Unitedhealth Group Inc (UNH) — Q4 2019 Earnings Call Transcript

Good morning and thank you for joining us. Six weeks ago, we had the privilege of spending the day with many of you at our annual investor conference, providing an in-depth look at the accelerating opportunities we see to serve more people, more deeply and to grow strongly into 2020 and well beyond. As we conclude 2019 and step into the New Year, the performance of our business strengthens our confidence in the themes, opportunities, and outlooks of that day, as evidenced by today’s results. We remain highly focused on driving affordability, innovating with consumer and customer responsive products and services, improving operating performance, and advancing NPS. Full year 2019 adjusted earnings per share were stronger than our investor conference outlook growing 17% for the year to $15.11 per share. Full year revenues exceeded $242 billion growing $16 billion over 2018 with notable gains in our Medicare, care delivery, and pharmacy care services businesses. Full year cash flows were $18.5 billion or 1.3 times net income. We finished the year encouraged by continued performance improvement in Medicaid. Early market interest in our new innovative line of employer sponsored benefit offerings and 2020 individual Medicare Advantage annual enrollment results, which were our strongest ever. Within our Medicare Advantage offerings including dual eligible growth, we expect to serve nearly 700,000 more people in 2020, the upper end of the range of performance offered at our investor conference. Our fourth quarter medical and operating cost positions continued to improve meaningfully enterprise-wide with ample opportunity for further progress on both of these fronts and our NPS improved nicely in 2019 across our businesses, particularly within network care providers, enrollees in Medicare Advantage and dual special needs plans as well as patients served by our OptumCare and pharmacy care services businesses. Improved costs and higher satisfaction, propelled by meaningful innovation allow us to contribute more comprehensively to the development and deployment of the kind of next generation health system needed in the U.S. and globally, a more forward-looking modern health system built around the people we serve seamlessly woven into their lives, simple, convenient, transparent, and compassionate, a health system that is more affordable creates a better experience for both patients and physicians and improves health outcomes. The health system we are helping to build will better meet the personalized needs of people. It leverages the next generation data analytics such as the individual health record to empower patients and their doctors with actionable intelligence that drives next best actions to improve decision-making in real time. We are committed to a future where every person has access to high-quality affordable healthcare that meets their unique healthcare needs and financial means. We are employing specific actions to help achieve this driving better health outcomes and aiming ultimately to reduce the healthcare cost trends to general inflation levels even with an aging, more chronically ill population. Notably, the bipartisan repeal of the ACA taxes in December was the strongest step towards improving affordability for Americans. It will greatly assist those who have been most affected by the cost of those taxes, especially seniors, small employers, and those who are individually insured. As we continue to do better for those we serve, we will grow helping improve the health system, one person at a time intensely focused on driving improved consumer and physician experiences. Looking to the years ahead, our strengthening capabilities and diversified complementary businesses operating in the large growing healthcare market positioned us well to achieve our long-term adjusted earnings per share growth rate objective of 13% to 16%, while we continue as always to invest in the future for sustainable, market-leading performance and advancing shareholder returns. With that, let me turn it to UnitedHealth Group President and Optum Chief Executive Officer, Andrew Witty to discuss Optum’s results and momentum heading into the New Year.

Thank you, Dave. At Optum, we are encouraged and humbled by the expanding opportunities to grow and serve more people more deeply. There is a distinct energy and eagerness across our businesses as we enter 2020. In 2019, Optum revenues reached $113 billion, growing 12% year-over-year. Total operating earnings grew 14% to $9.4 billion. OptumHealth revenues reached $30.3 billion in 2019, up 26% led by OptumCare, our care delivery business. We are steadily expanding into new geographies and expanding the depth and breadth of services in existing regions to further provide patients with the highest quality, convenient and affordable health services. One measure that helps illustrate how we are serving people more comprehensively is revenue per consumer served, which grew 26% in the quarter. This measure will continue to advance strongly as we further build out our integrated care delivery network. Turning to OptumRx, revenues of $74.3 billion grew 7% even with the previously discussed impact of the single large customer transition. The 2020 selling season for core pharmacy benefit services has now mostly concluded and it was our strongest ever. Through our other pharmacy care and specialty drug businesses, given our current positions we see significant opportunity to more fully serve patients’ pharmacy needs in their communities and drive better adherence and clinical outcomes. At OptumInsight, revenues of $10 billion grew 11% and the revenue backlog was up 14% to $19.3 billion. OptumInsight perhaps more than any of our other businesses has a dual role; it has both unmatched capability to help distinguish our other businesses and serves as a profitable, growing externally facing business on its own. I would like to spend a few extra minutes this morning on how we view OptumInsight and why we are encouraged by its potential. I will start with the foundations. First, deep data and advanced analytics are at the core supporting modern technologies and platforms to make the health system more interoperable, transparent, and efficient. Second, research, consulting, and large-scale managed services enabled by data analytics and digital and operational innovations made the consumer experience simpler, smarter, and more compassionate. And third, clinical expertise combined with rich data and analytics drive measurably better patient care and outcomes, reduce friction while lowering the total cost of care. We are connecting the health system to deliver better outcomes, low cost, and an improved experience for patients and their clinicians. This includes developing the connected infrastructure that integrates clinical systems, revenue management platforms and administrative claims transactions to enable critical bi-directional data exchange. Our solutions are harmonizing and organizing billions of transactions while applying considerable intelligence through our advanced technologies, clinical ontologies, and data analytics capabilities. We want to ensure critical decision support information gets to the right people at the right time with rigorous protocols to protect patient privacy all while offering full transparency of health system performance on both quality and cost. Our Optum 360 business helps health systems and hospitals improve revenue performance and patient experience. We deploy natural language processing for computer-assisted coding and documentation and provide data interchange and information exchange solutions as well as patient access services. Optum 360 now manages about $70 billion in annual billings for unaffiliated customers. More than 5 billion pages of clinical documents are processed annually by our natural language processing engines. These are used in a variety of other applications and customer data to help inform clinical actions and create administrative efficiencies from the more than 80% of the clinical record that is essentially free text, such as physician notes and discharge summaries. Payment Integrity is among OptumInsight’s strongest growing businesses. It provides compliance and cost containment solutions both prior to and following the payment of the claim. We offer a comprehensive portfolio of services for data mining and predictive modeling to help over 250 national, state, and local health plans and others ensure appropriate payments for services saving billions annually. Within the OptumInsight technology businesses, we apply advanced analytics and deep learning models to healthcare data covering nearly 240 million people to help optimize clinical outcomes and reduce the cost of care. Key offerings include population health, risk analytics, and technology support, and our research and consulting businesses provide thought leadership and expertise that reaches more than 200,000 leaders across the sector. Importantly, this business keeps us at the forefront of how health systems and providers are thinking about and approaching the future and drives deeper, more integrated customer relationships across the broader Optum businesses. As we turn into the new decade, we stand at a potentially transformative moment where the application of leading 21st-century technologies and machine-powered analytical protocols will open up for the first time the opportunity to create ever more precise predictions of individual and system health status and risk. This will accelerate a much more focused set of interventions to improve outcomes. I have no doubt this will be an increasingly critical element of our Optum-wide goal of improving clinical outcomes, quality, and affordability. Now, I will turn the call over to Dirk McMahon, UnitedHealthcare’s Chief Executive Officer.

Thank you, Andrew. UnitedHealthcare is deeply embedded in every aspect of the health system from how to finance and pay for healthcare to engaging people and aligning incentives to promote healthier behaviors and better medicine to improve overall health at lower cost. UnitedHealthcare revenues grew by more than $10 billion to $194 billion in 2019. Operating earnings increased by 13% or $1.2 billion to $10.3 billion led by the strength in our Medicare and dual special needs businesses. As Dave noted, we are off to a strong start in Medicare Advantage this year. I would like to quickly share how we are helping to build a better health system: first, improving affordability; second, engaging and serving people; third, advancing product innovation; and fourth, serving through hands-on data-driven clinical care. Let’s start with affordability because that is the gating factor for greater access to care and improving the consumer experience. One of our goals is to engage more deeply with the highest performing physicians and other clinicians to advance both quality and affordability. We know these high-performing providers achieve considerably better health outcomes, while lowering the total cost of care. Our medical cost trend over the last five years has strongly outperformed the financial average. We are committed to driving significantly lower rates in healthcare spending growth than the industry. We see billions of additional dollars in potential savings for consumers and customers from areas such as out of site of service initiatives and more deeply embedding digital tools to reduce the administrative burden for physicians. We are also using digital and physical strategies to engage consumers in new ways to simplify their experience, reduce their financial burden, and lower the total cost of care. For example, for the nearly 1.5 million people enrolled in our motion program, we offer incentives for increased individual mobility. People can earn more than $1,000 a year when they achieve defined walking frequency and intensity targets. People enrolled in motion are achieving better health at a meaningfully lower cost; that is why we are expanding this program and extending product designs that reward stronger consumer engagement and align incentives with their doctor. The third area is product innovation. We are seeing early signs of customer interest in our innovative new offerings in consumer-centric products that better align to the unique needs and financial means of people while engaging them in managing their health. Some examples are Harmony, a new collaboration with OptumCare providers, uniting high-quality care and coverage, creating a more integrative and effective consumer experience with as much as 20% savings for our fully insured customers; All Savers offers small employers with highly flexible, affordable health plans and reduces employee out-of-pocket cost with low or no preventative and primary care coverage; NexusACO enables large employers to offer a single ACO-based plan nationwide, incentivizing employees to choose high-performing providers and driving better outcomes through care coordination; Bind provides first-dollar coverage and allows people to add coverage on demand for planned procedures offered by high-value providers following rigorous care pathways based on best-known science, while costing approximately 15% less than comparable plans. And finally, our virtual-first product is attractive to the digital-first generation. This new product offers zero dollar co-pay, 24/7 virtual care support at a lower price than traditional products. These are some examples of our innovation focus and health benefits and you should expect more as we redouble our efforts to engage consumers in more impactful ways and accelerate our growth in this category. Lastly, we are deploying relevant information at the point of care to improve the way care is received and managed. Point of Care Assist is a tool that puts real-time patient information at the fingertips of doctors in their EMRs providing a seamless clinical workflow experience. This improves adherence to clinical protocols, facilitates real-time authorization approvals, and helps refer the patient to premium designated specialists. The utility of this tool is significant for all as doctors save time and money, consumers avoid cost surprises, and most importantly, health outcomes are improved. As we look to 2020 and beyond, there was a $900 billion untapped managed care market opportunity in health benefits, much of it in government programs where we have grown strongly and we look to serve more people more deeply across the system. Now, I will turn it over to John Rex, CFO of UnitedHealth Group.

Thank you, Dirk. This morning, we reported full year revenues of $242 billion, up $15.9 billion or 7% year-over-year driven by double-digit revenue growth in Medicare and across Optum. Fourth quarter adjusted net earnings of $3.90 per share grew 19% and brought full year earnings to $15.11, growth of 17%. Cash flows from operations of $18.5 billion grew 18% over 2018 to 1.3 times net income better than anticipated partly due to timing factors. Our balance sheet return metrics remained strong with a return on equity of almost 26%. We ended the year with a debt to capital ratio of around 40%, even with over $10 billion of deployment for business combinations and CapEx, $5.5 billion in share repurchases and a 20% dividend increase. Medical reserves developed favorably in the fourth quarter by $270 million, including a $150 million from 2019. Overall, medical costs were well managed, resulting in an 82.5% medical care ratio for full year 2019. We continue to be highly attentive to operating costs as part of our overall affordability agenda. In 2019, our operating cost ratio of 14.5% improved 50 basis points, reflecting 60 basis points of operating cost productivity and the deferral of the health insurance tax partially offset by the effect of business mix changes and continued investments in innovation, service, and growth. We enter 2020 with diversified growth momentum, balance sheet strength, and financial flexibility. On earnings progression, we continue to expect 47% to 48% of full year earnings per share to be realized in the first half of the year, a point to keep in mind on that quarterly progression. 2019’s first quarter has one fewer workday than 2018’s resulting in a higher earnings level. This year, the first quarter had a more normal mix but then adds an extra day due to leap year. Taken together, the day count shifting has a year-over-year impact on the medical care ratio of about 80 basis points. This will result in the first quarter 2020 MCR running higher than the second quarter and earnings per share progressing accordingly, with just under 55% of the first half earnings expected to be realized in the second quarter. These impacts, of course, were fully contemplated in that 2020 outlook we have provided at the beginning of December. For full year 2020, we continue to expect revenues to approach $262 billion and adjusted net earnings per share in a range of $16.25 to $16.55. Consistent with our prior practices, we will more formally address these and other expectations after the first quarter. With that, I will turn it back to Dave.

Thank you, John. As you can tell, we are confident in the outlook for our diversified and growing enterprise for 2020 and beyond. Our businesses remain strong and well-positioned for continued balanced growth by delivering even higher levels of societal value. We remain committed to our mission and an intense focus on serving one person at a time at increasing levels of value, more affordable, better outcomes, and improved experiences while generating strong returns for you, our shareholders. Operator, let’s open it up for questions, one per caller please.

Thanks. Good morning. Wanted to ask about the quarter in terms of medical cost, it looks like it came in better than you expected versus the update at the Investor Day. Any color there specifically if you can expand on how you are seeing kind of Medicaid progress from a cost and risk pool rate perspective as you kind of come into 2020? That will be really helpful as well. Thanks.

John Rex?

Hey, Justin. Good morning. Yes, I think I would point out a few things here. You are correct, it did come in just a little bit better than our guidance at the investor conference and a few things to note, first, I’d call it broadly across the businesses as we continue to see the impact of the affordability initiatives that we have been very focused on having traction and having impacts. So broadly across that, I think it’s fair to say also that we certainly did see some continued improvement in our Medicaid businesses, that’s a place that we have been focused on for a while here and that was also a contributor. But broadly, I would say, across our businesses as we saw those affordability initiatives having traction.

Thank you, Justin. Next question please.

Yes, just it sounds like on the call today you are reaffirming your expectations around Medicare Advantage enrollment, obviously CMS has come out with their January numbers. It looks like in terms of the percentage enrolled in January, you are a little bit lighter than you were a year ago, I don’t know if that’s a fair comparison, but I wondered if there is anything in the data that I don’t know if you look at what they put out that is missing from your perspective? I know it shows you down in group MA and maybe you are going to pickup in group MA, but just you flush out a little further what group MA over the course of the year would anything to reassure us about your expectations around MA for this year?

Thanks, A.J. We are very pleased with our AEP results. And I would say that by far it’s our strongest year ever in individual Medicare. We did reaffirm the guidance, but nearer to the upper end of that guidance today, so we feel pretty strongly on with respect to our overall performance. Tim Noel, can you add some color on some of the other questions?

Yes, good morning A.J. Thanks for the question. And first off, some of that CMS partial AEP reporting can be a little bit misleading. And Dave said, first and foremost, we want to reiterate the confidence in our full year enrollment growth that we shared at investor conference for MA. And just to revisit that briefly, we said 500,000 to 550,000 Medicare Advantage growth in the M&R business, which includes both group and individual MA and we also said that would be up to 700,000 in MA growth, including duals lifting our community and state business. So when AEP completes, we will have grown by 370,000 in individual MA, including the duals that are in CNS and that’s up 140% over last year’s AEP and is our strongest performance ever in the annual enrollment period. We expect this to drive full year results about 700,000 member growth in individual MA and that’s split on January net growth versus the rest of the year is roughly 50-50 and that’s consistent with the historical pacing and also full year supported by the momentum that we have seen in AEP. With respect to group, you are right, group MA contracted modestly in the CMS reporting. When January all settles out, we expect that to be down about 65, but that will strengthen to flat to down 25 as the year closes out. And finally, all told, really great start to the year, strong signal of confidence for the full year and our growth guidance shared at investor conference.

Thank you, A.J. Next question please.

Thanks. I think just sticking on the membership updates for 2020 and obviously you just gave some good detail on Medicare. Just interested if there is anything to call out in terms of on either the commercial business or the Medicaid business in terms of expectations on membership relative to the ranges that you had provided at Investor Day? Then also just specifically within that, just interested in how you are sort of approaching the North Carolina Medicaid situation, just given the budget situation there in terms of what you are assuming for timing implementation of that and how many lives you have factored in around North Carolina? Thanks.

Good question, Scott. Thank you. Dirk McMahon will start and then Heather Cianfrocco can discuss Medicaid.

Yes, thanks. Thanks for the question, Scott. So, we will be down a little bit in enrollment for 01/01/20 in both the fully insured and ASO areas. But as throughout the course of the year, we expect to gain membership in both areas that we have previously guided in December. As we look at 2020 we are going to continue with the pricing discipline that I have previously talked about as we balance enrollment growth with our margin expectations. We remain focused on delivering a unique value proposition for our customers and the consumer. Just to tell you, we are optimistic for next year, I mean in fully insured, expect strength in individual products in their middle-market, as I look at your ASO block, I look at our All Savers and I look at our middle-market as well. And with that, turn it over to Heather on Medicaid.

Thanks. Yes, so good question with respect to – I will start with membership and I will talk a little bit about North Carolina. So membership for this year we do expect growth in Medicaid this year and that’s coming from a couple of places. North Carolina is in our 2020 guidance right now. We have got some other things in there. We have got some increases from some markets like our Washington win last year, Texas win, recent Texas wins. We are going to see some Nebraska expansion and then we see another strong year continuing as Tim just talked about for 2020 we think we are really well positioned there with new county expansion, service area expansion and our AEP is off to a really, really strong start. We are really excited about that. Pressure is obviously North Carolina. So, it’s in our 2020 membership outlook and our revenue outlook and we assume it right now to come in about midyear. We are really honored we were selected. We are ready for implementation and we are eager to start serving North Carolinians. Despite the situation there, there is strong support for the program and for managed care there. So we are continuing to monitor the implementation date. We will keep you posted on that and you will watch that as well. In the meantime, we have got – we are excited about the opportunity, it’s in our outlook and we look forward to hopefully getting that on track here close to midyear as possible.

And just to add on to that a little bit, Scott, we won also in Kentucky. We are pleased to win obviously, that’s being re-bid now, but we will hopefully prevail in the end there as well and it’s a strong RFP season for Medicaid broadly. And I see the business having come around to being positioned with its turnaround just in time to compete ferociously for that business. So we are pretty bullish about the opportunity that exists in Medicaid and I think we are well positioned to grow. Thanks for the question, Scott. Next question please.

Good morning, everyone. Nice quarter. I’d like to take it up a little bit in terms of looking at some of the longer term picture for Medicare, just a couple of changes in the Medicare program and I am curious what you think of as being the biggest risks to you in terms of your business, and those are paying for social determinants of health, which is something new for this year allowing ESRD patients to join next year and Medicare fee-for-service direct contracting by providers is starting. Can you talk about those three items and if they are risks to you?

Sure. I would be happy to discuss all three of those. Tim?

Yes. Yes, thanks Peter. So I think I will take ESRD first, but also I want to caution the long-term outlook especially with respect to 2021 and really any year, it’s a little bit premature to get into some of the nuts and bolts of how we see the landscape shaping out. But on ESRD, we are very supportive of the change that goes into effect in 2021 and are encouraged by the opportunity to serve more people. We are not concerned with some of the unknown elements around the reimbursement and payment models. We will learn those details very soon. We remain confident and expecting that those models will be fair and adequate. And importantly, we believe that these people will be better served in Medicare Advantage. And also important to keep in mind, we served 40,000 Medicare Advantage enrollees with ESRD today that developed a disease post enrollment. And our focus for these members is both on prevention and also on treatment. So we are pleased to have the opportunity to expand our reach and impact with patients that have the disease at the time of enrollment. With respect to social determinants, we continue to have that be a key focus of our business consistently referring folks into insider programs where appropriate and some of the additional flexibility our plan designs are elements that we are leveraging in some of our demonstration projects in 2020. We are excited to learn a little bit more about this as the year progresses and look for more opportunities to do things in this area in 2021.

The last one was physician direct contracting fee-for-service Medicare.

Right. Hey, Peter. Brian Thompson here. We are very encouraged by that as well. I think similar to what we have done with the bundled payment program it’s a good opportunity to work on advancing traditional Medicare and we are encouraged by that thinking and creativity and look forward to participating.

And I might add overall, Peter, that we are bullish obviously overall on the outlook for both Medicare Advantage, but also the dual special needs marketplace as well. They are both very large today and growing in markets. MA is clearly outperforming fee-for-service in terms of overall benefit coverages and the quality of outcomes and the returns that people are getting in terms of their overall satisfaction. And so, no surprise that it is performing as well and seems to be gaining some momentum. So we look forward to continuing to compete, hopefully growing at these levels, if not higher, going forward. Next question please.

Thanks. Good morning. Question around the sort of broad space that’s growing around physician enablement and I am curious it seems like there has been a lot of interest, a lot of new competitors that are kind of focused on that. I know Optum has been very early. Do you think of Optum as sort of the market leader and is this broad movement of physicians taking more risk, is this positive for UnitedHealth Group?

Josh, thanks so much for the question. It’s Andrew. Yes, we absolutely see physicians very much as a central element of improving care delivery quality and cost. It was really driving OptumCare which is clearly the central part of OptumHealth. As we see physicians move toward taking more risk, we see improvements across the board in terms of resource allocation, prevention, focus, ensuring clinical outcome is maximized. We are very encouraged by that trend. This year alone we would expect about 150,000 more patients to go into our physician risk managed programs across OptumCare. We continue to see that trend accelerate. It’s very much something that we then anchored the build-out of the rest of our OptumHealth portfolio around. So in a sense, is that thoughtfulness around how can we then create services inside data analytics which help the position and make the best possible judgment to manage the overall risk profile of the patient. You see that then reflected in the relentless growth of the revenue per patient served across OptumHealth. That’s really being driven by this shift. And so you are absolutely right, very important element for us and it essentially becomes the core around which we then envision and build our support services, our interventions, and our analytics to empower the physicians to make the best possible decision on behalf of the patients. Thank you.

I might just add to that just slightly, Josh, that UnitedHealthcare is working on physician enablement as well. This is what the core of Dirk’s commentary this morning was around Point of Care Assist. This is why we built and deployed the IHR and this is why we focus essentially in our investor conference around the way in which we engage both the digital and physical realms to AI-enabled people to be able to operate much more effectively and serve their patients. So thanks for the question.

Thanks. Just want to go back to Medicaid for a minute. Can you talk a little bit about, I think you mentioned that in Q4, maybe you saw some improvement on Medicaid, but can you talk about the expectation for the year, I guess in particular, I guess two things, one is the implication of redeterminations and the rate updates will get relative to that, how are the rate updates going and do you – are you modeling additional rate determinations as the year goes on? And then second just quickly going back to the North Carolina, if North Carolina got delayed into 2021, would that impact your EPS guidance or is it more towards the revenue number at this point?

Heather, do you want to take that question?

Sure. So maybe I will start with that Medicaid performance. So, yes, we are pleased with Q4 results and when I said that I really mean it’s marching along right within expectations with what we have really executed on our affordability agenda. We see strong partnership with our state to address what was for a period of time due to redeterminations or other underfunding issues, acuity-related underfunding. So as we look into 2020, I feel good about the progress made through all of ‘19 and particularly in the second half of ‘19 with respect to rates and with respect to affordability. And so as we come into 2020, we have got to view into our Q1 rate renewals. They are right in line with our expectations. They are up above what they were at the same time in ‘19. We have delivered on our clinical programs. We are seeing strong NPS, customer service scores, and quality. So I feel good about that. As I say that, you still expect us to hit our target margin by the end of the year. So that just gives us renewed confidence in what was committed to you already, so expect our Medicaid business to continue to perform along that track and we will be hard at work on it. With respect to North Carolina, yes, I guess, I will just say, again we are monitoring it every day right now, I am going to say that we are continuing to push and it is a big component of our opportunity in 2020 from revenue and a membership perspective. But that being said, there is a lot of other growth opportunities that we are measuring to. We didn’t have Kentucky in our guidance but we also didn’t not got pushed, but we also didn’t have the Massachusetts care bid that we just won. So we are going to be monitoring all those things. And right now, we are going to kind of work for midyear or close thereto implementation and we will keep you posted.

And just to add, Scott, we won also in Kentucky, we are pleased to win obviously, that’s being re-bid now, but we will hopefully prevail in the end there as well and it’s a strong RFP season for Medicaid broadly. And I see the business having come around to being positioned with its turnaround just in time to compete ferociously for that business. So we are pretty bullish about the opportunity that exists in Medicaid and I think we are well positioned to grow. Thanks for the question, Scott. Next question please.

Great. Does that mean I get to ask two questions? No.

Pardon me.

I was going to say, great, does that mean I get to ask two questions?

You can. We will answer the first one.

I will ask just my question. My one question is I do appreciate the earnings cadence commentary given the leap year, but thinking since reported MLR is such an outsized impact on the near-term stock volatility, wondering if you would be willing to give us first-quarter MLR range, I mean there are a few other moving parts in the quarter besides leap year that was pretty high March seasonality with extra Monday, Tuesday and then obviously with the dilutive impact of the HIT reinstatement?

John Rex you, maybe just, I know that was pretty complex in terms of quarterly progression and we expected that. So John, you just want to make sure that everybody understands that well.

Sure, Gary. Good morning. Let me give you a little more color in terms of the impact that occurs as we go into that, but I described kind of some of the impacts with workdays content and how that flows. And just in terms of what I was describing there, it actually comes out to it, it’s a little – it’s not two days, it’s more than one day, it’s about 1.3 days of impact in terms of the workday content is where it fall then to when you flow into a leap year like that and that pattern, typically of course, repeats. So that’s kind of the element that flows into that. Then if you consider the other elements we talked about at – when we talk to our full-year MCR progression and year-over-year progression, we talked about the impact of the health insurance tax of 140 basis points and that impact and then we talked about mix impacts also that occur over the course of the year. So those are really kind of the cores that are as we consider, as we consider where we would expect the medical care ratio to be lining up here as we look at the first half of the year. I hope that gives you a little extra color.

So you don’t want to give us a 1Q range today?

Sorry, what’s that, Gary?

You don’t want to give us the first-quarter MLR rate?

First quarter pick. I think I kind of just described it actually pretty, pretty hopefully fairly clearly there in terms of the roll forward and how you would approach that. So if you take the components of the math that I just gave you I think that should get you to a first-quarter pick.

So there is no change to full-year guidance. John tried to lay out for you our first half last half would be, and then within the first half what the proportions would be as well. So you should be able to get a pretty good sense of things from all of that recognizing oftentimes things don’t shoot quite that straight. So plus or minus would probably be a worthwhile range to put around whatever point estimate you come up with. Thank you very much Gary. Next question please.

Thanks for squeezing me in. Now that there is some bipartisan support for spread pricing though, can you talk about the exposure in ‘19 you said it was about 25% of the book so did that needle move for ‘20, what is the mix look like in your commercial book of spread versus pass through? And does this bill impact the value proposition that you see for OptumRx at all? Thanks.

John?

Sarah, thanks for the question. As you know, we are committed to driving to a strategy around negotiating with the clients of a transparent model where more and more of our services are coming from administrative fees and value-based arrangements. Our clients decide how they want to pay for our services. So when we bid on a deal for our client, we give them an opportunity either to pay through administrative fees or with spread or traditional. So it’s the client choice. So as you look at it, we don’t have a preference about where we want to go up in business model. We are indifferent to how a client wanted to choose it. In terms of the commercial market, the trend in the market hasn’t changed in the last several years. So actually the client is not going to move one way or the other in terms of spread versus administrative fee. As you look at the Medicaid market, there has been a trend over the last three years where more and more of the state organizations have been moving to administrative fees. So if you looked at our client base three years ago, the majority would have been spread. If you look at it today, less than a quarter is in spread and actually we expect that to almost disappear as you look out the next year or 2 years. So from us when they actually impact our financials, I won’t speculate about what will happen in Washington, but we are well positioned from a business standpoint.

Great question, Sarah. Thank you so much. I will go ahead and close now. Thank you all for your questions. Sorry, we can’t get to everyone today. As you heard this morning, we remain confident in our outlook for 2020 and beyond. Our diversified and complementary businesses are strong and well-positioned for continued balanced growth by delivering even higher levels of societal value, while generating strong returns for you, our shareholders. Thank you and this concludes today’s call.