Unitedhealth Group Inc (UNH) — Q1 2024 Earnings Call Transcript

Good morning, and thank you for joining us today. We have a lot to cover. First, we'll discuss the status and impact of the Change Healthcare cyberattack, then we'll turn to the performance of our businesses, which continue to grow and perform well. It's important to underscore at the outset that even as we have devoted significant attention to addressing the Change Healthcare attack, the vast majority of the 400,000 people of this enterprise have remained as usual, intensely focused on delivering for all those we serve. That dedication is reflected in our overall performance this quarter. Directly as a result of their hard work and the broad performance of our diversified businesses, we're able to reconfirm our full-year adjusted earnings outlook, even as we absorb $0.30 to $0.40 per share in business disruption impacts related to Change Healthcare. Now turning to Change Healthcare, this was an unprecedented attack by a malicious actor on the US health system. We promptly disconnected the affected services and turned our focus to two main areas: restoration and support. The attack disrupted the ability of care providers to file claims and be paid for their work; we moved quickly to fill this gap. Fortunately, we were able to bring to bear the substantial resources of UnitedHealth Group to drive the recovery and begin to mitigate the impact — resources which are standalone to Change Healthcare, would not have had access to on its own. These are the resources and philosophy that underpinned our remediation of healthcare.gov back in 2013 and our distribution of CMS COVID emergency relief funds to care providers in 2020. Here, we assisted care providers in financial need, providing over $6 billion in funding, all at no cost to them. We rapidly deployed resources to develop alternative solutions and moved promptly to restore claims and payment services. We've made substantial progress, and we will not rest until care providers' connectivity needs are met. And to help care providers mitigate workflow disruptions and help ensure the uninterrupted delivery of care, for a period of time, we suspended some care management activities. I'm immensely grateful for our colleagues who continue to work tirelessly day and night to restore services, free up funds for providers, and protect the broader health system. Let me touch on two more items we know are of interest to you. First is care activity. The central point is that overall care patterns are consistent with what we anticipated last year heading into 2024 and within the outlook we shared with you in November. The second item is the essential value of Medicare Advantage to seniors. Here are what we see, some of the core facts regarding Medicare Advantage. It drives better health outcomes, provides a higher-value, significantly more comprehensive benefit for people, all at a lower cost to beneficiaries and taxpayers, and is more popular with and valuable to seniors than traditional Medicare. Medicare Advantage consumers spend on average 45% less on premiums and out-of-pocket costs than those in traditional Medicare. That translates into nearly $2,400 in savings annually and several times more for the country's most underserved and medically challenged populations. That's one of the many reasons why more than half of seniors choose Medicare Advantage today versus 30% 10 years ago and why we believe these offerings will continue to grow strongly for years to come. 2025 is the second year of the significant three-year phase funding reductions to Medicare Advantage introduced by CMS last year. Here, in early 2024, we're at the beginning of our thoughtful responsible three-year plan we developed last year to adapt to those changes. Our strategy continues to focus on providing as much stability as possible in the reduced funding environment. Improving outcomes and experiences for the consumers we're privileged to serve and delivering the performance you expect from us. We believe our long-term perspective and the deliberate multi-year approach we began last year is serving us well, putting us into a position of sustainable competitive strength. Among a handful of notable business developments to share, UnitedHealthcare was honored to secure major Medicaid wins in Virginia, Texas, and Michigan. While we're disappointed in the outcome in Florida, we'll be seeking to better understand the process and considerations there. There is a substantial pipeline of Medicaid RFPs, and we're confident that our offerings will resonate in other states as well. UnitedHealthcare's commercial benefits continued their momentum from last year, growing to serve two million more people in the first quarter, the largest increase in years. This growth was across UHC's commercial customer segments from individuals up through the largest of employers. This is further evidence of our innovative and consumer-centric products have established the footing for sustained growth. We also see continued momentum at Optum Rx, coming off last year's record-selling season with a recent win in Hawaii and the renewal of our contract with the Department of Veteran Affairs. We're grateful for the opportunity to support them. And Optum Health is tracking well to achieve its objective of growing to serve another 750,000 patients in value-based arrangements this year in partnership with many payers. Before I turn it over to John Rex, our President and Chief Financial Officer, I want to acknowledge Dirk McMahon, recently retired after more than 20 years of service. I'd like to thank him for his leadership and partnership. Dirk has left an indelible mark on this company through the example he set and the many of our leaders he has mentored.

Thank you, Andrew. This morning, I'll first provide color on some of the unique items in the quarter directly related to the Change Healthcare cyberattack, followed by care activity trends, business updates, and finally thoughts on the remainder of '24. But first, let me start at the most fundamental level. The UnitedHealth Group businesses continued to grow and perform well during the quarter, and we are encouraged by the momentum and the many opportunities to serve we're seeing across the enterprise. On the Change Healthcare cyberattack, as Andrew noted, our guiding focus throughout has been to make sure patient care is delivered and care providers' access to funding is secured as we work to bring back services fully. The cyber impacts in the quarter totaled about $870 million or $0.74 per share. At this distance, we estimate the full-year impact will be $1.15 per share to $1.35 per share. Let me break that down into its key components. Of the $870 million, about $595 million were direct costs due to the clearinghouse platform restoration and other response efforts, including medical expenses directly relating to the temporary suspension of some care management activities. For the full-year, we estimate these direct costs at $1 billion to $1.15 billion or $0.85 per share to $0.95 per share. It's important to note these direct costs are included in net earnings but are excluded from adjusted earnings per share. The other component affecting our results relates to the disruption of ongoing Change Healthcare business. This is driven by the loss of revenues associated with the affected services, all while incurring the support and costs to keep these capabilities fully ready to return to service. Notably, these effects are not excluded from adjusted earnings. In the first quarter, this impact was about $280 million or $0.25 per share. At this distance, we currently estimate the business disruption at $350 million to $450 million or $0.30 per share to $0.40 per share for the year. This, of course, will depend on the ultimate timing of service and transaction volume restoration. These elements are broken out for you in the supplemental tables provided with our press release this morning. Of course, we will provide regular updates on our progress and outlook throughout the course of the year. While much of Change Healthcare's functionality and services have been restored, we are working hard to restore more and the objective we all share is for an even stronger Change Healthcare to be fully returned to expected performance levels next year. I'll come back to some of these elements in more detail in just a moment. Turning to underlying care patterns. The headline is that these continue within our expectations. Outpatient care activity among seniors remains consistent with the elevated levels we began seeing in the first half of '23 and for which we planned. So we continue to be comfortable with the outlook we established last June when we filed our 2024 Medicare Advantage benefit offerings. The winter seasonal activity we discussed with you in January, particularly related to strong vaccine uptake, higher respiratory illness incidents, and related physician office visits has subsided. Overall inpatient care activity also remains within our expectations. The first quarter medical care ratio at 84.3% included roughly 40 basis points or about $340 million related to the temporary suspension of some care management activities. These have been recently reinstated. The majority of the remaining $325 million of full-year medical expense impact included in our outlook will land in the second quarter. Notably, we did not reflect any favorable earnings impacting medical reserve development in the quarter. Out of prudence, due to the potential for the cyberattack to affect claims receipt timing, we reflected an additional $800 million of claims reserves. We'll continue with a judicious view as we progress over the next several quarters. Turning to the performance of our businesses. The most important takeaway is they are growing and performing at a level, which allows us to maintain the adjusted earnings per share objectives we established last November, even while taking on the business disruption impacts of the Change Healthcare attack. At UnitedHealthcare, revenues of $75.4 billion grew nearly $5 billion. Within our domestic commercial membership, we're off to a strong start, powered by disciplined growth, serving 2.1 million new consumers in the first quarter. We are encouraged by the momentum and positive customer response to our differentiated offerings and look forward to building further upon that momentum heading into '25. For Medicare Advantage, as you would anticipate, we are deeply into our '25 planning activities. As we finalize our '25 benefit designs over the next several weeks, we will build competitive offerings that once again appropriately reflect the funding and cost environment. We approached this last year with a deliberate three-year plan, which continues firmly on track and positions us well going into '25. Our Medicaid business ended the first quarter with 7.7 million members. As Andrew noted, key wins in Texas, Virginia, and Michigan demonstrate the value state customers see in our offerings. In Virginia, UHC was the highest-scoring plan with particular strength in member-centric care, benefits and service delivery, quality, and value-based payments. In Texas, UHC was awarded the maximum number of possible service areas, expanding the number of people we will have the opportunity to serve. And in Michigan, UHC achieved perfect scores in such critical consumer-centric areas as social determinants of health and health equity, further solidifying our value proposition. Optum Health's revenues grew by 16% to $26.7 billion as we increased the number of patients served and are on track to approach five million patients in value-based care by year-end. For the most complex patients that Optum Health serves, we have engaged 75% through the first quarter this year, a significant increase in the number of patients engaged over last year. This reflects progressively earlier connectivity with patients and the ability to improve their health outcomes and experiences more rapidly. Optum Rx revenues grew 12% to $30.8 billion, driven by new client starts, continued expansion within existing partnerships, and growth within pharmacy services. Optum Insight, as you know, is where the Change Healthcare business resides. In the quarter, about $500 million of the $870 million total impact is within Optum Insight. Just under half of this are direct response costs, think clearinghouse restoration activities, which we have excluded from adjusted earnings, and slightly over half are the business disruption effects, which are not excluded from adjusted earnings. For many of the impact of Change Healthcare services, transaction volume drives revenues. So the effect of the attack in the period is one of keeping all the lights brightly burning at full readiness to resume services, while revenue production was essentially suspended. To be clear, the Optum Insight team did the critical and right thing, promptly shutting off services and finding any method possible to keep the care system working, including helping clients find alternative solutions. Coming out of this incident, the team will be working tirelessly with customers to recover transaction volumes and demonstrate that Change Healthcare is ready to serve and is more valuable than ever. Beyond Change Healthcare, the Optum Insight revenue backlog increased to nearly $33 billion, growth of over $2 billion from a year ago, driven by health system partnerships to provide business process and information technology services. A couple of other items of note that were affected by the cyberattack. Days claims payable in the first quarter were 47.1 compared to the 47.9 in the fourth quarter '23, and 47.8 a year ago. The accelerated payments to care providers and the Brazil sale reduced what would have been our reported measure for the quarter by about three days. The medical cost payable balance increased $1.6 billion from year-end '23 to $34 billion. The change reflects a $3 billion increase in the incurred but not yet reported component or IBNR. This is a result of the prudent ongoing claims receipt assessment, offset by a $1.6 billion reduction in the fully processed claims component due to care provider payments acceleration. Cash flows from operations in the quarter were $1.1 billion, impacted by about $3 billion due to the funding acceleration to care providers and collection extensions to affected customers, and were additionally impacted by the timing of some public sector receipts. To summarize, a continued focus on better serving patients and the health system underpins our mission and growth drivers, which remain strong. And as we move further into this year, the broadly strong performance across our enterprise allows us to continue to expect full-year adjusted earnings per share in the range of $27.50 to $28.00, even as we incorporate a $0.30 per share to $0.40 per share of business disruption impacts. Now I'll turn it back to Andrew.

Thank you, John. As we look out over the next several years, we, like many others, see a healthcare environment in need of improvements in quality, value, simplification, and consumer responsiveness. While we're a comparatively small part of the $5 trillion US Health System, UnitedHealth Group's strategy is focused on helping to meet those very needs, and we're well-positioned to do so. Our focus on understanding opportunities to align incentives, notably led via our value-based care offerings, demonstrates what can be achieved through partnership and realignment of ways of working. Our commitment to improving all we do for consumers stimulates our drive to help bring care to patients, where they need and want it, at prices and with an experience worthy of the 2020s. We have a proven commitment to making available our insights and innovations widely and quickly throughout the market alongside our relentless multi-payer orientation at Optum. We remain committed to partnering with others throughout healthcare to help make the health system more modern and responsive. Our success depends on enabling partners and customers outside our company to succeed. The combination of this strategic design, strengths, and behaviors underpins our high confidence in our ability to navigate the inevitable environmental change and challenge, and it reinforces our confidence in our ability to perform and grow strongly as you have come to expect from us. With that, operator, we'll turn to questions.

Thanks very much and thanks for all the comments. I just want to go back to your comment around your three-year plan as it pertains to V28. Does the 2025 final bid change anything around that plan? And how do I think about the impact in the quarter of V28 in both Optum Health as well as on the UnitedHealth side?

Yeah, Lisa, thanks so much for the question. Yeah, as we've said a few times and certainly repeated this morning, we've looked at the changes that CMS finalized last year really thoughtfully and we see this as a three-year strategy in response. Obviously, it's phased in over three years. We want to make sure we don't do anything that chases short-term growth, for example, but puts long-term sustainability at risk. What you're also not going to see from us is a kind of knee-jerk reaction between growth and margin. We want to be very focused on ensuring that year in, year out, we're a super reliable performer in this environment. As you look at the most recent final rate, I don't think it really changes the story. Obviously, it's a little disappointing that we don't think CMS really reflected what we've seen over the last year in terms of actual in-market medical trend. But in reality, it's just a little extra pressure for '25 on top of what we'd already seen previously. We're well-positioned for that in terms of all the work we've been doing really from the get-go last year. Really from February last year, we've been getting ourselves lined up for this. You're seeing that reflected in Q1 in a few really key features, right? So you're seeing really strong cost control inside the company as you'd absolutely expect us to do, making sure that we're not incurring any expense that we don't need to support our members and patients on the outside of the organization. You saw us take a very thoughtful bid strategy last year, and of course, we continue to focus on how to make sure that we manage medical costs as effectively as possible, ensuring quality of care delivered and avoiding waste. All of that plays through. I'm very, very pleased with how this first quarter has played out in that respect. If you look at the performance of Optum Health and our MA business within UnitedHealthcare, both very strong performance during this quarter despite the pressure that's been incurred on them from the rate notice last year and I think that bodes super well for the rest of this year and the strategy that we've laid out for the next three. Thanks, Lisa. Next question.

Hi. Thanks. Good morning. Can you explain what medical costs you classified as accommodations to support care providers? I'm curious about the UM management you're referring to and what specific medical expenses are included in that category. Additionally, when examining your actual claims received or processed inventories, what percentage of a normal or expected quarter did you observe this quarter compared to what you allocated to IBNR?

Josh, thanks so much. I'm going to ask Brian Thompson in a second just to give you a little bit more color on the first part of your question. Listen, I think by the time we got to the end of the quarter, we had the overwhelming majority of what we'd anticipate in terms of claims received into the organization because it's always a little bit tricky to be absolute about that, because you're kind of comparing against what you would have expected, and as you obviously know, every quarter you see corrections both up and down in terms of actual claim submissions catching up with what you may have estimated and that's been obviously the feature of this marketplace. But overall, I would say, UHC claims receipt was very close to normal by the time we closed the quarter. But maybe, Brian, you could give a little more color commentary on how you would characterize some of that relief we gave.

Sure. I appreciate the question. Yeah, Josh, I believe we started March 8th and what we did, I call it foregone utilization management protocols and those are really in two categories. The first is we suspended our inpatient level of care reviews, where we assess for appropriateness of inpatient versus outpatient and that was the lion's share of our adjustment and we've got a long history of understanding those elements. It's just a unit cost adjustment. So pretty simple and easy to estimate and adjust for. The second element inside those practices was some outpatient prior authorizations that we also suspended. Those were a smaller element inside this quarter. Those will play out a little bit more in next quarter as you think about that lag between notice and actual incurral date. But again, pretty easy for us to estimate. These are practices we've had in place for a very long time and feel comfortable about the adjustment that we made.

Brian, thanks so much. And just again to confirm, as you heard from John, we brought those processes back into play in the last few days. Next question.

Thank you. Hello, everyone. I appreciate all the hard work. I want to clarify something regarding the $800 million reserve you mentioned, noting that you did not adjust the bottom line for any prior period developments. You've referred to this reserve as prudent multiple times. Can you elaborate on how much of this reserve is based on insights from Optum Health or from your analysis of previous year claims, versus what you expect to happen moving forward? Additionally, is there anything specific about outpatient or inpatient care that might indicate a difference in your medical loss ratio assumptions compared to what you initially expected for the year?

I'm going to ask John to provide more details on the $800 million. As we've mentioned before, we aren't seeing any significant differences in care patterns compared to our expectations. The pressures we observed at the end of Q4 and early this year, mainly due to the winter syndrome vaccination dynamics we discussed previously, have decreased as anticipated. Apart from that, there isn't anything noteworthy to mention. John, can you elaborate further on the $800 million?

Yeah, good morning, A.J. Yeah, so picking up on what Andrew had made earlier, so what you're really doing there is estimating what you didn't see. So claims receipts that you may have not received in the quarter and trying to make an accommodation for that, as you said, a prudent accommodation for that. Just to acknowledge, there clearly had to be some disruption in the quarter in claims patterns and so you're trying to make some estimation in that zone to anticipate that. So you need to put it somewhere in the zone; it’s not zero and it's not 800, somewhere in between, probably as you think about those elements and where you might land. And so as we look out and you should expect that, we'll probably continue with a judicious view over this, over the next several quarters actually also. We want to make sure that we've got full visibility into this that the claims are flowing and as we sit here on April 16th, it does. We see at UHC. We see a fairly normal claims receipts and payments flows going on at this point, but we really want to be careful on that because we know there are certain care providers out there that may have been left out a bit, and so we'll continue to be very judicious next quarter also in terms of assessing that.

Thanks, John. Thank you, A.J. Next question.

Thanks. I wanted to follow up on A.J.'s question regarding the $800 million. Can you clarify if that conservatism is related to 2023, meaning you would have seen up to $800 million in development that would have benefited the quarter, or are you indicating that you took extra reserves that impacted Q1? We're observing that the MLR is 50 basis points above your expectations, and if the trend is indeed in line, we're trying to determine whether there was a 50 basis point miss or if that's just reflecting conservatism. Also, regarding cost trend visibility, last year was somewhat unclear, and you mentioned uncertainty that later became clearer with higher trends in Q2. How do you feel about your visibility this year? Will we need to wait until Q2 to determine if you’re not experiencing the same issues as the rest of the industry, or should we expect an update in the second quarter? Lastly, any insights on Q2 MLR and your anticipated full-year MLR range would be helpful. Thanks.

Thank you, Justin, for your questions. I'll ask John to elaborate on the $800 million shortly. In terms of cost trends, there are significant differences compared to last year. Last year's situation was primarily influenced by the post-COVID recovery, particularly with capacity coming online and some pent-up demand. I believe that the increase in capacity was a major factor in that shift. However, we don't expect to see a similar occurrence this year. Instead, we've experienced more stabilization without a downward trend. It’s important to note that while we haven't seen a drastic decline, the activity levels have remained consistent without aggressive growth. Additionally, to address last year’s changes, we've implemented various sensing mechanisms in both UAC and Optum to detect early signs of trends. While actuaries often look to paid claims as the gold standard for trend analysis, we've established more proactive sensing capabilities. Based on what we see now, we don't anticipate significant changes. Of course, the future is uncertain, but currently, everything aligns with our expectations. Brian, would you like to add anything from a UHC perspective?

Yeah. Thanks, Andrew. And I think you summarized it well. I'll reiterate what you heard from John, which is what we're seeing in these underlying service types, inpatient, outpatient, et cetera, are in line with what we had planned for, so I'll reiterate that. Just to add to that level of improved visibility this year over last, certainly COVID being the biggest driver, but also re-determinations. Last year, we were at the beginning of that. This year, we're nearing the end of that. So two key unknowns a year ago I think that contributed to perhaps a little less visibility, both of which I think we've really got a better view to this year. And the last thing I'll just point out is, as we've paced through one-on-one, I also feel good about our business mix. Again, early in the stages of evaluation of that, but how our growth has changed and what we've seen in those profiles from the growth that you're seeing in our Commercial business to the growth in our Medicare business as well, really feel good about all those elements. So, yes, optimistic about the rest of the year and how it's playing out against what we had planned for.

Great. Thanks, Brian. And John?

Good morning, Justin. The overall assessment is that we did not allow any earnings or medical care ratio to affect our development flow in this quarter. An analysis suggests there was potential for positive development during this period, but we also believe there may have been claims that we did not receive. Therefore, when considering claims completion factors and their impact, we aimed to neutralize these elements throughout the quarter to avoid any influence from them and took a cautious approach regarding the claims we did receive. About the Q2 medical care ratio, I would estimate it to be similar to Q1, including comparable effects from the cyber incidents we experienced. As I mentioned in response to A.J.'s question, we will remain very careful in our analysis of claims receipt patterns. We will maintain this cautious perspective on development and its impacts as we move into the next couple of quarters to ensure we account for all claim receipt timings accurately.

Great. John, thanks so much. Next question.

Yeah, hi, thanks. The business disruption costs you've projected beyond the first quarter are, I think, smaller than most had expected despite the fact we've heard commentary from stakeholders reducing their dependence on Change Healthcare during the quarter. I guess, what are you seeing from customers on that front? I guess, how much of that recovery do you have on the revenue line? Do you have line-of-sight to versus you have to drive throughout the balance of the year to get to that no impact to 2025 that you seem to expect? Thank you.

Thank you, Stephen. I will ask Roger Connor, who oversees Optum Insight, to provide some details on this. First, I want to commend the teams for their rapid response in restoring the functionality of Optum and Change Healthcare after the attack. This has been an impressive demonstration of UHG's resources and the support from many leading tech companies in the U.S. that helped us recover from this attack, which seemed aimed at causing significant disruption to the U.S. Health System. We managed the remediation process effectively and have made great progress in restoring functionality. Roger, could you share your insights on the customer dynamics we might expect in the coming months?

Yeah, we'll do. Stephen, thanks very much for the question. So the way that we're thinking about the whole cyberattack response is two key areas of focus. First of all, as Andrew mentioned, good progress on system restoration. If you look at the biggest areas where we have the largest number of customers, that's pharmacy, claim, and payment, we're up to 80% functionality and that's continuing to improve day by day. Now we've still got work to do. We've got another set of products coming online in the coming weeks, but pleased with that progress. I think your question is really about our next focus, which is recovering the business and this is about bringing those products back, but actually bringing them back stronger where we can. We're adding functionality where we can too. But then also bringing back customers, who because of the outage have to go elsewhere to get things like their clearinghouse support. Now we are confident in our ability to do that. Why? Well, first of all, the portfolio and differentiation we have, which is good. But also, as you can imagine, we're talking to those customers all the time and they want their functionality back. They like what they've got or they had with Change and they want to get that back. So we're working with them to ensure that we can actually do that. Also, we provided financial support to a number of our clients and they appreciate that. They have said to us that they appreciate it. That's a signal that we are committed both to them, but then also to this marketplace as well. So when you add those elements up, Stephen, that's where we're confident. We've got more work to do. This has been a heavy lift and we're going to continue that work. But that's why we're confident in getting back to that baseline performance in 2025.

Roger, thanks so much. And I think, Stephen, what you heard in Roger's response there is a couple of really important features of the character of UnitedHealth Group, super high resilience and we will always stand by our customers and clients, and when an attack like this happens, which puts our customers and clients at risk, we will do whatever it takes to make sure they get through that, whether it's technical fixes or financial support, we are going to stand by our clients, who in this case are the providers and the systems across America who look after American patients and we will do that. And I think that means a lot to a lot of people and it's an important capability to have running through the backbone of American healthcare. With that, Stephen, thanks for the question. Next question.

Thank you. I would like to further discuss the visibility you currently have regarding claims. It seems that you feel you are mostly back to normal, but could you provide an estimate of your visibility into claims today compared to the same time last year? I understand that improvement is expected, but there's significant interest in accurately pricing for 2025. By the time you submit your MA bids, what percentage of normal do you anticipate being at from a claims perspective? Additionally, I normally hear you mention the long-term EPS growth target of 13% to 16%, but I didn't catch that in the prepared comments. Was that simply due to time constraints, or was there something specific you wanted to convey? Thank you.

Alright. So I'm going to ask John to comment on your substantive question, Kevin, and I'm going to ask you just to stay on the line for my last paragraph for closing comments for the second part of your question. John?

Good morning, Kevin. So as we sit here today on April 16th, I would say, UHC is pretty much back to normal levels in terms of claim submission activity. We view it as normalized now. We're seeing claims slowing like they'd expect them to be flowing and moving along. So that's all progressing quite well, which assists a lot with the piece that you were just describing here in terms of where we think that is and as we move forward and look over the next month plus to finalize our bid submissions and such. So feel good about that in terms of our visibility and insights.

Yeah. Thanks so much, John, and thanks so much, Kevin. Next question.

Hi, good morning. Thank you for the question. I wanted to inquire about the reported DOJ investigation. Has the company engaged in any discussions with the DOJ, and do you have an idea of the timeline for what the next steps might be regarding the potential outcomes of this process?

Hey, Nathan, thanks so much for the question. Listen, I think you'd probably expect we don't comment on these sorts of matters and I don't think it would be appropriate to do so today, and certainly, we never have done in the past. So it's not something we're going to get into in the call, but I appreciate the interest. Thanks. Next question.

Hi. Good morning. Commercial risk and ASO membership both exceeded the upper limit of your initial guidance. Can you explain what led to the membership results being better across each segment? Thank you.

Thanks so much for the question. I'll ask Dan Kueter, who runs our E&I business from UHC to respond to that. Dan?

Hi, Andrew, and thank you for your question. I'm definitely encouraged by the widespread growth and the increase in our market share, particularly in our Individual segment, Local Market segment, and National Accounts business. One of the key factors contributing to this is that about a third of our group's growth can be attributed to our most innovative products, which we have expanded into 37 states on a fully-insured basis and made fully available nationally on an ASO fee-based basis. Specifically, in the risk sector, our individual and family exchange-based plans have significantly contributed to this growth. We've noticed some delays in membership, which we anticipated would have materialized through re-determinations in the latter part of 2023, but are now starting to come through in 2024. This has been a major factor in the risk-based growth we've experienced in the first quarter. Overall, I am pleased with our growth, our pricing, and the type of groups and consumers we are attracting. Additionally, I am really happy with the level of consumer experience that our teams are providing to those we serve. Thank you for your question.

Great. Thanks so much. And as you saw, Dan's organization delivered an extraordinary two million member growth in the first quarter, one of the highest growth rates we've seen for many, many years. And I think that really comes down to relentless focus on modernization of service offer and then delivery of that service offer, and I'm very proud of the whole team in the UHC Commercial businesses domestically for what they've done. Next question.

Thanks. Question on Optum Health. As we're looking at outlook there, we've been really focused on capacity growth in the systems, do you guys have any insights for your capacity growth in Optum Health? Obviously, you've been taking some cost actions there, so interested in hiring trends. And then second, have you been renegotiating risk deals? I know that there was likely some of that for '24. What's the outlook for that and the impact of that in '24 and the outlook of that for '25? Thanks a lot.

Yeah, Lance, thanks so much. And I'm glad you've asked about Optum Health. I'm going to ask Dr. Desai to respond to that. Amar runs our Optum Health business. He has been doing a great job of continuing to mature that business for us, which for me, I think is one of the great headlines of Optum Health: its continuous maturation as a sophisticated value-based care delivery organization. Amar, maybe you could respond to Lance's question.

Yeah, thanks for the question, Lance. I'll take the first one in terms of hiring trends. We continue to work with more providers in a deeper way continuing to grow across a range of arrangements. As you know, physicians across the country work with us in contracted affiliated arrangements as well as employed arrangements and we continue to have strong partnership and growth, both organically and also through some of our inorganic M&A activity. We don't see a capacity constraint there. In fact, we've continued to see incredible growth with our payer partners to the second part of your question. The risk partner growth continues to increase across multiple payers. It's being driven by some of the funding and benefit dynamics that are out there. Folks are looking for a real stable partner to be able to grow with. We have worked with them continuously in terms of our contracts, both looking at the benefit and funding changes and ensuring that the funding level is appropriate for the risk that we're taking on and to be able to provide very high quality care across our membership. So we're very proud of the growth we've had and we'll continue to do so. Thanks.

Great. Amar, thanks so much. Next question.

Thank you. We wanted to understand a little bit better the $3 billion in IBNR. So just our back-of-the-envelope math suggests if 15% to 20% of claims from UHC run through change, post-event that would be like assuming a third of the change-related claims are delayed; is that in the ballpark of where your change completion factor assumptions were? And keeping that conservative assumption of claims like throughout the year, what does that imply for the seasonality of the remaining $0.41 to $0.61 GAAP impact from change?

Sarah, thanks so much. John?

I’m not certain I would directly align with some of the statistics you mentioned regarding their placement, but I can provide some insights. One aspect we wanted to clarify about the IBNR component is that the medical costs payable reported on the balance sheet you received this morning includes both IBNR and medical claims payable. We aim to offer more transparency as you analyze the quarter, and a $3 billion increase in IBNR is significant. Additionally, this line item was offset by the funding advances. We ensured that once claims were processed, we expedited payments to providers. This was part of our support for the provider community, alongside the interest-free loans we offered. Currently, we believe that UnitedHealthcare is at normalized levels concerning claims receipts. We are being very cautious in our assessment, as we recognize that some providers might still be facing challenges in submitting claims and receiving payments. Therefore, we will carefully consider these dynamics in the upcoming quarters. These details reflect the mechanics behind the IBNR component you highlighted and the comprehensive medical costs payable.

Right. Thanks, John. Next question.

Hi. Good morning. Just wanted to follow-up on that point, John. My understanding is, on the IBNR that you report in your Qs and Ks includes unprocessed claims inventories, so the $3 billion, is that just going to tie to the number we see when the Q comes out? Are you saying the $3 billion really is true unreported claims at this point?

$3 billion is IBNR directly, that is to your point. That is the IBNR component of it, Gary.

$3 billion is indeed IBNR directly. That is the IBNR component of it, Gary.

Okay. Thanks, John. Next question.

Okay, thanks. On capital deployment, you didn't change your expectations for share repurchases, but how should we think about the priorities more broadly, whether it's M&A or otherwise in your ability to be opportunistic on that front? Thanks.

Erin, thanks so much. I'll ask John to comment on it.

We haven't made any updates to those components. We maintain a balanced perspective regarding our opportunities. You may have noticed that we were active this quarter with share repurchases and dividends. Additionally, we see strong opportunities in the marketplace for other capabilities we're exploring. Everything continues to be solid, and we will keep balancing these elements effectively as we pursue all these opportunities.

Yeah, and I continue to see a very interesting diverse pipeline of M&A opportunity across the marketplace in terms of business areas that we have interest in. As I think you see some of the funding changes play out across the next few years, I suspect that may also create new opportunities for us as different companies assess their positions. I think how we look at this situation is we have a good strong strategy for how we navigate through this dynamic. You're seeing that play out super well in the first quarter performance of Optum Health and UHC and I think it gives us a sense of real confidence as we look not just in terms of our performance but potentially how we might think about M&A opportunity. And as you rightly said, be somewhat opportunistic if those moments arrive. Next question.

Thanks. Good morning. Regarding the 2025 rate notice, it seems like you view this as somewhat disappointing, but manageable. Can you provide more insights on growth expectations for next year? Additionally, could you explain the changes in broker agents and what impact they might have on your strategy? It seems like a significant shift. Are you considering investing more in captive broker strategies? Any details would be appreciated. Thank you.

Thanks so much for the question. I mean, obviously, we're not going to get into give kind of '25 numbers or expectations just yet, but Tim Noel, who runs our M&R business, certainly give you some good perspective on the rest of your question. Tim?

Yeah, good morning, Whit. Thanks for the question. So on the final notice and some of the distribution elements of that, we continue to believe that there's opportunities to improve the distribution environment in Medicare Advantage and have been in a dialog with CMS for several years on how to do that. Some of the elements of the final notice that were published recently are directly in line with some of our recommendations and some of them are relatively consistent but not totally as we had conceived them. I would also say right now, it's a little bit early to comment on how this might rebalance some of the channel mix, as still some questions on how some of the key elements of that will be rolled out. So we're still waiting for a little bit more detail before we can get more specific on how it impacts go-to-market in '25.

Great. Thanks so much, Tim. Next question.

Hi. Good morning. So, I would say your commentary on care patterns is definitely more positive than what investors feared. And you referenced several times that trend came in line with your expectations, can you actually tell us what growth rates you're assuming like the major trend categories in guidance, whether that's inpatient and outpatient, and maybe some year-over-year growth versus historical averages? And within that, can you specifically talk about what you're assuming for MA? That'd be great. Thank you.

John, would you like to start that?

Good morning, Ann. The outlier components we've been discussing for some time relate mainly to outpatient care for seniors, especially in orthopedic and cardiac categories, which remain significant factors. You've raised a crucial point regarding the substantial percentage growth seen last year. This growth stemmed from a constrained supply environment and the reluctance of seniors to access care for a couple of years. Hence, the percentage growth was notably high. We observed considerable double-digit growth levels last year. However, we expect those percentage changes to start normalizing, focusing on the number of units consumed per patient served. We're seeing consistent levels of consumption and delivery, but the percentage figures will likely normalize over time. Outpatient care for seniors continues to be the key area, representing true outlier trends compared to our historical data. Other trend factors are aligning more closely with our traditional expectations. Additionally, we've greatly expanded our analysis in areas like first fills, which indicate that outpatient care and physician visit activity are stabilizing, along with various historical factors the company has monitored. Thank you.

Thanks, John. Brian, could you provide some insights from a UHC perspective? After that, Heather can share some thoughts from an Optum perspective. It would be great to hear about the work you’re doing, particularly regarding medical trends and our ability to engage with individuals to help manage their costs. Brian, please go ahead.

Sure. I think John said it well. The first headline is what we're seeing is what we plan for. But as he alluded to, some of those elements, we plan for them to be elevated year-over-year. And I don't want to lose sight of unit costs. We've talked for some time that multi-year provider group and hospital contracts renew a little later than perhaps the inflation we've seen and that is up year-over-year. The biggest driver was the outpatient. We're really pleased to see that in line with as John explained. But also, we've been able to see increases in Specialty Rx. We've planned for those. Those are in our pricing appropriately, et cetera. And we’ve certainly worked hard to create more access in the behavioral space. So all of those elements are modestly up, but up as we had planned for, and they'll hopefully sound familiar to you because we spoke to all of these at our investor conference as we ended the year. So I think that's what I would summarize or add to John's commentary. Heather?

I would say we have been incredibly consistent on the Optum side. First, focusing on the medical aspect, we've highlighted that coming out of last year and looking into this year, our primary focus has been on behavioral health and outpatient services, which align with UnitedHealthcare. It has been crucial for Optum Health to utilize the capacity that Amar mentioned regarding our physicians and wrap-around services, alongside our investments, to analyze care patterns effectively. We are optimistic as we enter this year. The efforts we've undertaken, as John noted, show that we have already engaged 75% of our most complex numbers, and member engagement with their primary care provider or our own care management services is vital. This engagement quickly uncovers affordability opportunities and identifies chronic diseases that require management, facilitating prompt connections to primary care. This is our focus this year, which is why we feel confident about managing utilization in the medical field, especially considering the reduced funding environment we are entering. This reinforces the value of our value-based care proposition, which provides significant benefits to all our payers. On the pharmacy side, we see similar trends. Our clients are focusing on specialty care, and we offer products and solutions that have contributed to growth in the PBM sector and our pharmacies, reflecting the strength of our clinical model and the innovative products we continue to introduce. You can observe this positive momentum in the diversified growth and performance of Optum Rx as well.

Great. Amar, thanks so much. Next question.

A few more details maybe on the growth in our specialty focus.

Sorry, we missed the beginning of your question.

Hi. Sorry about that. I'm interested in a few more details maybe around the launch of Change 2.0. If you could talk a little about what payer receptivity to reconnection has been? Whether Change retains its legacy data rights post breach? And then just any change or updated thoughts on kind of the long-term thesis on Change for something like a real-time transparent payments and decision support network? Thanks so much.

Thanks very much for the question. Let me ask Roger to kick that one off.

Thank you, Jessica, for your question. Regarding Change 2.0, we are confident in our ability to reconnect. We are currently working on restoring functionality and are engaging with payers and providers to ensure this is done safely and appropriately. The feedback from these discussions has been positive, although we still have work ahead of us, which may take some time. It's important to note the position of Change within the Optum Insight portfolio; it accounts for about 15% of our projected revenue this year. This means that thousands of our employees are focused on other products that are not affected by this situation, and their performance has been strong this quarter, with earnings for that segment growing by approximately 10% when excluding Change. Our innovation agenda remains active, and we are excited about the possibilities the Change portfolio offers to transform the market through innovation. Our real-time settlement initiatives and collaboration with Optum Health on value-based care and provider risk enablement continue to progress. Overall, we remain very positive about our innovation agenda and the performance of the underlying business within Optum Insight.

Roger, thank you very much. Change Healthcare is a significant acquisition for our group and important for the country. If UnitedHealth Group didn't own Change Healthcare, the recent attack would likely have occurred, making it very difficult for Change Healthcare to recover. Being part of UnitedHealth Group allows us to restore it much stronger than before. The reasons we wanted to integrate Change Healthcare’s capabilities and customer connectivity with UnitedHealth Group remain valid, especially regarding potential innovations like real-time settlement and clinical decision support. These offerings represent the future of services in a modern healthcare environment. This situation has further confirmed that the merger was the right decision, as it enabled UnitedHealth Group to resolve the issues from the cyberattack far more efficiently than would have been possible if Change Healthcare had been independent. Thanks, everybody, for all of your questions this morning. It's been a bit more of a complex quarter for sure this time around, but one that's also showed the depth and breadth of our company's capabilities. We're recovering quickly from the Change Healthcare attack and are a stronger, more capable company as a result. We're continuing to build our business based on the five strategic growth pillars that we're relentlessly focused on, and we're steadfastly confident in our ability to achieve our 13% to 16% long-term growth objective as we look to the years ahead. We very much appreciate all of your time and attention this morning. Thank you.