance and embedded earnings. We’re reaffirming our full year 2023 adjusted earnings per share guidance of at least $20.75. This guidance now reflects our third quarter results and incorporates seasonal and conservative considerations for the fourth quarter. The new store embedded earnings remain unchanged at $5.50 per share, composed of $4 from recent new contract wins and $1.50 from acquisitions. The $4 per share from new contract wins now includes approximately $0.50 from the Texas STAR+PLUS and New Mexico deals, replacing the anticipated $500 million from the Indiana contract. The $1.50 per share of acquisition earnings comprises full run rate accretion from AgeWell, My Choice, and Bright Health’s Medicare business. Regarding redeterminations as mentioned in prior calls, we have developed robust tracking and monitoring systems to maximize member retention who meet eligibility criteria and promptly understand the financial impacts of redeterminations. Approximately one-third of our members reviewed have been termed, with over 70% of those disqualifications being procedural rather than based on actual ineligibility. Consequently, we are observing nearly 30% of those terminated members being reconnected, and we anticipate this figure will grow. In the quarter, we estimate losing around 200,000 members due to redeterminations, bringing the year-to-date figure to approximately 300,000. Considering the high proportion of procedural terminations and increasing intervention from the state and CMS, we expect reconnects will likely continue reducing currently reported membership losses. As we interact with members losing eligibility, we aim to transfer them to our Marketplace team for potential enrollment in that product. We are observing an uptick in the rate of former Medicaid members, from both our book of business and competitors, enrolling in our Marketplace products. Regarding the margin impact of redeterminations, while we note that terminated members exhibit lower medical costs than our portfolio average, combined with the effects of corridors in multiple states, the net impact from acuity shifts remains well within our expectations and overall MCR outlook for the year. Throughout the transition, we are collaborating with our state partners to ensure rates reflect the influence of redeterminations, either prospectively in the standard fiscal year cycle, off-cycle, or retrospectively as needed. Thus far, rates finalized in 10 of 12 states have included acuity adjustments, with several contemplating retroactive or mid-cycle modifications. Now, let’s delve into our 2024 premium revenue outlook. As Joe mentioned, we have a clear pathway to building blocks anticipated to deliver around $38 billion in premium revenue for 2024, marking approximately 19% growth over our 2023 premium guidance of $32 billion. This includes $1.1 billion of organic growth in our current footprint, plus about $4 billion from new state contract wins, with expected premiums from our Texas STAR+PLUS and New Mexico contracts replacing approximately $500 million from Indiana initially projected. Additionally, we anticipate $2.4 billion of acquisition-related premium, particularly from My Choice Wisconsin and the Bright California Medicare acquisition. Offsetting these growth drivers is a $1.6 billion impact from redeterminations and known pharmacy carve-outs. We have adjusted our original 50% retention assumption to 40% due to earlier redetermination activity, resulting in a $300 million reduction in our 2024 premium revenue forecast. However, we expect gains in the marketplace from increasing cross-sell and strong open enrollment will effectively counterbalance this outcome. We are maintaining our $38 billion in premium revenue outlook for 2024. Finally, there are several early thoughts on the drivers of our 2024 earnings. We uphold a sturdy 2023 earnings baseline to build upon. Our embedded earnings of $5.50 continue to present significant visibility into future growth potential. Investment income is likely to remain robust. We believe improvements in our Medicare performance will materialize as a result of our 2024 bids. The impact of new business implementation costs of $0.75 a share this year will diminish as we begin recognizing premium revenue on new business wins. However, several variables remain as we approach the conclusion of 2023 and the commencement of 2024. Our 2024 outlook will benefit from a further quarter of observed redetermination activity. Furthermore, rates affecting 60% of our 2024 Medicaid premium revenue are still pending, though we are confident actuarial soundness will be upheld, including appropriate acuity adjustments for redeterminations. It is noteworthy that rates finalized to date have generally been satisfactory. Lastly, the first year earnings contribution from the Bright acquisition is currently under review. In summary, we are pleased with our third quarter performance and the momentum we have established toward achieving our growth targets. This concludes our prepared remarks. Operator, we are now ready to take questions.

Thanks. Good morning. I want to pick up on that last thread around the exchange growth from the redeterminations and what you’re seeing early. I’m curious in terms of trends and members coming in. And then is it fair to assume that that would be better risk? They’re coming into your product and they’ve probably been previously insured, right, coming out of Medicaid? And then I’m just curious if this early experience, I understand a little less retention, does that change your view of the exchanges in 2024? I think last quarter you said that they would be relatively low growth in terms of premiums for 2024.

Josh, when it comes to the exchange business in the special enrollment period, we are seeing an increase in special enrollment, monthly special enrollment. It was averaging 8,000 to 9,000 a month until the redetermination process occurred; it has increased to 12,000 a month and growing. We are getting membership flow into the Marketplace from Medicaid redeterminations, not only from our book of business but also from competitors' memberships. We have a product and everywhere we have a Medicaid footprint. However, in many instances, our product isn’t as competitively priced as others. In areas where we are competitively priced, we are seeing an influx of Medicaid members from other competitors, as well as from our own businesses. We are quite pleased as we did not forecast Marketplace membership growth; hence we are seeing some positive outcomes. Mark, do you have anything to add?

Sure. Josh, I added about 40,000 members through SEP in the quarter compared to the 200,000 net we lost in Medicaid. If you consider the conversion rate of how many of the 40,000 came from our Medicaid book or someone else’s, that conversion rate is quite favorable, around 15% to 20%. Regarding the rate of incoming members, they appear to align closely with our portfolio run rate. We are not observing pent-up demand or anything beyond what we anticipated. Thus far, we are optimistic about future volumes and the margins related to them.

In response to your second question about the retention percentage, we follow the data closely. With 300,000 membership losses to date, it’s ill-advised to extrapolate any current result. Many states front-loaded the process, targeting members more likely to lose eligibility. The fact that 70% of terminations were procedural means the reconnect rate has averaged between 25% and now 30% of those members who have lost eligibility. Therefore, as we observed, we originally expected to lose 400,000 of the 800,000 members we gained during the pandemic, and that number has now risen to 480,000. This suggests that whatever we are seeing in terms of Marketplace pickup will likely increase as well.

Great. Thanks. I guess I have two questions. In the Medicaid business, you mentioned that MLR is aligning with expectations. It seems that every time we discuss this, you also mention an offset from risk corridors. Is there a way to quantify what the pressure would have been without this offset? As for the MA commentary, it appears Q3 outcomes came in worse, yet you mentioned that you caught it in time for your bid. I’m puzzled how MLR in Q3 could be higher than expected yet remain manageable for 2024 if you submitted bids in June.

On the Medicaid MLR, I’ll let Mark provide more details, but as we indicated during Investor Day, we often outpace the pre-COVID minimum MLRs, which can result in a payback to the state in the form of a liability in many instances. Some corridors we’re deep into, and when performance declines, that liability serves as a financial cushion to absorb losses until rates adjust for acuity shifts or other trend changes. As such, we noted that this is developing as planned, evidenced by the modest acuity shifts noted during this process. Mark?

To provide further color on that, if in normal circumstances you are booking corridor expense, and the underlying trend increases quarter-to-quarter, like in our situation, I would book less corridor expense. It is crucial to mention that we still booked a meaningful corridor expense in the third quarter, demonstrating we are still recording it and maintain a significant ultimate on those liabilities. As Joe mentioned, this corridor works effectively in the current fiscal year, and new rates are cyclical. Our best-in-class margins ensure that new rate cycles favor us and replenish our corridor position.

Kevin, as for the second part of your query, the Medicare MCR soared to 92.4% in the third quarter after running in the high 80s earlier in the year. We’re still on track to generate 2.5% to 3% pre-tax margins within that business, which is meant to align with our target of 5% to 6%. We did notice some trend inflections occurring in Q3 that exceeded the earlier part of the year, but we held a conservative pricing strategy. We captured certain trends early in the year which are now reflected in our 2024 bids; hence we anticipate a return to 5% to 6% pre-tax margins for 2024.

Great. Good morning. Thank you for the details regarding 2024 earnings drivers. Could you provide additional insights into the primary uncertain factors impacting growth next year relative to the 15% to 18% range you outlined? Also, regarding the retroactive rate adjustment in New York, can you quantify the quarter's impact and do you foresee a potentially favorable adjustment to this in the future?

Absolutely, Nathan. I will frame it, and then I will let Mark take over. First and foremost, we hold confidence in our $38 billion revenue outlook for next year, indicating a 19% year-over-year growth while maintaining best-in-class margins. With a solid 2023 earnings baseline, we generally grow organically within our footprint. Our embedded earnings of $5.50 per share from both new contracts and acquisitions is a significant growth catalyst for the upcoming year. We anticipate high-interest rates contributing to our revenue, with half of our investable base in intermediate-term bonds. However, we expect these rates will continue to fluctuate based on Fed actions. The three variables we need to observe before making a specific 2024 earnings per share forecast include how redetermination experiences manifest in Q4. So far, everything aligns with our expectations, although we have increased our ultimate loss assumption as outlined. Additionally, we'd like to see how rates develop for 60% of our 2024 Medicaid revenue. We’re already satisfied with the rates that impact the remaining 40% of our revenue for next year, which have been actuarially sound along with corresponding acuity adjustments. Furthermore, we note that the rates completed so far have generally met expectations. Mark, do you have further thoughts to add?

Regarding the rate adjustment in New York, we reported an 88.8% in Medicaid for the quarter. I estimate the adjustment's impact to be around 30 basis points related to that specific matter. The uncertainty arises because retro rates in several states are continuously reviewed. Yet I'm optimistic for an improvement, but as it stands, we must book that adjustment.

Good morning, and thank you for the questions. I wanted to discuss two points. Firstly, you experienced a notable amount of prior year development in Q3, higher than normal compared to previously. What segments of the business might have driven this and what could be the potential impact on earnings? Secondly, Joe, regarding investment income, during your conversations with states about rates, do states consider your margin rates as actuarially sound with a margin target, or do they factor investment income into those discussions, leading to potential rate reductions?

I’ll address the second question first. Investment income has historically remained outside the rate-setting discussions, focusing mainly on medical margin or trend assumptions. In rare instances, G&A is considered, but that’s infrequent. Regarding prior year development, I’ll let Mark provide insight as we maintain confidence in our balance sheet strength.

Indeed, our payment integrity systems, both prepay and postpay, play a significant role here. Identifying areas where payments should not have been made and following up with recoveries accounts for a substantial portion of any prior period development reported. Additionally, our corridor liabilities related to previous periods may mitigate any financial impacts arising from this prior year development.

Yes. Thanks. I wanted to explore what you are observing regarding members who have not reconnected within that 90 to 120 day window. What does the membership addition trend look like in that group compared to your expectations? Also, you have mentioned investing in quality initiatives to improve auto sign algorithm rankings. Are you beginning to see positive outcomes from those initiatives, or is it still early to assess due to the current context surrounding redeterminations?

I believe you answered the question correctly in your last statement. Given the gap is 90 to 120 days, we’ve observed minimal activity due to redetermination fully underway in May and June. However, your theoretical assumption is accurate; members will seek services and realize they lack coverage, leading them to re-enroll without retroactive coverage. We suspect that these members will return at a rate consistent with the portfolio average based on service requirements.

When discussing reconnects, we categorize them into two types: those classified as seamless, meaning they reconnect within 90 to 120 days, and those with a gap. Of the latter group, they will enter via the regular auto-assign channels. We are improving our algorithms for auto-assign across various states, which gives me confidence in capturing those members successfully, although it's still too early to definitively assess the impact.

If I could just follow up, you noted that rates are generally satisfactory. Was that in relation to New York, which may come in lower than expected? I’m curious about the rest of the book; are results mostly better than expected, in line with expectations, or are there elements that weren't anticipated?

As we used the term generally, it's primarily because we reported a retroactive rate that both we and the industry have been advocating for. Nevertheless, for the most part, regarding the rates that impact approximately 40% of our revenue for 2024 in the Medicaid business, those rates have been actuarially sound and have included what we consider reasonable acuity adjustments.

Hi, thanks for the question. I’d like to revisit the acuity discussion. You mentioned it’s still in alignment with expectations. Can you elaborate on how the higher levels of procedural disenrollments have impacted that? How challenging is it for you to maintain visibility given the current dynamics? Regarding the reconnect population, you anticipated that their MLRs would be akin to the remaining members. Do you have data supporting that conclusion, or is this still in the working phase?

For the reconnects, we are seeing a return rate that aligns with the remaining members, as per the portfolio average. However, I acknowledge your point regarding historical benchmarks; the absence of such occurrences over the last two to three years makes comparative analysis difficult. Yet, I am optimistic about the MLR of these reconnects, both seamless and those with gaps.

It's worth noting that durational acuity in leavers versus joiners is not new, but in this environment, maintaining accurate tracking is essential. Members enroll in Medicaid out of necessity and often leave after utilizing fewer services, typically resulting in lower costs than the average portfolio. We have maintained an average MCR of around 88% to 89%. Currently, with more individuals leaving than joining, the situation is simply more pronounced. We have robust tracking mechanisms for this data, and we need to avoid premature extrapolation as certain states informed their approach differently.

Hi, thanks. I’d appreciate your insights on your comfort levels with the current performance and bid positioning for the Bright Medicare asset you intend to acquire. How do you factor this into your 2024 outlook, and what downside protections are in place if the performance scenario doesn't meet optimal levels?

We are very excited about the Bright acquisition as it strategically enhances our Medicare offering, elevating it from a $4 billion business to nearly $6 billion, particularly in California, where we are also expanding our Medicaid business significantly. Our embedded earnings account for a run rate of $1 in terms of earnings per share. However, given the CMS pricing cycle, achieving this may take a bit longer than usual, but we are confident we can reach that milestone. I will refrain from commenting on their financial performance since they are a public entity, and it wouldn't be appropriate.

I wanted to discuss the exchanges further. It appears you have built in some conservatism for the fourth quarter. It seems you have maintained a low MCR year-to-date in the exchanges. Are you preparing for a significant uptick? Typically, we see utilization rise as people reach their deductible limits. What are your thoughts on this? Also, I noticed your expectations for premium growth in 2024 were relatively subdued despite meeting margin targets this year. Why not adopt a more aggressive growth strategy next year?

No, you are not missing anything. Thank you for your inquiry. To address your two questions: on the MCR, at the end of Q2, we projected roughly an 85% back-half MCR. We exceeded that in Q3, and we plan to estimate something in the mid-80s for Q4, putting us at 76% for the full year, which is 200 basis points below the low end of the range. This business is set to generate 8.5% to 9% pre-tax margins for the year. Our strategy around small, silver, and stable products is effective given the inherent volatility in the risk pool. Now, regarding your second point, we aim to grow the Marketplace business next year, albeit in a measured manner. Our pricing competitiveness is improving; for instance, in our Silver product, we are priced as the number one or two in 30% of our counties, up from 20% this year. We anticipate that will facilitate moderate growth while maintaining mid-single-digit pre-tax margins.

The only additional point I’ll mention is that Joe has strongly advocated for a focus on our small, stable, and silver product lines. When setting rates last June, we adhered to our discipline related to margin expectations. The stabilizing risk pool, influenced by the withdrawal of some market players, combined with our competitive pricing from last year’s contracts, positions us favorably for volume growth and margins that align with our discipline.

Good morning, and thanks for taking the question. Regarding retrospective rate adjustments, can you quantify your progress and estimate how much you believe you might be owed from those uncontractually committed rate adjustments?

I’m not in a position to comment on retro rates that haven't reached contractual obligations from our state partners. However, with our actuarial team and data-driven processes, we are engaged in discussions. Currently, we are actively pursuing several instances where the data supports our case, and the states have shown receptiveness to these discussions.

Hi, good morning. I have two inquiries. Firstly, regarding the $5.50 of embedded earnings, you reiterated that a part of this historically included Indiana, which might have only accounted for $0.15 to $0.20 of that amount. Can you clarify how you are backfilling to retain the embedded earnings at $5.50? Secondly, would it be fair to say that Bright’s year-one profitability is one of the biggest unknowns at this point regarding how much of that embedded earnings will be realized in 2024?

Indeed, Gary. As for embedded earnings, you are correct that we've excluded Indiana but have replaced that with anticipations from New Mexico and the finalized contract in Texas. We have confidence in attaining the Bright profit margins over a two-year period and achieving the $1 earnings per share contribution, although we cannot yet predict the impact due to the uncertainty of what we will inherit when the acquisition occurs.

Given that they are also transitioning into open enrollment, they are likely assessing their outlook for the forthcoming year. Hence, it’s premature for us to comment further on that front.

Thank you. I need clarification on rejoiners: can you split what percentage returns through exchanges versus those coming back on Medicaid? Additionally, among the two of the twelve states that haven't included acuity adjustments, are you detecting any patterns there, whether in terms of the costs associated or the timing of their redetermination processes or in how the rates are structured in relation to their risk corridors?

Regarding your second inquiry, I think it’s important to include the word 'yet' regarding those two states. The timing of the fiscal year impacts how projections related to acuity shifts will be made, especially since these rates begin during the redetermination processes. It's conceivable that we could receive a retro or mid-cycle adjustment on those states, although the majority have already provided concessions, so we feel optimistic about how that process will progress.

When referring to reconnects, seamless and those with a gap pertain strictly to the Medicaid segment. The 25% to 30% growth we’re observing is strictly within Medicaid, while the 40,000 members added through special enrollment in the marketplace are accounted for separately. This helps strengthen our overall membership story. Our improvement in auto-assign algorithms has further enhanced our ability to capture reconnects.