Unitedhealth Group Inc (UNH) — Q4 2023 Earnings Call Transcript

Thank you and good morning and thank you all for joining us today. As we conclude 2023 and embark on a new year, I'd like to express my gratitude to our more than 400,000 talented colleagues who really were UnitedHealth Group. It's directly due to their tireless efforts over the past year that we expanded our opportunities to serve more people more comprehensively. As I reflect on our 2023 performance, certainly, the shift in care activity among seniors was an important element for us to manage effectively, and the reduced Medicare Advantage funding outlook was a significant influence on how we prepared for 2024 and all the way through to 2026. Despite the shifting care patterns and the corresponding pressure felt during 2023, we've been able to both deliver on our growth commitments and invest and prepare for reduced MA funding cycles over the next three years. Even considering these factors, 2023 marked the year of balanced, sustainable growth for UnitedHealth Group. Importantly, we also strengthened the foundations, from which we will continue to grow in 2024 and beyond. To illustrate briefly during 2023, Optum Health approached growth of 900,000 more patients under value-based care. UnitedHealthcare added over 1.7 million new consumers in its Medicare and commercial offerings. Optum Rx managed an additional 100 million prescriptions for people. Optum Financial handled more than $500 billion in consumer payer and care provider payments. And Optum Insights facilitated more than 23 billion electronic transactions. The increasingly impactful ways we can engage with patients, consumers, care providers, and customers resulted in revenue growth of over $47 billion and adjusted earnings per share growth of over 13% in 2023. Looking to 2024, 2025 and beyond, we will continue to drive quality, simplicity, affordability, and accessibility to help improve healthcare system-wide, and we remain confident in and committed to our long-term 13% to 16% adjusted earnings per share growth rate. Having held our Investor Conference just six weeks ago, I'll take only a few minutes this morning to recap what you should expect from us this year, starting with our work in value-based care. Value-based care for us is a proven way of overcoming many of the widely recognized shortcomings of a fee-for-service-based health system such as fragmented consumer experiences and incentives that can emphasize volume over quality. Our value-based offerings empower physicians to provide more connected, coordinated and comprehensive care, align incentives among consumers, care providers, and health plans, deliver better health outcomes, and improve costs. At the end of 2023, Optum Health served more than 4 million patients in fully accountable value-based arrangements in partnership with many dozens of health plans. By the end of this year, Optum Health will grow to serve at least another 750,000 patients under such arrangements, for a total of more than twice the number of people we served just two years ago. Yet, even with the strong growth and significant investments we've made, our market presence is still quite modest and the opportunity expansive. 4 million patients served, just a small fraction of the many more people whose health ultimately will benefit from these models of care. And the total Optum Health revenue base, which today represents only 2% of the $5 trillion U.S. Healthcare System spend. We have a considerable distance to go to achieve the broad positive system-wide impact for people's health we believe we can help drive. Turning to our consumer focus, we're working hard to help consumers more easily find experience and pay for healthcare, and that includes using their health benefits. One example of our progress can be seen in the results of UnitedHealthcare's commercial benefits business. Most recently completed selling season was among our strongest in recent years. The majority of this growth will come from our relationships with large employers among the most sophisticated buyers of health benefits. Our customers tell us where we are focused on what their employees value most: lower cost, simpler experiences, and adaptable benefits that meet their unique needs and circumstances. And the consumer NPS for these new innovative products is over 20 points higher than traditional health plans. We have more to do. Our goal is to become the trusted source for healthcare information and advice, a go-to marketplace for health services, payments, and benefits, all through a few simple taps on a consumer's phone. One of our larger consumer offerings is Medicare Advantage, which I'd like to touch on briefly. We're proud of our long track record of growth and delivering for the people who choose our offerings. During the recently completed annual enrollment period, we added about 100,000 more consumers and we remain committed to our full-year goal of 450,000 to 550,000. We believe our assumptions of ongoing care activity and our approach to supplemental benefit management are entirely appropriate for the environment we are planning for and feel positive about our positioning for growth entering this three-year period. One additional item as we close out the year. To achieve our enterprise-wide long-term goals, we must consistently ensure the best use of our resources, both time and capital, to enable us to serve people more effectively and deliver value for our shareholders. As you likely saw, we recently agreed to the sale of our Brazil operations, where our dedicated colleagues served people with care and compassion. We highly value the relationships we have developed over more than a decade in Brazil. After carefully evaluating our best course, we ultimately determined a sale was the right step for the people we serve and for us to best focus our energies on the many compelling growth opportunities that we consistently discuss with you. And with that, I'll turn it over to Dirk McMahon, UnitedHealth Group's President and Chief Operating Officer.

Thanks, Andrew. Our growth is rooted in innovation and our intense desire always to do better. We're investing heavily in ways to accomplish that, increasing digital engagement and using AI to be more efficient, and then measuring our performance through net promoter scores to be sure we're hitting the mark. The impact of our digital engagement efforts was evident in our performance metrics. As Andrew noted, we brought on one of our biggest cohorts of new people served by our commercial offerings, and our technology played an important role in making the process work well. Since last month, the UHC mobile app consistently ranked number one or number two in the Apple App Store Medical Category and on Google Play. Through the first week of the year, mobile app installs were up over 100% year-over-year, and our chat volume was more than twice our historical average. At Optum Rx, digital investments enabled us to bring on a record number of new clients, who brought with them more than 3 million new consumers, onboarded with improved customer service scores and at an overall cost, 8% lower than last year, more consumers served, higher satisfaction, and lower costs. Our investments in AI and other advanced technology play an important role in improving customer service and productivity throughout the enterprise. For example, we are removing repetitive tasks from our workflows by using AI to help with tasks such as responses to consumer inquiries, updating provider directories, and summarizing interactions with customers and patients. This frees up our service staff and clinicians to focus on solving more complicated tasks for the people we serve. Recently, we launched a new capability, where we use real-time admissions and discharge data to engage high-risk MA members immediately after an emergency department visit. Connecting them to follow-up care to ensure higher-quality post-admit outcomes and avoid readmissions. This rapid response, driven by timely clinical data has improved member engagement rates by over 300% and has an NPS of 83. NPS remains a vital way to measure how we're performing for our customers and consumers and how our digital initiatives and other efforts are impacting those measures and leading to improved retention. Through digital optimization, we're providing consumers with on-demand access to care, highly personalized benefits information, real-time support, and integrated pharmacy capabilities. This is translating into significant NPS improvements in many of our businesses. We removed friction from the system through expanded access to 24/7 virtual visits and UnitedHealthcare's efforts to eliminate nearly 20% of prior authorizations. Throughout 2024, you should expect to see an even greater investment in our digital capabilities, as we continue to identify opportunities to leverage technology to reduce administrative costs, improve productivity, and further enhance the consumer experience at both Optum and UnitedHealthcare. And now, I'll turn it over to John Rex, UnitedHealth Group's Chief Financial Officer.

Thank you, Dirk. Our colleagues' ongoing focus on further expanding and strengthening the foundations, which underpinned our growth pillars is paving the way for consistent growth in 2024 and beyond. Revenue in 2023 of $372 billion grew by over 14% with double-digit growth at both Optum and UnitedHealthcare. Fourth-quarter adjusted earnings per share of $6.16 grew 15% and brought full-year adjusted earnings per share to $25.12, a growth of 13%. As Andrew noted earlier, at the end of December, we entered into an agreement to sell our Brazil operations and expect to close in the first half of this year. Upon closing, we expect to record a charge of approximately $7 billion, the majority of which is non-cash and largely due to foreign currency translation losses accumulated over several years. The impact of this one-time charge will be excluded from our 2024 adjusted earnings per share measure. For your modeling purposes, the full-year 2024 outlook incorporated about $6 billion of revenue for Brazil or about 1.5% of consolidated revenue. Before reviewing our business results, I'll offer some brief comments on care activity. Care patterns remain consistent with those we shared with you in the first half of 2023. Activity levels continue to be led by outpatient care for seniors with orthopedic and cardiac procedure categories among the more prominent. As we've noted, our benefit design approach assumed these activity levels persist throughout 2024. The care patterns we observed exiting 2023 reconfirmed that decision. On the margin, we saw some modest late-year seasonal activity, such as strong and welcome responses from seniors to scheduled physician visits to receive RSV vaccinations. In some cases, these were accompanied by additional necessary care being obtained, especially for people that had not seen a physician in some time. A positive outcome for people's health. As we reflect on full-year 2023 results, overall care activity was broadly in-line with the views we've shared earlier. As we enter 2024, we're confident in the response of pricing and benefit design actions we undertook. With care patterns continuing to be supportive of our care ratio outlook of 84% plus or minus 50 basis points. Turning to the performance of our businesses in 2023. Optum Health revenues grew by 34% to over $95 billion as we increased the number of patients served under value-based care arrangements by about 900,000 to more than 4.1 million, expanded services in the home, and broadened and deepened the levels and types of care we offer. Optum Insights revenues grew 30% to $18.9 billion. We concluded the year with a revenue backlog of $32.1 billion, an increase of $2.1 billion over last year. This growth was driven by our diverse and expanding product portfolio, which connects many of the key stakeholders across healthcare, whether it's launching new decision support solutions for providers, claims editing software for payers, or simplifying the payment process for all, our continued investments are fostering the next phase of Optum Insight growth. Optum Rx revenues grew 16% to over $116 billion, driven by the continued addition of new clients, expansion with existing relationships, and organic growth of our pharmacy services businesses. In 2023, both customer retention and new wins were among the best Optum Rx has delivered. At UnitedHealthcare, full-year revenues of over $281 billion grew nearly 13%. Adding to Andrew's earlier comments, within Medicare Advantage, we expect a majority of our full-year growth outlook to be realized outside the annual enrollment period, with the growth patterns consistent with those we have experienced over the more recent years. Our Medicaid enrollment outlook for 2024 balances two key elements. First is that state redetermination activities will be largely completed by mid-year. And second, growth within existing states such as North Carolina and other new opportunities will partially offset these impacts. Within our domestic commercial offerings, we expect to serve about 1.5 million additional people in 2024, a strong result. We are encouraged by the continued positive customer response we are experiencing as we look ahead. Our ample capital capacities continue to underpin our long-term growth objectives. Cash flow from operations in 2023 was $29 billion or 1.3 times net income. We returned nearly $15 billion to shareholders through share repurchase and dividends and deployed over $10 billion in growth capital to build for the future. To summarize our 2023 performance and start to the New Year further solidifies and reinforces our confidence in both the 2024 and long-term growth objectives we shared with you at the end of November. Now, I'll turn it back to Andrew.

Thanks, John, and thank you, Dirk. Heading into 2024, I hope you all sense our confidence. We have talented people who are committed to our efforts to help build a simpler and more consumer-friendly health system for the people we serve. And we are well-positioned to continue to deliver on the well-established commitments we've made. Operator, let's open it up for questions.

Thanks, good morning. I wanted to discuss the cost trend, particularly since the Investor Day at the end of the year. It appears that the MLR was somewhat higher. Can you share what you observed over the past month? Perhaps you could provide some insights, John, since you and your team did an excellent job in the second quarter of addressing cost trends and leveraging your facility insights related to scheduling. We're trying to determine if this is merely seasonal or if there's an increase in utilization from Q3 to Q4. Could you also share what you're seeing for January and your expectations for Q1 compared to the full year? Thank you.

Thank you for the question, Justin. I’d like to share a few thoughts before asking John Rex to provide additional details on the topic you mentioned. Looking at 2023, our performance was largely in line with our expectations, particularly toward the higher end of our anticipated range, which we indicated mid-year. The primary factor driving this is the shift in outpatient behavior among seniors that we discussed in June. After the investor conference, we did observe an increase in some seasonal activities, which, while small individually, collectively had a noticeable impact in the last part of the quarter. This included activities such as RSV vaccinations, which led to increased service utilization from seniors who came in for their shots. This is positive for healthcare overall, as many of these seniors had not visited a healthcare provider for a long time and have now been vaccinated. During their visits, physicians have also addressed other health concerns. Additionally, some elevated COVID activity was evident as we ended the year. However, we do not believe any of these factors will significantly affect our outlook for 2024. We are confident in our guidance for 2024, projected at 84, plus or minus 50 basis points. John, could you provide more detailed insights on this? Please go ahead.

Yes, good morning, Justin. You are absolutely correct. The main factor to consider when reflecting on the full-year view is the outpatient care activity among senior populations, which remains consistent with our earlier observations this year. This is very supportive of the benefit design we have implemented for 2024, particularly for senior populations in our Medicare Advantage products. All these elements reinforce our perspective and the actions we took earlier in the year. Regarding where we landed for the full year, we are slightly above what we stated at the investor conference last November by 10 basis points, which Andrew highlighted. To delve deeper, there is certainly some typical seasonality at play, and a few specific items stand out. Seniors have strongly responded to RSV vaccinations and scheduled physician visits, which in some cases have led to additional care being provided. For instance, seniors who hadn’t visited a physician in a while went for an RSV vaccine, and their doctors were able to address other care gaps, resulting in better health outcomes. Additionally, in December, the total number of COVID admissions were significantly higher—about 50% to 60% above the average observed in October and November. When I consider these factors collectively, they explain the 10 basis points differential in our full-year view, Justin. Regarding your second question about next year’s patterns, I would describe them as consistent with our observations from this year, reflecting an 84% outlook for the full year. When I take a step back to assess the broader analyst consensus, particularly for the first quarter, it seems to align well with expectations. Thank you, Justin.

Yes. John, thank you. And Justin, thanks for the question. Appreciate that. Next question, please operator.

Hi. Thanks. Can you describe the competitive environment for Medicare Advantage? And I'm specifically thinking about how you've adjusted benefits in 2024 as part of a three-year process? I don't want to put words in your mouth, but it sounds like you're trying to adjust for the majority of the risk model changes in one fell swoop. And I'm curious how you think that plays out and positions you not just for 2024, but then for 2025 and 2026 as well?

Hey, Josh, thank you so much. Before I ask Tim Noel to give you more detail on your question, I mean, listen, I think the way we've looked at the shift in the rate notice is, it is a three-year set of adjustments, and that's why we've been very thoughtful about how we've planned, not just, frankly, benefit design, but how we continue to accelerate our management of OpEx through the organization, how we continue to focus on eliminating unnecessary care and waste within the system through our various medical management capabilities. It's really a three-pronged set of agendas which we're going to be focused on over the next three years. We've been very thoughtful about making sure that we are setting those tables in a way which we can be sustainable through this cycle, so that we're not taking sharp left turns or right turns halfway through the period. With that kind of overall perspective, maybe I ask Tim to give you a little bit more deep dive on the competitive environment and how he is very specifically planning for this.

Yes. Thanks, Josh, for the question. So I agree with Andrew's comments and a couple of things to start with is, there have been a number of changes to the Medicare Advantage and Part D programs over the last 18 months to two years that are really phasing in over multiple years. As we plan for 2024, we once again took a very rational view to the environment and also a long-term view with always our overarching goal being benefit stability for our members. As we step into benefit planning in future years, we feel like we have a very thoughtful way to respond to all of those changes that will be encountered by the Medicare Advantage and Part D programs into 2025 and beyond. We don't believe that we have any material pricing catch-up to do in future periods and feel like we've got a thoughtful response to the changes that will be encountered by the program into 2025 and 2026. So we think the forward view of our competitive outlook is quite solid and strong as we think about growth over the long-term.

Thank you very much. Next question, please operator.

Hi, everybody. Just, I apologize, it's sort of granular, but we're getting asked a lot of questions about it. The two metrics, days claims payable down a couple of days year-to-year sequentially, some from the third quarter. And then the prior period development being down $100 million, maybe accounts for some of the variance on MLR, I'm guessing. I don't know if that's what you were guiding for when you last updated your outlook, but any comment on that as well?

Let me ask John to address that, A.J., thank you.

Yes. Good morning, A.J. So first on the days claims payable, so 2.8 day sequential decline, two days year-over-year. The single largest factor would be exactly what you pointed to, the change in prior period development. So that has a significant impact when you look back a year ago where we were on prior period development and where we were even in 3Q. The significant impact on that part would be the main factor. In terms of other contributing factors that we saw, we did see in the fourth quarter some modest acceleration in provider claim submission timing. So just speed up in terms of those submissions, how quickly we're receiving them from data services. As it related to the fourth quarter, we noted some higher claims intensity in the first part of the quarter, particularly October. So that's a factor that impacts the denominator, Medex per day in the day's claims payable metric. As it relates to the $100 million of unfavorable medical development in the quarter, put that mostly, the items that we were talking about in my response to Justin's question. The respiratory-related activity that we saw in there, the modestly higher cost per case for inpatient COVID admits really kind of those were the main factors that we had in there in terms of contributing to the unfavorable development. Thank you.

It's a good question, A.J. And as John just said, even back in the second half of Q3, we've seen subsequently that this RSV pickup and this phenomenon of more services being delivered around the vaccination was already starting as we were rolling out through Q3, which is what explains that. So in many ways, this kind of Q3 issue of negative development and then this slight pressure at the end of the year is kind of the same story, which is why we don't feel it has any real direct relevance in terms of thinking through 2024. Thanks for the question, though. I appreciate that. Next question, please operator.

Thanks very much. Good morning. I want to go to Optum Health and just maybe talk about the medical cost trend there. John, just going specifically to the comments that you made, did you see something similar in Optum Health or we see anything different there? And then also, I just want to understand the claim lag there. We've heard from some others that there can be a pretty big claim lag when we think about the providers versus the payers?

So let me ask John to start and then maybe ask Heather to make a couple of comments on the claim dynamic. Go ahead, John.

Yes, Lisa. We are definitely seeing an increase in RSV vaccinations among seniors and some respiratory activity during the quarter, which are broadly similar features. Regarding Optum Health, we've consistently mentioned the importance of engaging with our new membership. We onboarded about 900,000 new members at the start of the year. It's essential for us to focus on clinical engagement to improve their health outcomes, ensure they see physicians, and facilitate interactions with our clinicians. We've observed positive margin progression in Optum Health. At the beginning of the year, our engagement level with that 900,000-member group was around 20%. Now, we've successfully engaged about 80% of these members, which is crucial for Optum Health as we look ahead to 2024 and future progress. This has been a major focus for the Optum Health team all year, impacting members' health positively. For the new membership patients we aim to bring into Optum Health in 2024, we plan to start at a 50% engagement level, up from the 20% we began with in 2023. We're making significant advances, and that's what you can expect from the team, who have been very dedicated.

Great. Thanks, John. Maybe, Heather, you could comment on Lisa's question around claims, and then I'd like to ask Amar also to follow up on your perspective on engagement and what's driving that. Please go ahead, Heather.

Sure. I appreciate John's point about engaging patients early, which places a significant responsibility on the clinicians. It's crucial for our clinicians to have visibility into what actions to take next. Once engagement is established, our 130,000 clinicians are equipped with the necessary tools and technology. They can access solutions that include referral management practices to connect with high-quality specialists for outpatient procedures. Additionally, we've made substantial investments in behavioral health and home and community services over the past year. Furthermore, we've focused on securing contract protections with our payers to ensure that our clinicians can operate effectively. They have insights into patient dynamics and support from payers to practice responsibly.

Yes, thanks for that question. Look, I think I'd reiterate the point around our highest risk complex members, where we're engaging at a two times higher rate than the same time last year. Within engagement and our clinical programs, I'd focus around referral management and high-value evidence-based medicine programs, including our optimal care program, where a majority of our clinicians are engaged with these evidence-based programs and can get patients the care that they need, and importantly, get the support with the provision of wraparound services, including specifically home-based services, so that the highest risk groups have their care connected from the primary care setting into the home. Thanks for the question.

Amar, thanks. And John, maybe just to tie up the whole question.

Yes, and Lisa, tying up just on the last part of your question here regarding visibility into care activity claims lag, that’s not a factor. Given the model of Amar's business and how those groups run, we get probably early sensing mechanisms in terms of the care activity that's going on. It is one of the early sensing mechanisms from much earlier in the year when we were able to talk about what we were seeing in these senior populations and the care activity within these orthopedic and other procedures. So that's not a factor. In fact, if anything, it's one of the strengths of the organization.

Yes. Thanks, John. And Lisa, thanks so much for the question. We just spent a couple of minutes there talking about engagement, and I hope that gave you a strong sense of some of the progress we've made over the last 12 months in this area. I would say we're in a completely different position today than we were a year ago in terms of our ability to be engaged with these complex patients, making sure our physicians are ready to go. That's a really important aspect of what's building our confidence for 2024. And I make no apology for just spending a couple more minutes making sure you hear some of the great work that's gone on over the last year to ensure that we've got these very high levels of engagement and real substance behind that engagement. So that these patients will be supported and managed really positively going through 2024. That's what underpins and unlocks the whole opportunity of value-based care for Optum Health. Lisa, thank you for your question. And I'll move on to the next question.

Yes, hi. Thank you. I was hoping you could talk a little about what you're seeing for cost performance in the group commercial or exchange or Medicaid businesses? As you step back, is it still appropriate to attribute all the pressure you've seen in 2023 to seniors or should we be mindful of anything else there? Thank you.

Stephen, thanks so much. Maybe I ask Brian just to give you a kind of overarching summary of what UHC has seen in its different books of business, Brian?

Yes, I appreciate that. Thanks, Stephen, for the question. I'll lead with, I feel really good not only about how we finished the year in UnitedHealthcare 2023, growth at the top end of our ranges, performance run in positions across the board, but also as we step into the businesses for 2024, feel very good about the key assumptions that underpin our plan and am very optimistic. You mentioned a couple of areas. You're right; as we've discussed some of these elements with respect to cost trends, they are centered in our senior community. The message around those other businesses is that there is nothing to see here, and they are really aligned with our expectations, showing good stability and durability in the underlying elements, both utilization and unit cost of our trend outlook, and obviously feel very confident in how we're showing up competitively when you look at our growth outlook. So, very optimistic about UnitedHealthcare, with durability in those other lines that you're suggesting and a lot to look forward to here in the year.

Right. Thanks, Brian. Next question, please.

Great, thanks. Can you talk a little bit about Optum Rx, the drivers of growth in the quarter, in particular topline? And then if you could comment a little on revenue per Rx? Do you have any programs that either in the fourth quarter or in 2024 that you've been rolling out that are capturing some of the increased demand on topics like GLP-1s that might be contributors to some of the strong performance? Thanks.

Hey, Lance, thanks so much for the question. Before I ask Patrick to start the response on Optum Rx, I just want to note a super strong selling year for us in Optum Rx, probably our best ever. Extraordinary across a wide range of categories, plans, and public service states, as well as obviously commercial. I'm really pleased with the differentiated product offering, really built on transparency, choice, and, of course, cost. We feel we've built a strong momentum in 2023, rolling into 2024. Patrick, you may want to go a little deeper, maybe share a little detail on GLPs?

Yes, thanks, Lance, for the question. So as Andrew said, we had really diverse growth, both new business and high retention rates, so one of our best-selling years ever. I'll also call out the pharmacy services expansion, the organic growth across the diverse set of pharmacy services, and cost management. Lastly, as you mentioned, new products and services, just to call out one weight engaged. So comprehensive management, medication, provider support, client support, lifestyle modification, and digital, so a comprehensive solution across Optum, not just Optum Rx, partnering with Optum Health and Optum Insights. Already live with clients and robust interest in the marketplace, because patients, members, and employers want comprehensive solutions that demonstrate better health outcomes at lower total cost of care.

Thanks so much, Patrick. And Lance, thanks for the question. Next question, please.

Thank you. I'm still trying to understand how 2023 appears to be worse, yet this is said to have no effect on the outlook for 2024. Are you indicating that the additional pressure is primarily from flu and RSV and will therefore not reach these levels again next year? The negative trends suggest that costs earlier in the year are also higher, which would mean that the baseline is elevated as well. Could you clarify why this doesn't affect the base for next year? Regarding the guidance for MLR, do you see a reason to aim for the higher end of the range at the start of the year, or is the midpoint still where your focus lies? Thank you.

So I'll ask John to go a little deeper. Obviously, as you know, Kevin, we've set an MLR target next year, which is in fact higher than the actual closeout for this year in any case, which takes into consideration some of that kind of elevation that we've seen throughout the year. As we've talked a little bit already, this end of Q4 type of small seasonal variation, we don't think is really durable or relevant to the rest of the year. But John, maybe go a little deeper on that.

Sure. Good morning, Kevin. Yes, so the elements that contributed to the unfavorable development being around respiratory activity, there was respiratory activities that were going on as the seniors came in to get vaccines, and additional care was being delivered. Higher inpatient costs per case for COVID admits, really kind of those were the main factors contributing to the unfavorable development. You're absolutely correct; doesn't impact our run-in assumption as we think about our outlook for 2024, which keeps us right squarely in where we thought we'd be, as we were at our investor conference, targeting 84% plus or minus 50 basis points. In terms of how we view the consensus, we think broadly the indicator signals are still favorable for 2024.

Yes. And I also just add, as you would fully expect, Kevin, we're reviewing the leading indicators of care activity, frankly, daily, weekly, monthly, and have been all year. We've been investing significantly in the increasing numbers of early warning signals, if I can put it that way, to strengthen our radar capability to see this. And I can tell you, we're really not seeing any deviation from what we've been telling you all year in terms of the core activities across the system. Seasonal bumps at the end of the year, obviously, a little different. But in terms of outpatient utilization, all of those lines of activity we've been discussing at different times with you, the patterns there are very supportive of how we've stepped out for 2024. Thanks for the question. Next question, please.

Hi, thanks. I was hoping to just hop back over to Optum Health for a second. And just as it relates to the margin targets that you gave us at Investor Day for the 7.7% to 8%, just want to see if those are still the appropriate targets for 2024? If we could walk through the pacing exercise with OH margins, given the expected step-up from the exit rate in the fourth quarter, how you're thinking about those OH margins for 1Q, and then pacing over the course of the year? Thanks.

Scott, thanks so much for the question. I'm going to ask Dr. Desai to make a couple of comments, then I'm going to talk about where we've staked out for Optum Health next year. A ton of work was done during 2023 to strengthen the business. You saw that beginning to show through as we rolled through the second half. We continue to expect that to be a very strong driver of improvement as we go into 2024. A lot of that work we talked about already today around engagement is a key element of our confidence in being able to build our profile of that business. Amar, maybe you could go a little deeper, and then John can close out with discussing the progression.

Thanks for the question, Scott. We're confident in our 7.7% to 8% target for 2024. We've discussed engagement in detail. The second important piece is our medical management programs, which we've scaled effectively. What I would reiterate is the work we're doing across our network with payment integrity, again, with the idea of being able to provide the right support services across our network. The last piece I would also hit on is our initiatives around OpEx, which have been progressing well and are on track, driving operating efficiencies and G&A discipline across the organization. We feel very good about the 7.7% to 8% as we go into 2024.

Yes, Scott. Good morning. As Amar said, we feel very good about where we established our margin objectives for 2024. The key factor is how these new patient cohorts progress as they enter our business, and how we can engage with them clinically and improve their health outcomes, making sure we're able to close care gaps. The considerable progress accomplished during 2023 in engaging with those new members will assist a lot in terms of the health of the people we're serving this coming year. We expect typical seasonal factors to weigh in on how the quarters performed, but think about that as seasonal adjustments. They will have an impact here. So typical in terms of seasonal factors that we would have experienced this year, starting with a stronger base that sets us up well to reach our targets.

Right. Thanks, John. Next question?

Thank you for taking my question. I have a question regarding Optum Rx. Over the past year, there have been evolving dynamics surrounding regulatory changes for PBMs and their unbundling, as well as changes in pharmacy reimbursement models, such as a cost-plus approach. How are you considering the potential implications of these dynamics, if any? Do they have a significant impact on Optum Rx? How do you plan to keep the profit drivers intact for the PBM going forward? Thank you.

Erin, thanks so much for the question. Let me ask Heather to give you some comments there. As you know, Heather's been very involved with the various legislative processes, and it'd be good to get her perspective on that.

Sure. I want to quickly say that we are fully aware of the changing environment regarding affordable prescription drugs, which is a priority for everyone, including us, and this is the purpose of our PBM. We are working hard to ensure that policymakers recognize the importance of maintaining choices for clients. It's essential to uphold value-based structures, as we know that they are key to providing lower-cost drugs. We must maintain the incentive alignment where PBMs collaborate with payers to lower costs. It's vital that discounts persist, as there is no evidence that rebates increase list prices. That said, our model has diversified our business across Optum Rx, the PBM, and pharmacy services, which encompasses a wide range of operations. We value our clients' input and operate on their behalf in a fiercely competitive market. We succeed because our model excels in transparency, innovation, and partnership with clients. We will respect legislative developments while remaining confident about our current positioning. I feel optimistic about our experiences in 2023 as a foundation for the future, and I am genuinely confident in our growth prospects for 2024.

Heather, thanks so much. Erin, thanks very much for your question. I'm sure there will continue to be debate around this area. High drug costs, of course, is a big issue for everybody. First and foremost, we need to see list prices come down; that's the most important thing that can make a big difference here. As you look at all the different ideas that float up from time to time around reform in this area, there really isn't anything that we don't offer in some form or fashion to our clients and customers. The reality is we think that's the right position. We believe we should be offering a portfolio of different tools, different product designs, which allow people to choose what's right for them. Because what a state wants, what a union wants, and what a corporation wants differs. It is essential that their views are taken into account here. We believe we do that well in the diversity of our product offerings, and that's what's underpinning our record growth and it underpins our confidence for 2024. Appreciate that, Erin. Next question?

Great. Good morning. Thanks for the question. I wanted to ask on the Medicare AEP enrollment that you talked about, the 100,000 lives that you added. Were there any differences in terms of what consumers responded to this year or differences in retention rate relative to what you're expecting? Can you help us think about the drivers of membership growth over the year as you needed to get to the guidance that you gave for the full year?

Yes, Nathan, thanks so much for the question. Let me ask Tim Noel to give you that.

Yes. Thanks for the question, Nathan. The Medicare environment, selling environment is highly competitive. We probably saw one of the more aggressive years of pricing that we've ever seen in the 2024 session. We guided at the investor conference to growth of 450,000 to 550,000 lives, which is a bit more modest than we have grown in past years, but it's reflective of our response to the new risk model changes and what we saw in outpatient utilization patterns early in 2023, reflecting that in 2024 pricing. As we close out AEP, I would say that we were a little bit light against what we were thinking at the end of November. Most of that actually is in the group business; some of the aggressive benefits, a little bit more switching, drove some of our term rates a bit higher in AEP than we were initially thinking. But we still feel like we're going to have a much heavier weighting of our growth outside the annual enrollment period from February to December. This is a portion of the selling season we really do well in given our large dual footprint and the fact that some of the selling and AEP tends to be focused on some of those headline benefits that have been aggressively positioned. Throughout the remainder of the year, there tends to be some switching back as folks think more deeply about things like network, the fulfillment of supplemental benefits, overall service, and delivery of product. The headline is it is a very aggressive marketplace this year. We feel well positioned for 2025 and 2026 on how we priced, and we're very pleased with what we've done so far, excited about our opportunity to have great growth in the selling period from February to December of 2024.

Right, Tim. Thanks so much. Last question, please operator.

Hi, good morning. Most of my questions have been asked. I'll throw this one out, too. We've been seeing more articles about health systems just dropping their MA contracts. Some of those articles cite United. I know historically most of these types of contracts that, you know, conflicts that make the press historically ultimately come to terms, so I'm just wondering, is this just a media threat? Or do you think there's something more measurable happening here with your health system partners?

Hey, Gary, thanks so much. Let me ask Brian to respond to that.

Hey, Gary, thanks for the question. Overall, the disruptions that we see in the market this year are, I would say, at/or even lower than historical comparisons on average, leaving 2023. Any disruption for our consumers is too much; they come to rely on an in-network provider relationship. They have a coverage expectation from their health plan. We want to avoid that type of network disruption. However, we do need to balance that ambition with affordability. Currently, as it relates to the Medicare Advantage space, we did have some deals that came down to the wire. I think that had some impact on AEP. Again, going to Tim's commentary around our confidence February forward, where we have those deals intact, you will see that response in our growth as well. However, on average, really not much change overall compared to historical periods on disruption.

Yes, it's well said, Brian. Obviously, Gary, we see the need to advocate for patients and the government to ensure we provide the best possible costs for the care delivered. It's crucial that the negotiation process is strong. The good news is that the vast majority of issues are resolved. We dislike any disruptions, and while they occasionally occur, we are making good progress in this area. As Brian mentioned, there's no significant difference in outcomes compared to previous years. With that, I want to express my gratitude for all of your questions; they are very much appreciated. As you've heard, we remain confident in our mission, focused on our growth pillars, committed to delivering meaningful innovation, and disciplined in our operations and market approach. We look forward to fulfilling our commitments in 2024 to our customers, patients, and shareholders. I greatly appreciate your attention this morning, and I look forward to connecting with you between calls. Thank you very much.