HUM - Humana Inc.

Operator: Good day, and thank you for standing by. Welcome to the Humana Third Quarter Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I'd now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and posted remarks, which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer; and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question-and-answer session, where Jim and Celeste will be joined by George Renaudin, Humana's President of the Insurance segment; and David Dintenfass, President of Enterprise Growth. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our third quarter 2025 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, the call is being recorded for replay purposes. That replay will be available on the Investor Relations page of our website, humana.com, later today. With that, I will turn the call over to Jim. James Rechtin: Thanks, Lisa, and good morning, everyone, and thank you for joining us today. Before we get started, I just want to take a second to acknowledge the tragedy that occurred here in Louisville last night, it's had quite an impact on the community, and our thoughts go out to the community and all the families who are impacted. With that, let me turn to the quarter, and let me hit the headlines. As you have already seen, we delivered a solid third quarter in line with our expectations. Our third quarter medical cost trends continue to be in line with expectations, and we also continue to anticipate our full year 2025 EPS outlook of approximately $17. We remain committed to achieving individual MA pretax margin of at least 3% over time, and the external environment continues to evolve largely in line with expectations, and we are executing against our plan. I'll now briefly describe the progress we are making operationally. And as usual, I will frame my comments today around the 4 drivers of our business. The first of those is product and experience, which drive customer retention and growth. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third is highly efficient operations. And fourth is our capital allocation and growth in CenterWell and Medicaid. I'm going to spend most of my time today on product and experience as well as clinical excellence. Let me start with our Medicare product and experience. So first, I want to emphasize that it's very early in AEP. We have roughly 2 weeks of incomplete data. And while we will provide a sense of what we are seeing, this is very much subject to change. Second, I want to reinforce how we think about growth. Our focus is on maximizing customer lifetime value and customer NPV. That's our focus. The way we do that is delivering an exceptional experience that fuels member retention. Other key growth levers like benefit design and member and product mix and channel mix are all tightly aligned with our operational capacity so that we can absorb, onboard and serve members in a way that maximizes lifetime value in NPV. Third, I want to reinforce again that we are confident in our pricing, and we're pleased that we expect to return to growth. We will take as much growth as possible from improved retention. This is unquestionably desirable growth, and we welcome new sales. However, we are prepared to take targeted actions to slow new sales if we reach the point where the volume risk is negatively impacting member experience. We do recognize that you want us to provide a specific growth target. We do not think that focusing on a net growth target is the right metric because as I just shared, growth through retention is desirable, and we will take as much of it as we can. We also will not give a specific number around new sales targets because the amount that we can absorb is dependent upon member product and channel mix. So now as to what we are seeing new sales are at the high end of the range -- the high end of the anticipated range of outcomes that we expected in AEP. Channel mix has meaningfully improved relative to prior years. We have greater volume in our own distribution channel with select high-performing partners and in digital distribution. This channel mix tends to be correlated with customer segments that have a higher lifetime value and are more engaged. We are also seeing favorable product mix, including higher than initially expected sales in plans with 4 stars and greater. We are not seeing outsized sales in areas where competitors have exited plans. We are experiencing significantly reduced Humana plan-to-plan mix with plan-to-plan sales down year-over-year. We believe that this is likely an early indicator that our stable benefit strategy and changes to our customer service approach are working to reduce voluntary attrition, though we need more time to validate this assumption. So while it's early, we feel good about what we are seeing so far in AEP. And as we have said previously, we will continue to monitor new sales volume and manage it dynamically. We are prepared to take further mitigating actions as we did heading into AEP if it appears that new sales will put member experience at risk. We do recognize that there's a lot of interest in our overall growth strategy and the ongoing AEP. So I'm pleased that David Dintenfass will join Celeste, George and I for Q&A today. David joined the company nearly 2 years ago as President of Enterprise Growth. He came to Humana with 30 years of experience across a range of industries, including financial services, where he was focused on customer segmentation, acquisition, driving an experience that fuels retention to ultimately drive sustainable and profitable growth. David's consumer-focused experience and perspective has been and is instrumental to our journey to become a consumer health care company. Now to turn to clinical excellence, I will focus on Stars performance. Just to recap the key messages from our 8-K and audio file released in early October, we are disappointed, but we are not surprised by our bonus year '27 Stars results. The results are consistent with our baseline planning scenario and our outlook remains the same as we previously communicated at our investor conference in June. We have -- we did see operational gains in Q4 of 2024 that have continued into 2025, and we feel good about our operational progress this year. More specifically, in our current measurement year, bonus year '28, we are seeing meaningful year-over-year improvement across the vast majority of metrics. We also continue to see week-over-week improvement as recently as October, and we are showing 600,000 more gaps closed year-over-year as our momentum continues to remain steady. Given the Stars program is measured on a curve, it would not be prudent to share additional results at this time. However, once the hybrid season is complete in the second quarter of next year, we will provide some additional visibility into our final operating results. However, we will not speculate on thresholds. All in, the takeaway remains that we continue to be confident that we are on the right track to return to Top Quartile Stars results in bonus year '28. Now I'm going to turn to our highly efficient operations we are making -- where we are making meaningful progress. I'm going to share a couple of examples. We recently partnered with Genpact to outsource elements of our finance capabilities. This will both improve our capabilities and it will reduce cost. We also have a newly introduced agentic AI platform, which is helping deliver capabilities like Agent Assist that help our call center advocates and agents focus on supporting our members. This is helping to improve call accuracy and deliver faster response times, which drive better outcomes and experience. Collectively, we expect these items to generate greater than $100 million of savings over a few years while also improving the quality of our operations. These changes are a small sample of our multiyear transformation, which will include near-term tactical cost programs, but also longer-term efforts that change how we operate. Now turning to capital allocation. We have freed up capital by selling a non-core asset, the Enclara Pharmacia business and are working to sell additional non-core assets. We also agreed to deploy capital to a deal that is expected to close this month in Florida, the Villages Health, which provides primary and specialty care services at the fastest-growing retirement community in the country. We also continue to feel good about our CenterWell Pharmacy strategies. We continue to develop our direct-to-consumer capability, and we are also moving into direct-to-employer opportunities. So in conclusion, we are pleased with our solid performance year-to-date, and we continue to have confidence in the full year 2025 outlook. We feel good about our pricing and the outlook for AEP 2026. Bonus Year '27 Stars results were disappointing but consistent with our expectations and the outlook for Bonus Year '28 Stars continues to trend in the right direction, and we remain confident in a return to top quartile results. With that, I will turn it over to Celeste for a few remarks before we go to Q&A. Celeste Mellet: Thank you, Jim. Our third quarter results reflect solid execution and underlying fundamentals, including membership and patient growth, revenue and medical cost trends that continue to develop consistent with our expectations. In addition, we experienced some favorability in the quarter, which enabled higher than previously anticipated investments. These investments were focused in areas that both accelerate our transformation and where we have seen strong returns to date, such as Stars and clinical excellence as well as in areas such as network management, which position us well for the future. We are pleased that our year-to-date performance and outlook support reaffirmation of our full year adjusted EPS outlook of approximately $17, while also making an additional approximately $150 million in incremental investments, including the higher investments in the third quarter. As a reminder, we included the Doc Fix in our guidance for '25. If it is not implemented for '25, we may invest all or a portion of the onetime savings into items that position the company for long-term success. Now turning to the balance sheet and capital deployment. I would first like to comment briefly on the days in claims payable or DCP metric. Our DCP changes, both sequentially and year-over-year were largely driven by items that are generally timing in nature and not related to claim reserve levels, including changes in process claims inventory and provider payables. And as previously discussed, the year-over-year comparison was further impacted by changes related to the Inflation Reduction Act. Importantly, the estimate for claims Incurred But Not Reported, or IBNR, remain largely consistent in these periods, even with our year-over-year decline in individual MA membership. As we have previously shared, we believe this serves as a better indicator of the consistency in our reserve methodology and the relative strength of our claims reserves. Now moving to our ongoing efforts to increase the efficiency of our balance sheet. As Jim mentioned, we completed an asset sale during the third quarter and are continuing to pursue the sale of additional non-core assets while also making significant progress on capital optimization, the details of which we will share when we complete the execution. With respect to capital deployment, we will remain prudent in our near-term approach, taking a balanced view to evaluating capital investments and returns. Accordingly, our '25 outlook does not contemplate additional share repurchase activity beyond the buybacks in the second quarter, which offset dilution from stock-based compensation. From an M&A perspective, we see significant opportunities to take advantage of the current market dislocation and acquire attractive small to midsized provider businesses, such as our pending acquisition of the Villages Health, while remaining focused on managing our debt-to-cap ratio. Our debt-to-cap ratio at the end of the quarter was 40.3%, down from 40.7% as of June 30, and we continue to target a ratio of approximately 40% over the longer term. Looking ahead, I echo Jim's message that we feel good about our '26 pricing and the outlook for AEP. In addition, we are executing on the plan that we laid out at our Investor Day in June, managing the levers within our control with a focus on delivering best-in-class clinical excellence, transforming the company to enable scalable growth and driving enhanced operating leverage. We believe that these efforts will allow us to return the business to its full earnings power while driving better outcomes and experiences for our members, patients and associates. With that, I will turn the call back to Lisa to start the Q&A. Lisa Stoner: Thanks, Celeste. Before starting the Q&A, just a quick reminder that fairness in those waiting in the queue we ask that you please limit yourself to one question. Operator, please introduce the first caller. Operator: Our first question comes from Andrew Mok with Barclays. Andrew Mok: I understand that it's too early to share any membership growth projections, but I was hoping you'd be able to offer a framework for the level of new growth that you're comfortable with before it starts to impact your operational capacity. And based on your prepared remarks, are you already starting to pull some of those levers you mentioned? David Dintenfass: Andrew, thanks for the call. So this is David Dintenfass. First of all, it's good to be on my first Humana earnings call, I'm really glad to be part of this team. So Andrew, let me just take a step back and I'll answer your question, but let me just make sure the approach to growth is really clear, and Jim touched on this. Our focus is increasingly on the lifetime value and NPV of our membership. And so growth is an outcome of that, but also our current membership and retaining them is a primary objective. How do we do that? How do we drive lifetime value and our margin objectives that we shared at Investor Day? So number one, we have to have appropriate pricing. We have to price for risk, and that is a very collaborative process working with underwriting. It goes to number two, which is that there's been a bit of a cycle, right, which is why there's all this question about is growth good or is growth not good. And that really comes from an approach that says, we're going to grow on plans that, frankly, don't have a very attractive margin. They're attractive for the customer. We bring them in and then those plans can degrade over time. The problem is if you overgrow in those low-margin plans, you say growth might not be good. We don't think that's the right long-term strategy. We know that our customers don't want their plans to be changing constantly. So instead, what we've done is try to stabilize the margin across all of our plans. So that matter where growth might come from, that growth is attractive for the long term. That goes to number three, which is a focus on the customer. So increasingly, we're saying, how do we design our plans, and we're saying, let's start with what the customers most want, which is stability, especially on their core medical benefits, and we've tried to provide that this year. Now this is in the context that we've had 2 years where we've been cutting benefits, and we've also exited markets where we didn't think the margin profile is where we needed to be. That's put us in a really good position this year to follow the customer and have more stability. And that goes to number four, the final part, which is what we talked about at Investor Day and Jim touched on as well, which is we need to differentiate the experience in the long term. Product is important, but it's only part of the equation. If we have products that have appropriate pricing for risk, then it's about attracting members, retaining them, getting to do all the things clinically and on Stars that drive true lifetime value. So with that approach, you asked how much growth can we handle from an operations perspective. We are working through that very dynamically. We're not sharing a number in part because we are working on operations. The principle we have is that, first of all, let's make sure that all of our members have a great outcome, and we're retaining them at a better rate. We committed to much better retention at Investor Day, and we are fully committed to make progress on that next year. But as far as new membership, we want to make sure that every new member comes in has a great experience as well and that we're able to retain them. And we're working very dynamically across all parts of the operation to make sure that we're balancing the new member growth through our ability to consume the volume. Operator: Our next question comes from Ann Hynes with Mizuho. Ann Hynes: I know you don't want to give a growth number for MA membership, but can you give an update on your diversification strategy? I know you're trying to shift some members out of H5216. Can you give us an update how that strategy is going? James Rechtin: Yes. Let me touch on that. And I'm going to start by just being very clear about what our intent is around the diversification strategy. What we are trying to do, first and foremost, is deconsolidate 5216. So I think as many of you are aware, roughly 43% to 45% of our membership has been in 5216 over the last few years. That is putting too much risk in a single contract. We should be thinking about this from a portfolio standpoint. We should have a portfolio of contracts. We should have reasonably even membership across that portfolio so that if any one contract does not perform in a given year, there is less risk to the entire business. So that is goal #1. And we feel good that we've taken a step in that direction. It's not something you can fully accomplish in a year, but we feel good that we have taken a step in that direction, and you should see us take incremental steps really over the next 2 or even 3 cycles of product. Along with that, as you deconsolidate 5216, of course, you're going to look to contracts where you have 4 and 4.5 stars to try to create that balance. And so that is what we have done this year. We've looked to some of our contracts that have 4 to 4.5 stars to create that balance. And right now, we feel good that we are making real progress. We are not at a place after 2 weeks of data that we're going to want to talk about numbers or get super specific about it. But this was always part of the plan, and we have made good progress from what we can see in the first couple of weeks, and we'll share more as we better understand what that is -- where that's going to land in January. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Just a quick follow-up first. You talked about membership growth at the high end of expectations. Can you share with us what that expectation range is on new membership? And then my question is, can you give us an update on your percentage of MA individual membership in fully capitated agreements this year? And what do you expect it to be next year? And are you seeing any pushback from providers in terms of giving you these lives back because they're having economic issues making a margin on these benefits? James Rechtin: Yes. Justin, let me hit the first half of that, and then I'm going to hand it to George for the second half of that. On the first half, and I know you expect this answer, but we're not going to give a number. I will just go back to why we're not going to give a number. We are truly looking at multiple things. We are looking at member mix. We are looking at product mix. We are looking at channel mix because each of those impact our operations in slightly different ways. We are also ramping up operations because that's what you do when you're headed into a solid growth year. And so we are looking at all of those dynamics, and we will make adjustments along the way based on the collective set of things that we're looking at. And when we say that we will make adjustments, we made adjustments going into AEP. I think people recognize that. There have been reports out on that fact. And we will continue to monitor in AEP, but we'll also be looking at, hey, do we want to think about OEP differently? Do we want to think about rest of year differently? So all those factors are in play, and it just makes it really hard to say, "Hey, here's a number at this point in time." With that, I'll hand it off to George. George Renaudin: Thanks, Jim. So we have taken measures such as taking Part D risk back where we saw the IRA shift cost in a very significant way. As David mentioned, we have been reducing benefits for 2 years to reset the product so that it is a product that we and our value-based partners want to grow. And so we've taken those actions. In addition to those 2 major actions, we're also -- because of the Stars program, we are also implementing Stars mitigation programs that mitigate the impact of the Stars revenue hit based upon their success and their performance in the Stars program. So we are taking very specific mitigation tactics, working with our value-based partners, looking for ways to help mitigate any headwinds that they face, work with them every day. We are out in the field talking with them about contract changes that are necessary, and we feel good about the progress we're making there. So I would just remind you that we've taken actions in the past couple of years. We also, in addition to that, have a Stars mitigation program that's going on. So when you combine those factors, we feel good about where we are with the value-based partners. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: And I know you're not providing 2026 guidance today clearly, but would love if you could give some initial thoughts on the type of margin that you'll assume for the new to Humana sales growth. Is it reasonable to think that, that would be comparable to the 2% roughly you're targeting ex the Stars headwind for the overall book? And then obviously, I'm sure it's dependent on mix, but just based on what you know today. Celeste Mellet: Yes. Thanks for your question. So as Jim said in the opening remarks, most importantly, we're on track for the plan we laid out at our Investor Day for 2028. And it is too early to provide guidance for 2026, particularly given where we are in AEP. As we think about the margin of the new members to some extent, it will be driven by which contracts they are sold on. So obviously, those that sell on to the 4, 4.5 star contracts will come in at a higher margin. But in aggregate, we continue to expect that our margin for individual MA, excluding Stars World double in 2026 over 2025, and then we'll continue to make progress in 2026. So it's going to be really, again, like how it comes in is a question of what contracts they're sitting on. But based on all the work we did going into AEP in terms of our product design and our channel mix, we are happy with the margin we're seeing and expect it to be relatively consistent with our overall margin, although some will be above and some will be below. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: I was hoping to hear a little bit more about some of your Stars recovery efforts. You noted last month that the latest round of scores did not fully reflect some of the improvements that you've implemented. And now that we've seen how 5216 has performed across the member experience and chronic conditions measures. Can you talk a little bit about the measures or general categories where you feel like you've made the most tangible progress versus the latest data? James Rechtin: Yes. So the operations in this current year are obviously focused on HEDIS and patient safety metrics. And as I kind of referred to in my opening remarks, we're actually seeing strong progress pretty much across the board in those metrics. And look, again, we remain confident, optimistic, positive about the operating progress that we've made across those range of metrics and the position that will put us in next year as we obviously have another set of metrics that we have to work through in the first and second quarter of next year around CAHPS and HOS and the TTY metrics. So right now, based on the things that we can control this year, it's been broad improved performance that makes us feel good about our overall trajectory. Yes, George, do you want to add? George Renaudin: Yes. Jim, the only thing I would add to that is part of the strategy that David laid out is including the stability. Stability will also help us as we continue to make progress in our termination rates and as well as how our members perceive us through the experience we're delivering through stable benefits. So those are also positive factors to contribute to not just the administrative measures and the health outcome measures that Jim mentioned, but overall to the CAHPS as well. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: I guess you mentioned 3 things, I guess, that were giving you comfort in the, I guess, quality of the membership growth that you're seeing so far. I think better channel mix, fewer plan-to-plan sales and then, I guess, lower voluntary disenrollment. Can you just kind of remind us what the MLR or margin differential is between good channel, bad channel, plan to plan, new to plan and then retention versus new membership so we can kind of better think about what it means to have those buckets growing faster? And then just on the disenrollment comment, you talked about better enrollment. Is it back to normal? Is it better than normal that you're thinking about? James Rechtin: Yes. Let me touch on 2 things. And then, David, if you have anything you want to add, jump in here. So we're not going to give explicit margin information here, but let me give you a little bit about the dynamics across the channels that we watch that make us feel better. The biggest one is actually going back to NPV and long-term value. We see better attrition rate in some channels than others or retention. So that is one piece. We have a different cost of acquisition depending on the channel. So that is another piece that we look at. And then we tend to find that we have different engagement rates. So when you think about things like Stars, accurate diagnosis, individuals managing their medical care, we see a different engagement rate across channels. And so we look at all of those things when we're then trying to understand what the economic impact is of any given channel. So those are kind of the pieces that we look at. And then the one other thing I do want to touch on, we do not know right now that we are seeing better retention. What -- we just don't have the data, right? The data is not available at this point in the year. But when we see reduced plan-to-plan sales, that tends to be correlated with better retention. So we don't know what that retention number is going to be right now, but the reduced plan-to-plan sales is correlated with better retention, and we are seeing reduced plan-to-plan sales year-over-year. So that -- so those are kind of the components. Did I miss anything there, David, do you want to throw in? David Dintenfass: Yes. I think you got it exactly. I don't know if you mentioned, I think there's also different complaint to Medicare Stars outcomes we see by channel. This has been a big factor, especially if you look at the broker channels, and you've seen us take some actions. That's largely based on the quality of how those customers are experiencing that relative to how the Stars outcomes are going to look. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: I guess I wanted to focus on this LTV and NPV focus that you're talking about. I guess, is this long-term value member as the North Star a strategic shift for the organization? Meaning, are you willing to accept different margin levels in, say, your insurance segment because you can create more margin through CenterWell? I just want to understand how this impacts long-term margins and if this is, in your view, a shift in how you've thought about things in the past as an organization. David Dintenfass: Yes, Josh, thanks for the question. I think it's an evolution. I think this has always been part of how the company has thought about this. But as I said, part of this question about is growth good, is it not? It comes down to the margin of that growth. And what drives lifetime value? You need to have margin to drive lifetime value. You need to have retention to drive lifetime value. And we are trying to get to a place where all of our products on the insurance side have a reasonable margin, trying to get out of the cycle of having low-margin products that are high growth and then you worry about overgrowing in them and then having to drive margin in the out years. We don't think that's great for our sustainability. We don't think it's great for the customers. You also brought up the enterprise value. That's absolutely part of the play here. We know that integrated health is a big part of what we think differentiates Humana and looking at the lifetime value of a customer across the entire enterprise is becoming how we look at all of our activities. George Renaudin: Josh, if I could just add one other thing to that is as the long term are here, I can just tell you that what I've seen over the past couple of years, and we've actually talked about this directly during the investor conference, which is we're taking a multiyear view towards lifetime value. And that longer-term view is having us approach products in a different way in this way that leads to better stability and I think better long-term value for the company. Celeste Mellet: Can I just add the pile on here. While we are focused on LTV and NPV, we are -- we recognize can't have a long term without the short term. So we are balancing the long-term value, the long-term value creation with delivering on the next year or the next quarter. So we are balancing those things. We're not just looking 3 and 5 years out. Operator: Our next question comes from A.J. Rice with UBS. Albert Rice: Just maybe on the MA market overall, there was some data out from CMS early before open enrollment that they were forecasting the market might not even grow this year. I wonder -- I know you're not commenting on your specific situation, but do you have any feel for where the overall market is? You said in your comments that where there's planned exits, you're not picking up disproportionate numbers of those. Are we finally at an area where the market has been disruptive enough that some people are just choosing fee-for-service again? Is that possibly happening? And then maybe if I can just ask you on your mitigation efforts during this open enrollment. I know -- I believe there's some notice period on commission adjustments that would probably make it tough to do that during the open enrollment. So I'm just trying to understand what are the mitigation factors that you can push on if you see too much growth in a particular area? James Rechtin: Yes. Let me hit the first of those, and then I'll hand it over to David for the question around plan exits and commission growth. On the market growth, I would just point out a few things. One, the forecasts are never right, right? Like they're never right. You can go back and you can look at the 5, 6, 7 years historically, they're never right. Second, we don't see a reason that the market should grow materially different than the way it did last year or the way it has historically. And so our expectation is it's going to be somewhere in the mid-single digits growth. And again, this is forecasting. So CMS is not going to be right. We're not going to be exactly right. But we don't see what the big difference is from last year in terms of where the market is at as a whole when you look across all plans. And so our expectation is growth is going to look somewhat like last year at the end of the day. And we will obviously know come January, February, but that's kind of what our expectation is at the moment. David Dintenfass: Yes. And A.J., the second part of your question about commissions, you've all seen we've already decommissioned a number of plans. That is a potential lever, but there are other levers. Keep in mind that we own a big part of our own distribution, including our own marketing. So we're able to do other levers beyond commissions if we want to have volume match our operational capacity in the back half of the year. James Rechtin: And actually, I'm going to go back to the [ plexus ] real quick. The bottom line on the [ plexus ], we don't know if people are going to fee-for-service or if they're going to other plans. But what I would just point out, and we've said this a few times, we are at parity or below the richest plan in the market in many, many geographies. And it just so happens that in a lot of the [ plex ] geographies, we tend to be below or behind other plans in terms of benefit structure. And so that could be playing into it. But again, we don't have enough data to know that for sure. Operator: Our next question comes from Elizabeth Anderson with Evercore ISI. Elizabeth Anderson: I was wondering if you could comment on this year's MA enrollment. Obviously, that number -- the decline in membership is coming in not as much as you had originally suspected. Given the sort of short-term dynamics with this year with that membership change, I'd be curious on that. And with all of your comments on retention for next year, how that plays into your plan to sort of double the margin number for 2026? James Rechtin: Can I just ask you to repeat the first part of that? What are we not seeing? Elizabeth Anderson: No, I was just saying sort of the change in MA membership numbers for this year? Like how are you sort of seeing that impact the short-term numbers? Does that sort of make any big differences versus your original assumptions in terms of maybe the fourth quarter MLR? And then as we think about 2026, given your focus on retention, how does that play into and contribute to your doubling of the margin number for next year? James Rechtin: Okay. Got it. I missed the 2025 point. So yes... Celeste Mellet: Yes. Elizabeth, it's Celeste. The -- in terms of our better-than-expected or lower-than-expected declines in membership this year, the pickup has been driven by 2 things. One, the retention is better; and two, sales have been on the margin better as well. But in particular, as we've gotten later in the year, the increase in the numbers has been driven by better retention. As it relates to MLR, we don't see an impact to our prior expectations based on what we picked up at the end of this year. Operator: Our next question comes from the line of Scott Fidel with Goldman Sachs. Scott Fidel: Obviously, knowing that there's still a lot more to play out in the AEP. Just based on the initial comments that you made around the sales tracking to the high end of the scenarios, can you maybe give us some insights into -- in terms of from a product mix perspective, how you're seeing new sales tracking between PPO, HMO and then, I guess, maybe D-SNP products? And then also on the LIS PDP commentary around most of the growth coming from the LIS. Just any observations you can give us in terms of where you're seeing that growth coming from in terms of from either competitor exits or other existing plans in the market? Just any observations around that as well. David Dintenfass: Yes. I'll take the first part. I think it's really early to be able to project at that level of detail on the growth. We're just a few weeks into AEP. And what we're seeing is that across the board, we're seeing healthy growth on all segments, but not disproportionate in any one segment. We're also not seeing disproportion in any geography at the moment, including the [ plex ] markets from our competitors. So it's too early to parse it apart, but it looks like it's much more even than it is choppy. George Renaudin: Thanks, Scott. So on the PDP side, what we're seeing thus far is some strong growth there. And what it's come -- where we expect the majority of it to come from is from our basic and value plans. On the basic side, which I think was your question around the low income, what we saw is that we are below the benchmark in about twice the number of states as we were in '25. And so that will lead to a significant pickup in auto enrollees, and that will include, of course, competitor reassignments. What we've generally seen is that, that is good business in the PDP. And so we are thinking that, that is a very positive development. Operator: Our next question comes from Ryan Langston with TD Cowen. Ryan Langston: Great. I'm sorry if I missed this, but what drove the decision to not crosswalk the group MA members from H5216? Is that just you're thinking you're going to get that back to an appropriate star rating for 2028 or other logistical reasons you didn't make that move? James Rechtin: Yes. I'll jump in on that one. It goes back to 2 things. One is -- well, really 3 things. One is our attitude towards having a balanced portfolio of contracts. The second is the desire to provide stability to our members in order to drive retention. And then third is the outlook on Stars. And so it's all 3 of those things combined that led to that decision. George? George Renaudin: Yes, I would just say that another part of that because it's multifactorial, as Jim said, and we've been saying since we've been talking about the group business. So we remain focused on improving the group MA margins through the various renewal cycles to reflect the reimbursement environment as well as the cost environment. And our business so far, we've renewed 91% of our current group members along that line of recovering margin. So we are making good progress there in the recontracting to improve the margin. We expect fairly solid growth in 2026 with some key new business, including a major airline, a large group in Kentucky as well as Alabama. So as far as Stars go, our plan is to move the group members away from 5216 is not to move our members away at this time because we're making good progress both on the Stars side as well as the margin recovery through the renewal cycles. Celeste Mellet: And if I can pile on again, this is again an example of not crosswalking these. It's balancing the short term and the long term. We could get a bump in the short term, but risk the longer term on Stars, and we're not willing to do that. So it's a balance of what we deliver in '26 versus what we deliver in '28 on that front. Operator: Our next question comes from Jason Cassorla with Guggenheim. Jason Cassorla: Just it sounds like medical and pharmacy trends coming in line with your expectations for 2025. I think looking back at the Investor Day, you previously assumed trend would remain elevated for '26. There's obviously the mix elements you've talked about, but any early thoughts on how 2026 cost trend development coming in relative to 2025? And then any way to help quantify how you're thinking about the trend vendor opportunity specifically for next year? Celeste Mellet: Yes, we have talked about in the past that we expect a continuation of the same growth levels in medical and Rx cost trends into 2026. So the mid-ish -- on the higher end of mid on the medical cost side and low double digits on the Rx side of things. So we're not seeing anything that would suggest it should be different than that at the moment. And then sorry, what was the second part of your question? Jason Cassorla: Yes. Yes. Just any way to help quantify how you're thinking about the trend vendor opportunity -- clinical excellence opportunity for next year? Celeste Mellet: Yes. So if you think back to our Investor Day, we talked about the levers of transformation and the clinical excellence trend vendor opportunity is one of our larger ones. We expect to make progress versus what we delivered this year. I'm not ready to size that yet. Some of that will be driven by the size and mix of our membership and then make progress again in '27 and '28, but it's too early to say where that will be just given the number of dynamics that are -- that still need to settle down. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Great. Could you talk to some of the margin characteristics and long-term margin targets you've got? In particular, in Medicaid, if you could talk to the differences between traditional and duals where you see long-term margins and how you perceive year 1 margins in that sort of business? And then over in the group MA business, what sort of J curve do you expect as you get new business in there? And maybe just a quick clarification. You'd mentioned a direct-to-employer opportunity, I think, in CenterWell Pharmacy. So if you could just clarify that as well. James Rechtin: Do you want to kick off, George? George Renaudin: Yes, I'll start. On the dual opportunity, just keep in mind that when we think about that, and we think about Medicaid since you combine those 2, I'll try to hit on both of them. We prioritize our Medicaid business based upon where we think there is a great linkage to duals, including some of the changes that are currently slated for the dual integration states. And so we have had an industry-leading win rate in procurements and Medicaid. And the reason for how we've targeted those is really to where the dual opportunity remains. And the overall reason for that, of course, is that the duals do have outsized margins compared to the traditional or MA business. And so we see that those do deliver margins in the first year. Unlike some of the core products all year along, those dual products tend to perform well from a financial standpoint. We have -- we're seeing that. We continue to see that happen. We have won a number of Medicaid states. It allows us to increase our dual penetration in a few key markets. I would just point out that in 2026, we'll be moving into the Michigan HIDE program in Illinois, which is, as we've talked about before, a very new dual marketplace. We are also going to be growing into Illinois this year in '26 and we also have an opportunity in South Carolina, where we're carving in the dual eligible. So there's lots of great opportunity in the dual market in Medicaid that we feel very good about. James Rechtin: Yes. And let me just quickly hit the direct-to-employer. I think people are familiar with the direct-to-consumer work that we've been doing in CenterWell Pharmacy, the partnerships, particularly around some of the GLP-1s. We have also seen some interest in similar programs, but through employers and we've been exploring that space. It's too early to know exactly what that's going to look like, but it is potentially another interesting opportunity for us to take advantage of the capability that we have in our pharmacy business. Operator: Our next question comes from Michael Ha with Baird. Michael Ha: I know it's a bit early to think about '27 advanced rate notice, but yesterday, we learned a key data point. And maybe it's unsurprising, but if your reach fee-for-service cost trend for '25 is 8.5%, usually a pretty strong leading indicator for the rate notice and clearly much higher than what was implied for the '26 final notice, I think, over 300 basis points. So when you couple that with CMS' estimate on '27 trends, it feels like you have a starting point in the advanced notice that could be north of 9% on the effective growth rate alone. Clearly, very strong for MA and very strong for Humana. So -- and again, I know it's early to think about it, but does this roughly make sense and jive with your internal expectations? And wondering if there are any other important variables you think we should also consider heading into the rate notice? Celeste Mellet: Yes. Look, I think it's -- as we've learned over the last few years, speculating on where the rate notice will land has been a very much more imprecise answer than we would like. So we're not going to comment on sort of where they are, where they're starting, what the headwinds and the tailwinds are. And we'll obviously get a first look at that in the beginning of next year. Operator: Our last question today will come from Whit Mayo with Leerink Partners. Benjamin Mayo: All right. I was just wondering if you guys had any views on the changes to the reward factor to EHO for all, whatever it's being called next year and implications on your Stars or more broadly, what you think this means for the industry? I don't think you have any challenges with your duals mix low income or disabled population, but just not sure yet what this actually means. George Renaudin: Yes. With regard to the social risk factors that go into that, we're seeing great progress. We're tracking that on a weekly basis as we're tracking all of our Stars progress. And we know that we are making very good progress there. We're seeing week-over-week improvement. So we feel that we're on track for where we need to be to have that factor be positive. We have a good mix of low income within our product mix, including our dual and even products that don't have as large of a specifically dual population with our group being on 5216, as we've talked about before, we're seeing progress there and having a good mix of membership on 5216, even with the deconsolidation, we should still be in good shape with the social risk factor members. James Rechtin: Yes. I'd just say, operationally, we feel good. And obviously, it's hard to tell where the thresholds are going to come in exactly. So this is just one of these things that will be difficult to forecast. With that, I just want to thank everybody for joining us this morning and for your interest in Humana. And I will say again that we're extremely appreciative of our 65,000 associates who are driving the performance that we talk about on these calls and who are serving our members and our patients every day. And so we appreciate your support, and we hope you have a great day. Thanks. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Humana Second Quarter Earnings Call. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa M. Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are both available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer; and Chief Financial Officer, Celeste Mellet. Following these remarks, we will host a question-and-answer session where Jim and Celeste will be joined by George Renaudin, President of Humana's Insurance segment. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our second quarter 2025 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, the call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I will turn the call over to Jim Rechtin. James A. Rechtin: Thank you, Lisa. Good morning, everyone, and thank you for joining us. As you've already seen, we delivered a good second quarter and first half relative to our expectations. The outperformance was driven primarily by CenterWell Pharmacy as well as better-than- expected individual MA membership. Our second quarter medical cost trends were in line with expectations. And given these results in our solid first quarter, we are raising our full year 2025 EPS outlook from approximately $16.25 to approximately $17. While we still have challenges to navigate, the external environment this year continues to evolve largely in line with our expectations, and we are executing against our plan. There's actually a lot happening, and I have a great deal to cover today. So let me just remind everybody that I'll frame my comments as I typically do around the 4 basic drivers of our business. The first driver is MA product and experience, which drive customer growth and retention. Second is clinical excellence, which delivers clinical outcomes and medical margin. Third is delivering a highly efficient back office and fourth, is capital allocation and growth in both CenterWell and Medicaid. Let me start with our Medicare product and experience. Individual MA membership, as I mentioned before, has declined less than we expected. Part of this improvement is that we've seen more bounce back members. And so these are members who chose another plan last autumn during AEP, but have come back to us during OEP and [ ROI ]. These members typically have better year 1 economics because we know them, and we can provide better clinical care. As you may remember from Investor Day, our retention strategy is an important lever for us on our path to a more sustainable and reliable margins. And so we're excited to see these members returning to Humana. We are also taking aggressive steps to continue to improve the experience for our members in an effort to build upon this performance. There's a couple of examples. The first is, last week, Humana announced new actions to simplify and streamline the prior authorization process. This builds on the recent commitments made by multiple health plans, including Humana, that were announced by AHIP in June. Humana's actions, which go even further than our initial commitment through AHIP will help ensure our members get the right care in a timely manner while also reducing administrative burdens for physicians as well as improving the experience for our members. I think it's important that we remind everyone that we believe that prior authorization is an important check in balance to ensure appropriate care. It's just that it should be invisible to our members. In another example, of our focus on experience, we have entered into a new partnership with the health care software company, Epic. This partnership makes Humana the first health insurer to integrate health plan information directly into MyChart's accounts. Why is this important? This brings health plan coverage information into the same place where members frequently go to manage their care decisions. In essence, it provides increased transparency to the cost of care. We know that visibility into the cost of care when care decisions are being made is a big deal for our members, and we want to do everything we can to provide that visibility and transparency. Now let me turn to clinical excellence. We are going to focus today almost exclusively on Stars. We'll hit BY '27 and '28 along with the Stars litigation. I'll start with the Stars litigation. The court dismissed our case a couple of weeks ago on administrative grounds. They did this because we had not exhausted the optional appeals process with CMS when we originally filed our lawsuit. The appeals process with CMS is now over, and so we have refiled our Stars case in the same court. As we wait for a new ruling, our path forward remains the same. We are continuing to press ahead with urgency on BY '27 and BY '28. Operationally, we are continuing to make strong progress. We are closing gaps in care and driving both quality and experience for our customers. And so there's no change in our message or our tone here today. As a reminder, for BY '27 results, we will be entering a quiet period when we receive planned preview data. So after today's call, we will not be discussing BY '27 Stars until the final results are released by CMS in October. Shifting to the area of a highly efficient back office. We have a lot of activity happening in this area right now. During Investor Day, we shared that we were focused on transforming the organization, transforming the organization to enable scalable growth and drive operating leverage. This is a multiyear transformation, and it will include both near-term tactical cost programs, but also longer-term efforts to change how we operate through increased automation and use of technology. This week, we notified eligible employees of an early retirement program to help accelerate efforts with our operating model and to streamline cost. In the next few months, we will also be expanding our efforts to contract out additional aspects of our shared services functions. We are doing this in an effort to streamline and optimize outsourcing capabilities. We will also be evolving some of our employee benefits to bring them in line with industry standards. I really want to emphasize that while these changes will reduce cost, the intent is to enable our broader strategy. This will be a multiyear transformation. It will be taken at a measured pace. And the objective is to create a more nimble technology-enabled organization that can respond more quickly to consumer needs and expectations. Now let me turn to capital allocation and the growth of our Medicaid and CenterWell businesses. We're seeing exciting progress in both businesses right now. Strategic expansion of Medicaid continues with the launch of the Virginia contract, this brings our active footprint to 10 states with 3 more states awarded in pending. I know there's been a lot of curiosity about the impact of the Big Beautiful Bill. Our footprint in Medicaid is largely in nonexpansion states, and it tends to be skewed towards the LTSS or long-term support services population. These geographies in this population are less impacted by the bill. So while the bill will certainly have some impact, we expect it to be more muted for us versus Medicaid broadly. We remain committed to our Medicaid strategy and the assumptions we made at Investor Day about margin progression. Finally, we are encouraged by our CenterWell Pharmacy outperformance year-to-date. This has been driven by 2 things: we've seen higher direct-to-consumer volume, and we have seen favorability in Specialty Pharmacy, which is seeing higher volumes and more favorable drug mix than expected. So to conclude, all in, we are pleased with our solid performance year-to-date and our improved full year 2025 outlook. As we look ahead, we remain focused on delivering a more stable and compelling MA margin. We continue to have conviction that the strong core fundamentals and growth outlook for MA will allow us to deliver compelling shareholder value over the long term. And with that, I will turn it to Celeste for a few remarks before we go to Q&A. Celeste Marie Mellet: Thank you, Jim. Our second quarter results reflect solid execution across the enterprise as we focus on returning the business to its full earnings power. And while we remain appropriately prudent in our assumptions heading into the back half of the year. To date, the underlying fundamentals of the business, including membership and patient growth, revenue and medical cost trends are developing in line to better than expected. We are pleased that our performance and outlook support our improved full year adjusted EPS outlook of approximately $17. And it is important to note that this outlook contemplates an additional approximately $100 million in incremental investments to improve member and patient outcomes and support operational excellence. The additional investments are focused in areas where we have seen strong returns to date, such as pairing in-home visits with virtual health to better engage members who don't have a primary care provider and closing gaps in care. Turning to the balance sheet and capital deployment. We continue to execute on our efforts to increase the efficiency of our balance sheet and fortify our foundation. And we're making the progress on the sale of noncore assets and optimizing our capital requirements. We will share more on these efforts that plans finalize in the coming months. With respect to capital deployment, we will remain prudent in our near-term approach, taking a balanced view to evaluating capital investments and returns. As I shared with you at our recent Investor Day, we intend to focus on maximizing shareholder value by executing on share buybacks to offset dilution from stock-based compensation, growing individual -- growing dividends in line with earnings as they recover and over the long term, executing on accretive M&A for which we have a proven track record. Accordingly, we completed approximately $100 million of share repurchases in the second quarter to offset dilution from employee issuance and do not have additional repurchases contemplated for 2025. During the quarter, we also opportunistically bought back approximately $200 million of debt due in 2027, using the proceeds from our bond issuance earlier this year. Looking ahead, we will continue to manage the levers within our control, focused on delivering best-in-class clinical excellence, transforming the company to enable scalable growth and driving enhanced operating leverage. We believe that these efforts will allow us to expand margin and realize the earnings potential of the business while driving better outcomes for our members, patients and associates. With that, I will turn the call back to Lisa to start the Q&A. Lisa M. Stoner: Great. Thank you, Celeste and Jim. Before starting the Q&A, just a quick reminder for fairness to those waiting in the queue, which we do have a long list in the queue. We ask that you please limit yourself to one question. So operator, with that, if you'll please introduce the first caller. Operator: Our first question comes from Ann Hynes with Mizuho. Ann Kathleen Hynes: In your prepared remarks, you highlighted that cost trends were in line or better than your expectations. Can you talk about what cost trend is actually better than your expectations? And within that, can you just talk about Medicaid is doing since some of your peers are having some trend problems in that book of business. Celeste Marie Mellet: Yes. Thanks, Ann. We called out that our -- the results we are seeing generally are in line to better than our expectations. So on the revenue side, we are seeing better-than-expected performance in CenterWell. We saw higher-than-expected patient growth earlier in the year. And as Jim called out, we have seen better-than-expected revenue growth in term on the pharmacy side of things. On the Insurance side, membership growth also, as Jim called out, well, it's going to be better than expected. Our guidance now assumes membership decline of around 500,000 -- up to 500,000 versus 550,000 before. That is driving higher revenue with an in-line MLR. In terms of our overall medical and operating costs with the exception of the investments we called out earlier, the -- those are trending in line or within the range of our expectations in some cases on the better end of our expectations. And then to your last question, on Medicaid, Jim talked a bit, and I'll turn it over to George about the states we're in and the programs that we're in, which is really allowing our business to deliver on what we expected for the year. I'll turn it over to George to talk more about that. George Renaudin: Yes. Thanks, Celeste. So as you think about our Medicaid business, as Jim said, you talked about the footprint. But there are really a few reasons why you can extrapolate across the whole industry that the Medicaid performance. And really, that's a result of 3 significant differences that you have to think about with Medicaid. One is the products that we're in. And so as Jim said, we're much more oriented towards the LTSS population than the traditional Medicaid population. So that's one factor that you have to think about. The second is the state footprint. And as you think about the state footprints and where we are, we are in states that we have worked very well with the states on the rate development and things are moving well there. Now one of the things you may say is, well, you're large in Florida. I think that one of our competitors did acknowledge that their Florida problem was really specific to a population that we don't have exposure to. So again, you have to think about product first, you have to think about the state footprints. And then the third part that is really important to think about with Medicaid is the network structure. And we believe that our network structure with our heavy emphasis on value-based care creates a differentiator versus where we are elsewhere. So with regard to Medicaid, we're really proud of the development we've had and the expansion we've had into now 10 full states and 3 more coming online. One thing that we should also mention is, for example, we now have a new Illinois contract that will be coming on. It's a big opportunity for us that emphasizes our prioritization of Medicaid, where we're focusing very hard in states that are linked, where the Medicaid and D-SNPs are linked and where Humana has an outsized dual membership to protect. So we feel good about development we've seen in Medicaid to date. Celeste Marie Mellet: Yes. I think just to sum it up for you, Ann, Medicaid is running in line with our expectations. We're continuing to make progress on new states, and we feel good about where we are. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Mark Fischbeck: Great. I was wondering if you could talk a little bit more about the Part D performance and then any comments that you have on the CMS regulations that were just released a couple of days ago and how you're thinking about that for 2026. Celeste Marie Mellet: I will talk about performance to date, and then I'll turn it over to George to talk about the recent CMS announcement. So first, not a lot to say about Part D, the member mix and Rx trends are tracking in line with our expectations today. If you recall, we did have -- we were expecting low double-digit trend on the Rx side of things, and it's in line with our expectations. We haven't seen any unexpected behavioral changes to date and members are hitting their move so far in line with the expectations. So the ramp over the course of the year as members look through that. And I'll turn it over to George on additional comments. George Renaudin: Yes, Celeste. There's not a lot more to say other than we did consider the IRA changes in our bid strategy and then how we set our guidance. Specialty drug trend is high. I mean, let's just say that it is because it is. And -- but that's as expected. And that's the good news it's developing as we expected. We're confident in the pricing strategy that we've seen. Our co-pay versus coinsurance structure is working out the way we intended. So this year, we're seeing PDP develop as we expected, as Celeste said, members are moving through the quarters as we expected. So that's good. On the pharmacy for next year and on some of the things that you're seeing in the -- for example, CMS released the recent rules and the national average bid, et cetera. Given the uncertainty of the high rate for '26, we did bid back in survey given the changes in the risk orders, it's come in the way the risk orders are work and the way that the national average bid has worked is a little bit better than we expected, which is positive. From what we are seeing in the direct subsidy, the industry Part D appears to be more consistent next year and within the range of our expectations to slightly better. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: One of your peers noted a pretty meaningful pullback in the individual PPO market next year. Just curious how you're thinking about the implications of that to your own membership growth and margins for next year? James A. Rechtin: Yes, let me make a couple of quick comments, and then I'm going to hand off to George to walk you through some of the specifics. The -- first of all, big question. I know for the entire industry right now given all the discussions that are out there. And that -- there's really, I think, 2 questions underneath the question. One is, we recognize that there's a lot of talk about, hey, is there an unattractive population from a risk standpoint that tends to bounce around from plan to plan. And then second, why do we seem to feel good about where we're at as we, both this year and as we head into next year. And the high-level response to that is, and we try to convey this at the Investor Day, is we don't see bad membership. We see bad benefit packages and products. And so if your product and your benefit structure is in the right place, all members can be good, profitable, attractive membership. And we feel like we have taken good steps in the last 2 years to put our product in a good place. And again, we feel good about that. We're seeing that this year. We feel good about the trajectory into next year. And to the extent that others in the industry did not take similar steps in the past and taking it now, we think that's good for everybody. We think that's good for the sector. We think that's good for the industry. We think that is a positive thing. And that at the highest level is kind of how we're thinking about it, but let me let George walk through some of the detail behind that. George? George Renaudin: Yes. Thanks, Jim. As Jim said, I understand why everyone is thinking about this question. But let me start by remind you of the market dynamics that we've played out over the last few years. We were transparent almost 2 years ago now in discussing utilization trends we are seeing, and the impact of v28, and we made adjustments each year since then. We are the only plans to reduce benefits in any way in '24 and we reduced more benefits and more significant than just about all of our competitors in '25. In addition to that, we executed on the combination of plan and benefit county exits impacting 550,000 members. Given these two rounds of significant benefit cuts, we have a significant gap to peers benefit value while some peers held their benefits stable or even invested more in their benefits. Now it's important to look at the granular MACVAT data. I know a lot of you had pulled that Milliman MACVAT information, but you have to isolate the growth plans because if you simply look at the averages, without taking out the legacy plans that no one is really selling anymore, you'll get an inaccurate view of how the plans compare. However, if you evaluate the growth plans, those plans you actually have seen growth on over the last couple of years, you will see the significant gap to our peers that has resulted from the 2 years of benefit reductions we've implemented. And additionally, we also did plan and county exits for 2025 that impacted 550,000 members. We've recaptured 40% of those members in other MA offerings. Our goal, if you will recall, was 50%. And we will have been happy with even more recapture because those plans, we feel confident are being priced correctly. So keep in mind, this 40% recapture rate of these exited members, as you hear the 2025 trends that were saying today are tracking in line with expectations. To reiterate, when members rejoined us in plans that were priced appropriately considering the funding and medical cost trends, we're tracking in line with expectations that we set out in our guidance. We have also specifically evaluated how those recaptured members and plans are performing, and we feel good about our benefit structure and the members we recaptured where we price them for the long-term value. And for 2026, our benefits are largely stable in some places, we may have invested a little bit, and in others we may have pulled back some. But even with the significant cut by peers, if they do that for '26, we still anticipate having a gap to the next richest benefit in the market based upon an in-depth analysis of our competitors' opportunities under the various bid rules, including the TBC rules. So the point is we continue to feel good about the current run rate of our plans and are confident that our plans are priced appropriately given the funding environment cost trends that we're all experiencing, even should we have greater growth. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen C. Baxter: I was hoping you could speak to what you saw in terms of inpatient utilization trends in Medicare Advantage during the second quarter. For context, one of your competitors spoke to an accelerating trend in the second quarter. So it would be good to get your perspective on your data that you have to date? Celeste Marie Mellet: Yes. Thanks for the question. So on the inpatient side of things, it -- things are trending in line to on the better end of our expectations when you take into account both admissions and the cost per unit. So we're not seeing an acceleration of anything, if anything, in the beginning of the year because of the timing of the flu season was a little bit higher, but in line with our expectations. So where -- we are -- things are trending as we said along. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: I thought I'd take a shot at getting the latest on Stars. I understand you're going to go quiet and I know you don't have the cut points yet, so there's no way to know what your Stars are specifically going to do. But I do believe that planned preview one has gone out. And so you have a decent idea or at least a starting point in terms of how your own performance looks. And if you might expect, there's a lot of focus on this. So I would love to know if you could share with us here how your own performance has been in Stars. Do you feel like you've taken -- when we see the final data regardless of, how the cut points end up and therefore, how your Stars end up? Will investors be able to see a pretty strong step forward in terms of underlying performance in your Star metrics. James A. Rechtin: Yes. Justin. Plan preview one data is not out. And honestly, if it was, we would not be talking about BY '27 at all. So it is not out at this point. And so we do not have any -- or if it is, we're not aware, but I don't think it's out. And so we don't have any additional visibility. Look, what I'd say, and this is going to be consistent with what I've said in the past, we were behind where we needed to be back in September -- late September early October last year. We have made really good operational progress. We genuinely feel good about it. And you will see the underlying metric performance, you will see improvement in the underlying metric performance, meaning if you go metric by metric, our performance has gotten better. It really is a question of how much has the industry improved along with us and therefore, where are the cut points. And at this point, with the lack of PP1 data, we just don't have visibility into that, which again is why we will enter a quiet period here over the next couple of months as that data does become available. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Elizabeth Wilson Wright: Great. I was wondering if you could talk a little bit more about the Specialty Pharmacy strength and what was kind of driving that and some of the Part D dynamics that kind of flow through there from an IRA perspective? And how is that kind of playing out relative to your expectations at this point? Celeste Marie Mellet: So on the Specialty Pharma -- and I would just say in the CenterWell Pharmacy business in general, part of what's driving our outperformance this year is strategic changes to how we're organizing and marketing that business. So we've invested a lot in building a strong partnership with pharma companies, and that's done a couple of things for us. One, it's creating new opportunities through this direct-to-consumer model. That's de novo partnership we have that we've also partnered with Ro and Weight Watchers to sell some GLP-1. We expect to see more of this type of business over time. We're excited about the progress this year. It's coming ahead of our expectations. The second piece that's driving outperformance, I should say the second piece is, generally, there's broader outperformance from what we understand in Specialty in the industry this year. But our specific performance is further boosted by winning additional access to multiple limited distribution drugs, that we previously wouldn't have been able to access. So this is really driven by the partnerships I called out. In the past, other pharmacies have gotten them and we have been excluded from that and now we are included. So really excited about some of the progress and the momentum in that business. In terms of the PDP trends in general, as I called out earlier, the member mix and the Rx trends are tracking in line with our expectations, and there haven't been any unexpected behavioral changes. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Richard Raskin: Last quarter, you spoke about, I think, a couple of hundred million of additional investments that we're mitigating upside to the guidance. And I believe, Celeste, I heard you say there was another $100 million. I want to confirm that's incremental spend that is in addition to the couple of hundred from 1Q. And then I'm curious why not invest more instead of letting it flow through the guidance this quarter? Celeste Marie Mellet: I just think you might ask that question. So look, we -- that is right. We are confirming your question, it is an incremental $100 million. We see a lot of opportunity to invest across the business, really focusing on our transformation, where we have incremental investments in some of our member retention work, AI, general operational efficiencies, a little bit on Stars where we're seeing high performance. The -- there -- we are looking at where it makes sense to spend money. We don't want to just spend money to spend it. We're not going to spend it where there are good returns. Will we continue to look for additional opportunities, absolutely. And -- but we are spending that $100 million where we think we can really drive a return and accelerate some of our transformation work and potential upside in Stars. James A. Rechtin: Yes. The one thing I would just add to that is we pulled some investment forward. So things we thought we were going to do next year got pulled into this year. But ultimately, you run into just a limit on how much of that you can do. How much can you operationally absorb in any given period of time. We'd love to be pulling more forward. But right now, we're digesting the investments that we're making. And that's a big part of it as well. Operator: Our next question comes from A.J. Rice with UBS. Albert J. William Rice: Just wanted to ask about 2 quick things related to CenterWell. You continue to grow that membership on the value-based primary care side and seem to be hitting your metrics there. I wonder one thing you emphasized is that your member agnostic where maybe some of your other peers in that space are more focused on the medically complex. Is that part of why you're seemingly doing better? And then I just would also in CenterWell ask, do you have any update on home health rule. I know you're moving that to more value- based as well. But I think you're still one of the biggest fee-for-service providers and the proposed rules challenging. It's just sort of hard to know how much that's likely to impact the overall enterprise, given it's still -- even though you're big in that space relatively small in terms of the entire enterprise. Celeste Marie Mellet: Yes. So let me -- on your first question on patient growth, it's really, we've opened more clinics. Those clinics are ramping. They're doing well. It's a combination of word of mouth and marketing. There isn't a particular kind of patients that's driving higher-than- expected growth. We're pleased with what we're seeing and even with the higher payment growth trends and our expectations for that business are consistent with what we would have thought. In terms of home health, yes, we're disappointed by the proposed 6-plus percent net rate reduction. We really don't think it's reflective of the wage and other inflation that the industry is experiencing. Labor makes up almost 75% of that rate and the rate is supposed to be tied to that. We also had anticipated that CMS would eventually implement a behavioral adjustment. We do not anticipate that it would be as high as proposed. I'd also say the data is supposed to be collected through the end of '26 and then analyze then. So data is still being collected. So we believe it's early to make this adjustment. We're continuing to advocate and educate the administration on the need for reasonable home health reimbursement, and we're evaluating the impact on our Home Health businesses as proposed, but we do have a natural hedge in our Insurance business. It wouldn't fully offset any -- if this is implemented as proposed, it wouldn't fully offset it. But we believe we have other levers at the enterprise level that can absorb the headwind that isn't naturally offset by Insurance. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: Just wanted to go back to the commentary you made on MA benefit actions in '24 and '25 in a more conservative approach you've taken versus some peers. To what extent could that put you at a disadvantage from a member experience perspective ahead of Stars? And kind of maybe you can remind us what types of investments you're making right now that could mitigate some of that and lend some confidence in reaching that -- your targets for the '28 bonus year. James A. Rechtin: Yes, great question. We are monitoring this closely is where I would start. Certainly, any time that you take benefit actions, it does create some abrasion with members. We have been extremely active in diligence in essentially taking offsetting operating actions. So making sure that we're being very clear in how we communicate and explain the changes to our members, making sure that we're responsive to their concerns, et cetera. And all in all, we feel pretty good about where we are at on that specific item, meaning member experience related to cuts and benefits last year. But yes, I mean, every time you go through a set of cuts, there is some member abrasion and you have to take that into account in your operations and adjust for it. George, is there anything that you would add to that? George Renaudin: Yes, Jim, I would just add that there are a number of things that we follow there. We monitor NPS on a regular basis on every call, frankly, that's taken, we try to monitor NPS. We're mentoring -- we are -- sorry, monitoring both the NPSR, which is the NPS for relationship, and NPST, which is the NPS has to do with each transaction, each time we get a call from a member and every time we interact with the member. And we're not seeing anything concerning in that data. We also, of course, are doing mock cap surveys. If you think about the surveys that CMS does every year, we do those to monitor what's happening. We're not seeing anything very alarming there at all. In fact, things are looking fairly good. And keep in mind, some of the other things that we are doing here actually impact and help the member experience. Jim mentioned the Epic MyChart, where we're the first plan to try to integrate what members interacting with their provider and have them have their provider and payer show up in one spot to improve that member experience and they can see all their information about their plan, while at the same time, checking on their next appointment. And a number of the activities of the millions of dollars that you've heard Jim and Celeste talk about that we're investing in, are investing very much in the member experience itself. And so the activities that we're taking in Stars, yes, they improve health outcomes and they improve our Stars, but the reason for that is predominantly because we're also improving the member experience. Making sure that our members are getting the care that they need. And ultimately, what they're looking for is that they can get the care they need, that they are being proactively outreached to get care that's appropriate for them and also doing so in a way that is affordable. And we believe that the actions we've taken. We've talked about the cuts we made before and how we're very, very -- we use a lot of analysis to make those decisions got what benefits cut -- cuts we make to ensure care remains affordable. So all the actions we've taken have very much had that member experience in mind. One of the things that I love about some of the teammate changes we've had in the company over the past year or 2 is that we brought in other expertise such as David Dintenfass, who works on the ELT with us and is making sure that we're very focused on that consumer experience. So there are a whole host of actions that I can point to where we're actually trying to improve the member experience while at the same time taking prudent actions in our benefit designs. James A. Rechtin: Yes, let me pull it back to just point out 2 things. One, the bounce-back membership that we are seeing this year, I think actually is kind of proof that a bunch of those measures are working. And so again, we look at the bounce back, the degree of bounce back membership that is coming through OEP and [ ROI ]. And it makes us feel very good that we're doing the right things to adjust to the benefit changes that we made last year. And then the second thing is, this is really what you're driving at is, are we taking this into account in our Stars calculations? And do we still feel good about our overall Stars performance and the direction that it's headed even when you account for this? And the answer to that is yes. We're certainly taking it into account. And even when you think about some of that member of raising that comes from reduced benefits. We feel good about the direction we're headed in. We feel good about the trajectory for BY '28. Operator: Our next question comes from George Hill with Deutsche Bank. George Robert Hill: Jim, you just kind of spoke about this, but could you provide a little bit more color on what's driving the bounce back on the members that are returning to Humana intra year, kind of where are those guys coming from? And kind of what do you think from a benefits perspective that's bringing those people back? James A. Rechtin: Yes, happy to hit that. The -- I think -- so first of all, it is disproportionately in places where we saw lost membership, which I don't think will surprise anybody. But within the regions where we've seen lost membership, it's pretty broad-based. There's no specific pattern across those regions. And generally, what we see is that when somebody makes a decision to leave Humana and then bounces back more times than not, it's because they were surprised by what they were getting when they made the change. And the surprise might be that they didn't really understand the benefit package. The surprise might be something around customer service. But typically, they were surprised. And then they come back to Humana where they have experience, where they know what they're getting from an experience standpoint from -- and again, this is why we want to be so clear about the benefit packages. The more clear we are and the more that they feel informed, the more comfortable they are with the decisions that we have to make even when they're hard decisions. And I think that is part of what you're seeing. Again, I'll just -- George, anything you would add or anything -- any other color there? George Renaudin: No, Jim. I think you're right. It's about the product and services and whether or not they got what they expected when they left us to go somewhere else. And they were the empty they know we have good services as we talked about at Investor Day, we're known for our service, and we're known for the way we approach our membership. So I think that all just plays into it. Operator: Our next question comes from David Windley with Jefferies. David Howard Windley: I wondered if you could remind us what your assumptions for trend were this year in light of your comments about costs developing in line with those? I know Celeste referenced the low double digit for pharmacy. Just curious to get the other components. And then what are you assuming for trend in '26 relative to what you were experiencing in '25, please? Celeste Marie Mellet: So yes, we -- as we said, on pharmacy, we were expecting low double digits. We continue to expect low double digits into next year. And then on the medical cost side, our expectations were for mid to high single digits, and our expectations for next year are consistent with that. Operator: Our next question comes from Whit Mayo with Leerink Partners. Benjamin Whitman Mayo: I know the lawsuit that you have probably colors your answer, but just any updated thoughts on RADV, whether you have to make assumptions and bids around prospective CMS clawbacks on premium payments that they actually make it through the 2019 audits. James A. Rechtin: Yes, there's really not a lot of color that we have to provide on this one. Partially, yes, with the litigation, there's a limit to what we can say. But partially, there's just a lot of unknowns to be frank. And so very little color to add on this particular topic. George Renaudin: Jim, if I could just add one other thing, it's just we've long supported the auditing of the contracts. As long as it takes into account the actuarial equivalence between MA and fee-for-service. Operator: Our next question comes from Sarah James with Cantor. Sarah Elizabeth James: I was hoping you could clarify the moving pieces in the guide based. If I take about 1/3 of the 1Q beat that was described to CenterWell and all the 2Q beat and run rate it adjust for the investment spend, I get pretty close to the guide boost about $0.06 below. Is that the right way to think about it that the guide boost is primarily run rating the CenterWell outperformance year-to-date? Or are there other moving pieces? And can we think about the CenterWell strength as being sustainable beyond 2025? Celeste Marie Mellet: Yes, great question. So we are -- that is right. We are assuming some of the outperformance will continue through the year, particularly on the CenterWell PCO growth. So that will continue through this year and into next year. And then the performance on Pharmacy side of things, the Specialty outperformance and then the direct-to-consumer momentum that we have. We also, as we called out, have better-than-expected membership. So our guidance for the year is up to 500,000 loss versus 550,000 previously. So that will run through the year and into next year. There were some things in the first quarter in particular, that were timing or one-timers in nature, and we're not run rating those. Operator: Our last question today will come from Michael Ha with Baird. Hua Ha: I understand you feel strongly about your benefit richness and confident in attracting good profitable membership. I'm curious though, is there any level of membership growth percentage that you think if growth starts tracking to like 15%, 20%, 25%, where it could begin to potentially compromise earnings next year? And if you were to get early sense of that through AEP? Would you work to tap that growth if necessary? And then also, I understand plan preview one data is not out yet, but I believe plans have already received the raw results for cost center metrics earlier this month. any ability to comment on how those results look out to your expectations, especially since there's such high sensitivity of even missing one single quality Star rating. James A. Rechtin: Yes. So we are not going to comment on any of the data that we've received from CMS. And again, we'll -- we're headed in that quiet period, and we really will not be commenting again until we reach October. The -- I've now lost track. What was the first question? Membership. Yes, yes, yes. Here's basically how we think about it. So first of all, we feel good about the product, and we feel good that the membership that we're going to be receiving will be good at whatever level it is. Is there a certain level where operationally, it could, in theory, become challenging? Sure. Do we anticipate that, that is likely to happen? No. Will we monitor it and make adjustments as we need to? Yes. To the degree that we can operationally absorb the growth, then the real question I think then you're asking is, hey, is there a year 1 drag that we're worried about heading into next year? If it is -- if it's good growth and good membership, we will be focused on long- term value, and we will explain that to you and we will continue to grow. We will be very clear and we'll be very transparent. Again, when we look at it, do we think the likelihood that we're in that situation is very high? No, not really. Is it theoretically possible? It is. But the main question we will ask is, can we operationally absorb it not are we afraid of year 1 economics and therefore, kind of turn off growth? Does that -- hopefully, that answers the question. Celeste Marie Mellet: Yes. Maybe if I could add sort of a much less strategic and more taxable. The timing of when membership growth matters a lot. So the AEP membership, you have a full year to absorb the marketing, but if you pick up a member late in the year. So if we picked the members late this year, late next year, they tend to come with a headwind because you don't really have any -- a lot of revenue associated with them, and you have a lot of marketing costs. We do have all of our expectations for any back-end growth in '25 reflected in our guidance as of now. James A. Rechtin: Hey, with that, I just want to thank everybody for joining us this morning. And I want to thank everybody for your interest in Humana. And finally, I want to thank our 65,000 associates who serve our members and patients every day. We appreciate your support, and we hope you have a great day. Thanks. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to Humana's First Quarter 2025 Earnings Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer and Chief financial officer, Celeste Mellet, which will be followed by a Q&A session where Jim and Celeste will be joined by George Renaudin, President of Humana's insurance segment. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our first quarter 2025 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, Humana.com, later today. With that, I'll turn the call over to Jim. James Rechtin: Thanks, Lisa. Good morning, everyone, and thanks for joining us. We are pleased with our start to 2025. We are reaffirming our full year guidance. We came in ahead of plan for Q1. I will note that some of the outperformance in the quarter is timing related. It is also still early in the year, so we are continuing to monitor trends. This includes changes in consumer behavior due to the IRA. There's nothing new on our litigation related to CMS' 2026 star ratings. We are still waiting on a ruling. I think the best way to describe where we are at this moment is that while there are still challenges to navigate, there are no surprises. The external environment is evolving as we expected, and we are executing against the things we control. We have scheduled an investor conference on June 16. We have three objectives. One, provide a clearer picture of the earnings power of the business. Two, explain what it will take to unlock that earnings power. And three, give you clarity on how to track our progress. Now I will briefly describe the progress we are making operationally. And as usual, I will frame my comments today around the four basic drivers of our business. That is product and experience which drive customer growth. Clinical excellence, which delivers clinical outcomes and medical margin, a highly efficient back office, and capital allocation and growth in CenterWell and Medicaid. Regarding our Medicare product and experience, there are no changes to our membership guidance for 2025. We had strong performance in OEP, and the early outlook for the rest of the year is trending positively. As we head into the bid cycle, we believe the rate notice better reflects the trend environment and should enable greater industry stability. Regarding clinical excellence, operationally, we continue to make progress on Stars. We are closing gaps in care and driving both quality and experience for our customers. For example, through recent partnerships, we are better engaging members who don't have a primary care provider. We are doing this by pairing in-person home visits with virtual health. We expect this work will close gaps in care by 25% year-over-year. Another effort is through our medication adherence campaigns in which we are seeing 30% to 50% reduction year-over-year in members with weight refills. Regarding a highly efficient back office, our G&A cost for the quarter was slightly better than expectations. This was largely due to the timing of the costs that will be incurred in the second and third quarter. However, we are also seeing good progress in our cost management efforts. One example is increased use of AI in our contact centers. This technology quickly surfaces complex information so our representatives can have more impactful interactions with our members while reducing call times. Regarding capital allocation and growth in our CenterWell and Medicaid businesses, we're seeing robust patient and membership growth in primary care and Medicaid, continued growth in our value-based models in home health, and volume growth in specialty pharmacy. Over the last year, we've added 30 new centers through acquisition and partnership, which are helping to fuel our growth in primary care. We received an intent to award notice from Illinois for their new dual eligible special needs program, and CenterWell Pharmacy has started its work as the fulfillment center for NovaCare's weight loss medication directed to cash pay customers. As you may have seen in the news yesterday, we have also reached fulfillment agreements with three other companies in the past few days. All in, I am encouraged by our recent performance and growth. And with that, I will turn it to turn it over to Celeste for a few remarks before we go to Q&A. Celeste Mellet : Thank you, Jim. I would reinforce that while it remains early, we've had a solid start to the year. The underlying fundamentals of the business, including membership and patient growth, revenue and medical cost trends are developing as expected. And we have been doing substantial work around operating efficiencies with a focus on increasing flexibility and operating leverage while also making incremental investments to improve member and patient outcomes and support operational excellence, positioning the company for long term success. The EPS outperformance in the quarter was largely driven by a shift in the expected timing of certain expenses. As a result, we are pleased to reaffirm our full year outlook, including adjusted EPS guidance of approximately $16.25 and expected insurance segment benefit ratio of 90.1% to 90.5%. Looking ahead, we remain focused on managing the levers within our control, expanding margins and realizing the earnings potential of the business. These levers include quality with a focus on delivering industry leading Stars results on a sustainable basis, clinical excellence, operating efficiencies, and continued maturity of our Medicaid and CenterWell businesses through their respective J curves. I am also spending time ensuring every dollar of the balance sheet drives value. Given my background, this is something that has been a major focus for me in prior roles, and I see a real opportunity to continue to increase the efficiency of our balance sheet. All in, we believe there is substantial value to be unlocked at Humana over the mid and longer term, and we look forward to sharing more at our investor conference in June. With that, I will turn the call back to Lisa to start the Q&A. Lisa Stoner: Great. Thank you, Celeste. Before starting the Q&A, just a quick reminder that to fairness and those waiting in the queue, we ask that you please try to limit yourself to one question. Operator, with that, please introduce the first caller. Operator: Our first question comes from Sarah James with Cantor Fitzgerald. Sarah James: I was wondering if you could help us with how much of your investments moved out of 1Q. Did it move into 2Q? And outside of the timing of that, did 1Q come in in line with your expectations? Celeste Mellet: When we gave guidance for several hundred million dollars in investments earlier in the year, we said that the timing would be unclear. Most of the impact of the incremental investments flowed through the MLR in the first quarter. It was only about 10 basis points. That was in large part because many of the Stars investments that Jim spoke about ramped later in the quarter, and we would expect them to be higher in the second through the fourth. So still the same expectations for the level of investments in the year, just later in the year versus the first quarter. Operator: Next question comes from Ben Hendrix with RBC Capital Markets. Ben Hendrix: I was wondering if you could give us an update on your thoughts around the path to the 3% MA margin target. Clearly, the Stars ruling will have a big impact there. But is there anything changing on kind of the overall investment focus, investment targets? And then kind of the impact you're thinking against this better than expected inmate rate update we're seeing for 2026? James Rechtin : Largely, we would describe things as we're in the same place that we've been. We're focused on getting back to a 3% margin. As you noted, the exact timing is tied to the outcome on Stars. It's very much where we are focused, but there's no meaningful change or update from what we've communicated in the past. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Just sticking on Stars for a second. I was hoping to see if you had any update on timing. How you are expecting to handle bids if or how we should think you're going to handle bids if you don't get an answer by the time you have to submit. And then most importantly, I remember last quarter, you talked about the fact that you had made some real progress coming out of 2024 on your Stars initiatives for 2026 Stars. Right? That'll come out in October. I'm just curious. I know it's impossible to say where you end up, obviously, given all the volatility in the cut points. But I was wondering if you could tell us if the cut points don't change, do you do you feel like you made enough progress that X cut points, you're going to see enough underlying Stars performance improvement to get your Stars back, right, or to be four stars in predominantly in 2026? James Rechtin: Let me, hit a few things, at a high level, and then I'll hand it off to George as well. There were multiple questions in there, so I'm going to try to hit each of them. Stars litigation, we really do not have insight into the timing. It really is the legal system that dictates what that timing is, and we do not have any more visibility than you do. You know, I will let George touch on bids here in a second. And then on the outlook on Stars, I'm going to continue to reiterate that we felt good about the progress we made in the fourth quarter of last year, and we feel good about the progress we're making this year. What we're really not going to do is speculate on what exactly that means and what if the cut points are this or that. You know, that's a level of speculation that we're just not really going to entertain. But we do feel good about the progress operationally. I think that's the most important message. And, George, do you want to talk about the bids? George Renaudin: The places where we are right now in bids is they're ongoing right now. We're actively working through the Stars strategy. And as we've talked about before, work through the mitigation diversification strategy, really with the idea of reducing the amount of concentration we have on certain contracts. As we've talked about, that's going to be a multiyear process as we work that through. We're currently working through that diversification. We're working through the bids. Given the competitive nature of the bids, we're not going to share our pricing strategy for competitive reasons, obviously, and we're not going to give any specifics there. But I will tell you that what we're looking to do is balance membership and margins, focusing on maximizing long-term earnings power of the business, and we have to keep that in mind for the future as well. So that's our take going into it. With regard to some of the targets, as we've talked about before, we've set internal targets contemplating an appropriate buffer as we have our internal teams working towards ever increasing performance. And so that's the take we're going to have there and that we have to have in order to make sure that we return to industry leading Stars results. Operator: Our next question comes from Andrew Mok with Barclays. Andrew Mok: Can you provide more color on your experience in Part D relative to expectations? And specifically, can you comment on the pace that seniors are tracking into the catastrophic phase? And are there any early indications for how senior behavior or manufacturer behavior is changing this year? Celeste Mellet: A few things. One, generally, across our business are trending in line and consistent with our expectations. Our guidance contemplated on the medical side, mid-single digit growth in trend, and that's consistent with what we're seeing. And on the pharmacy side, low double digit growth, and that is also consistent with what we're seeing. We have seen some of the dynamics that have been called out, including higher trends in oncology. We did see that last year and, again, contemplated in our guidance. Everything is tracking in line, generally in line with our expectations. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Hi. Thanks. There's been a lot of membership change on the, individual side of the business in particular. I guess, could you walk us through your visibility on risk adjustment at this point in year and whether that needs to be thought about differently from a visibility point of view versus maybe the recent few years? And then I imagine you've gone back and probably done some diligence on Group MA in light of some of the industry commentary over the past couple of weeks. Let's get a better sense of kind of maybe what you've looked at on the group MA side. And, obviously, the PMPMs are up there, a decent amount more than the individual books. Just trying to make sure that you don't feel like you're seeing some kind of behavioral response to that. George Renaudin: Hey. It's George. Thanks for the question. So I'll talk a little bit about the membership shifts we're seeing, then I'll hit on group a real briefly. With regard to the membership shifts we're seeing, we're pleased with our membership changes to date given the members that we gained versus those we exited. We are focused on the long term earnings power of the business, and what we're seeing is a shift to higher lifetime value segments and membership. We're seeing strong year to date performance in markets with a high concentration of members in our best performing markets, including markets such as Florida, Illinois, and Texas. We're seeing a higher than historical percentage of our non-DSNP members coming from other plans, which has some good implications for the MRA question that you asked. We want members with sustainable margin. They're pleased with the progress we've made there. So on the individual side, we're very pleased with our strategy thus far, and that's playing out as we had desired. On the group MA side, group MA is performing as expected to date. Revenue medical cost trends developing in line with our expectations. You may recall that in past quarters, we've talked about the fact that the group segment is one that has had historical multiyear rate change guarantees, and that has led to some degradation as we have expected and is in our earnings guidance. We remain focused on improving those MA margins through renewal cycles. And what I can say today is that we've not seen any changes in behavior concerning trends due to that repricing activity. So we're happy with where we are with Group MA and that it is in line with our expectations. Celeste Mellet: And if I could add just to clarify, everything is in line with our expectations to date for both the health plan and CenterWell as it as it relates to MRA and revenue. The V28 impact is as expected as it was for 2024. And as a reminder, we did call out a pretty significant Humana health plan impact from B28 last year. We called out about a 160 basis point impact for 2025, and that is playing out as expected. Operator: Our next question comes from AJ Rice with UBS. AJ Rice: Thanks for the comments so far. I guess I'm just trying to think through. You have reiterated that you still have a long term target of 3% pretax margin in MA. There's a lot of moving parts. Obviously, the open Stars litigation, the Part D changes, and how that may play out next year depending on how they do the demonstration project, etc. But you do have a better than expected rate update. When you throw all that and everything else into the mix, the trajectory that you're on, I know we'll get more detail at the Investor Day, but is there any high level comments you can make about whether the trajectory's changed, your optimism about the progression you can make in '26, '27, and '28 back toward your target margins? James Rechtin: Yeah. Hey, AJ. It's Jim. I'll start off here, and then we'll see if there's anything to add. The headline is if you set Stars aside, we feel good about the underlying progress of the business. And then the challenge, of course, is then to reconcile that with the Stars outcomes that are unknown. And so we do feel good about the underlying progress of the business. And to your point, one of our objectives at the investor conference is to be able to provide a little bit more color into what does that mean and how can you see it. You hit all of the many variables that are largely external that we're having to navigate. And, yeah, there's a whole bunch of puts and takes in there. The rate notice does better reflect trends, and there are regulatory headwinds that we're still navigating. You know what they all are. They're not new. And we expect that to continue. There's going to be puts and takes in the external environment. What we are really focused on are what are the things that we can control. And there are things that we can control around medical cost, around G&A around, obviously, Stars. And that really is differentially where we're focused, and that's where we're going to spend most of our time when we get to the investor conference. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Good morning. Could you provide an overview of the integration strategies you have between the insurance segment and CenterWell? And within that, can you share performance trends on some of the cohorts and how those have been moving through CenterWell in recent years? I'm really just looking for an update on sort of levels of success you're having in these VDC arrangements and maybe how you plan to accelerate or not accelerate that in the future? James Rechtin: I'll start, and then George may add some pieces on the, integration component of the question. At the highest level, what I would, again say is we're seeing strong patient growth. We're seeing that both because we're adding clinics and we're seeing it within clinics. So we're seeing it on both sides, so that's a positive. The member growth within maturing clinics is largely in line with where we have been modeling it and expecting it and forecasting it. And so, again, we feel good about that. The V28 mitigation efforts are continuing to take hold, and the V28 impact is not really much different at all from what we modeled a couple years ago. It's almost spot on. And so in total, the we feel very good about the primary care business and the direction it's headed in. Obviously, the J curves are multiyear. It takes time to work through those. Like, this is an investment that you have to have some patients around, but we feel very good about the nature of the investment and where it's headed. And you're seeing each tranche of new centers performing pretty consistently in the J curve as you would hope or expect. And so that's kind of where we're at broadly. And then I'm going to make one comment on integration and I'm going to let George jump in. The main message across CenterWell, so this is not just primary care. This is across all three pieces of CenterWell, is that all three of those businesses have positive contributions to our Stars performance within the plan, to our accurate diagnosis and follow-up preventative care, and the impact that has on the plan, and with retention of members. And so when you really think about, hey. How does that business help? It helps us with the core parts of how you deliver care effectively to MA members, and that's good for the plan. Like, that is it in a nutshell. With that, I'm going to hand it to George. He can give you a couple of specific examples. George Renaudin: Hey, Jim. Thanks. So we're seeing a growing share of our members with CenterWell PCO with our primary care organization, which is a big positive. And as in line with that, you also see the interaction with our CenterWell Pharmacy and CenterWell Home. And the general thing that we see there is better health outcomes. For example, reduced ER visits, better, care in all sorts of medical adherence measures, better care as far as screenings go, and, frankly, just more interactions with the patient and our member, which is all very positive, which leads to the Stars results that Jim just mentioned being positive and higher retention. So all in all, the continuing strategy and the interaction between the insurance side of the business and CenterWell side of the business is very integrated. We are constantly figuring out how we can work better together to deliver better results for our members and their patients. Operator: Our next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: Hi, good morning. Thank you for taking the question. So on CenterWell, actually, one question there. What drove outperformance in that segment earnings? You said something in the release along the lines of there's some timing. So I guess before, you were talking about some shifts in in timing around the investments you were making around Stars. But was there something else that was maybe different in CenterWell? Can you talk about the results in the quarter? Thank you. Celeste Mellet: Hi. It's Celeste. So about a third of our beat in the quarter was driven by CenterWell, and so that beat was driven predominantly by PCO and pharmacy. So some is timing related in terms of admin expense, but there is a portion that could be durable, such as favorable pharmacy drug mix. Specifically, we saw favorability on the specialty side, including better than expected mix and strong agnostic sales. And then on the PCO side, we did have higher than expected patient growth. And then there was some PPD favorability, which we don't expect to repeat. So this could be terrible, but it's early in the year, and we're keeping an eye on that. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Great. Again, on CenterWell, could you talk a little bit about, how the individual businesses within CenterWell are performing relative to your 25 and long term kind of target margin expectations? And within primary care, can you talk a little bit about what drove the external revenue growth there? And in general, maybe just a little color on the puts and takes on internal and versus external patient growth. Celeste Mellet: Thanks. Hey. It's Celeste. So as I had called out, we had about a third of our beat in the quarter was driven by CenterWell. Home was in line. PCO was ahead of expectations. Pharmacy was ahead of expectations. As I called out, some of the pharmacy and PCO components, the specialty mix and the patient growth could be durable for the year and drive higher results for the year, but it's too early to call out or it's too early to call on that. In terms of I'm trying to make hopefully, I'm answering your question the right way. The revenue growth in CenterWell was driven by a combination of the patient growth, the higher than expected patient growth, as well as some favorable PPD. So the patient growth could sustain itself. The PPD was not typically higher in the first quarter. Because of the outperformance in CenterWell we did have variability in our benefit ratio in the quarter, over the course of the year, we would expect the benefit ratio for insurance and the consolidated to be consistent. In this case, the consolidated was lower because of that outperformance, and that's really driven by intercompany eliminations. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wright: On the Medicaid side of the business, how are you thinking now in terms of visibility into that state rate mismatch and how that's progressing now and your confidence in terms of as we go into the second half and resolution of that, and anything in terms of calling out in terms of utilization across that business? George Renaudin: Hey. Hello. It's George. I'll take this one. So Medicaid's emerging, as we've talked about, is a pretty strong scaled business with a lot of potential earnings contribution as we go forward. Right now, what we're seeing is Medicaid is performing in in line with our expectations for the quarter, and we are prouder and prouder every day to serve an ever growing group of Medicaid members working with our safe partners. The Medicaid success is something that we're very proud of. We've we're presenting a fresh new face on Medicaid through our company through the Healthy Horizons product that we have, and we're excited about the success we've had there. We continue to have strong growth. We've had approximately a hundred thousand growth year to date in line with the 175,000 to 250,000 growth we expected for the year. We're very excited about starting to get to a footprint of 13 states. Georgia declined to rebid the contract, which we were glad to see. And we were selected, as Jim talked about in his opening remarks, for new Illinois contracts for the FIDE and LTSS business. That's pretty exciting because it opens up access to 450,000 duals in Illinois, which is a major win for us, and we're very excited about that. The expansion population continues to grow for us. Virginia implementation is on track and going well. And what we're seeing is modest improvement in margins in '25 as our rates are adjust to reflect recent trend experience. So overall, we're happy with where we are. We're growing it as we've expected, and we're seeing trends in line with our expectations. James Rechtin: I'm going to add just one thing. You had add asked about visibility into kind of state level rate adjustments. One of the benefits of having now expanded into more states and more programs is that while you're not going to get every state right every year, the broader this program grows, the more you can forecast it across states. And so, we did not get every single state right this last cycle, and I'm sure we will not get every state right in the next cycle. But across the states, it actually was, once again, pretty close to where we expected it to be. And we think we've built in pretty reasonable expectations for the back half of this year and the adjustments that we'll see there as well. George Renaudin: Yeah. That's fair, Jim. And I'll also add that our state partners have been very collaborative in working with us on those rates, and we do have visibility now to 76% of our ratings for this year. So, again, we feel very good about where we are in our projections. Operator: Our next question comes from Lisa Gill with JPMorgan. LisaGill: Thanks very much, and good morning. Celeste, I want to go back to your comment around mid-single digit trend that you're seeing on the medical side. Can you maybe just talk about the level of visibility you have? And did you see any variability as you were exiting the quarter? And then just secondly, I just want to make sure I understand the cadence of earnings. I think that you noted that 60% to 65% of Part D is coming in Q1 because of the changes under IRA. Is there anything else we should be aware of as we think about the cadence of earnings throughout 2025? Celeste Mellet: So as I called out, '25 trends are generally developing as expectations. As you know, the first quarter flu season was heavy. We did anticipate that because it started later. It didn't scale up in the fourth quarter as it normally would. And we also were in the middle of the spike when we gave our guidance. Beyond the flu, based on the data we have today, trends are developing as expected. We have data through the end of April, and nothing that we've seen gives us pause. So, so far in line with our expectations and what's built into our guidance range. In terms of the cadence of earnings, to your question, our earnings will be front loaded, predominantly driven by IRA. So higher in the first, lower in the second, lower in the third, lower in the fourth. You can see the opposite move. So lower in the first, higher in the second, higher in the third, higher in the fourth in terms of the benefit ratio. One other thing to consider as it relates to the end of the year is that our guidance does anticipate a doc fix in late in the third quarter or in the fourth quarter. And the impact of that, typically a full year is you get a full year impact, which you have to recognize in a very short period of time. That would be reflected possibly just in the fourth quarter depending on when it comes through. So that would put pressure on the end of the year, but it's contemplated within our guidance. Operator: Our next question comes from Michael Hall with Baird. Thank you. Michael Hall: Just a quick clarification first. In your prepared remarks, you mentioned remaining committed to individual MA margins of at least 3% over time. That change in wording from '27 to overtime, anything to read into there, is that implying '27 still the target? And I understand your '25 adjusted EPS guide unchanged, but GAAP EPS revised lower by about a $1.20 or 8%. Looks like there's a pretty large put call valuation adjustment made for your CenterWell primary care centers. Are you marking down the fair value of those centers? Curious if you could talk us through that. And I know, Jim, you mentioned your confidence on V28 mitigation efforts. So just wanted to clearly ask, is there any change at all in this post V28 world in your thinking, your viewpoint on the expected J curve of these primary care centers, the overall cohort maturation story, and value based care. Meaning, all of your most mature cohorts are still expected to do the same targeted margin going forward as you had targeted pre V28? So, basically, no structural impairment at all to value based care because of V28? James Rechtin: Yes. There are a bunch of pieces in there. I will try to hit a few and then see if the team wants to hit any of the others. Let me start with the 3%. I was not intending to make any change from past commentary. So we are still targeting '27. We don't see any reason that we would not be back to normalized margins in '27 at this point in time. And, obviously, it's 2027. But no change from what we've said historically on that front. And then the going back to the J Curves and the CenterWell business, the no structural impairment to the performance of those businesses. So once again, we have operationalized or are in the process of operationalizing things that will offset the impact of V28. We expect those J curves to mature as we would before, and the team's doing really good work to make sure that that happens. Celeste Mellet: Just to add, first, the ability to hit the MA margin will be partially dependent on Stars. So that will be a big important piece for 2027. Second, as it relates to the move and the put call, it's a pretty it's a very complicated calculation. There is no implication that we are writing down those assets. It's unrelated to V28. It's just that there's a lot of ins and outs in that calculation. There's nothing to read into the adjustment in the GAAP EPS guidance. George Renaudin: And can I just add as well that the disproportionate impacts of V28 for high acuity patients was something that was well understood and considered in our forecast, the bid work we've done, the bid work we're doing now? And we have shared in the past, as Celeste said, I think, early on in the call, that, that impact on both health plan CenterWell side was, very well understood, and it's trending as we've expected. As a reminder, we called out very early the significant, health plan impact in versus the industry where we had a higher impact because of a greater share of members with high performing value based providers, and that's, been continuing to be true and is in line with our expectations. Operator: Our next question comes from David Windley with Jefferies. David Windley: I believe in I want to focus on membership, please. Included in the membership decline this year was, I think, about a 140,000 duals. I'm wondering if you could comment on the magnitude of margin help you get this year from exiting that particular block of business, would you aspire to try to get those back in future years? And does 2026 contemplate any more additional exits, or is that completely done? I think you said that in the past, but I don't remember your answer. Celeste Mellet: Thank you. Hey. We have said without specifically getting into member cohorts, so the hundred thousand level, is that we targeted and have seen a material improvement in our margins through the plans and the markets that we exited. And, we're not going to get on to more specifics. As it relates to duals, to the extent pursuing those members drive sustainable long term value for us, we will target them, but we are not going to chase growth for growth's sake if it does not drive sustainable long term value. George Renaudin: The only thing I would add to that, Celeste, is that the additional recent wins we've had in Medicaid really is setting us up for a good grounding as we are preparing ourselves for success in that marketplace, which opens up many dual markets just as the example I gave regarding Illinois earlier. James Rechtin: Hey. I'm going to add one more thing. I believe you asked, how are we thinking about exits in 2026? Every year, there's some puts and takes on, places where you're adding plans and stepping away from plans, but we expect it to be a normal year. We're not expecting an outsized level of exits the way that we did this past year. This past year largely did what we wanted and needed it to do. And, again, we're looking at kind of the normal puts and takes you would see in most years as we head into 2026. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: I wanted to follow-up on the visibility to cost trend. Celeste, said you had data through the April. I assume that you meant that was for pharmacy and not for core medical. So I'd be interested in your comments on kind of core medical visibility, where you are here, and where you think you are from the end of the year. And then I wanted to follow-up quickly on Dave's question on membership acuity. And I guess if you look at the total individual book, we know that you lost about the 40,000 dual members. I guess, I would just love macro comments on how much member acuity the entire book came down and comments on how you think about that as it relates to profitability. And do you feel like you're seeing better member profitability pursuing a lower acuity book of business or a higher acuity book of business? Celeste Mellet: So in terms of data, we have authorization data, claims data, as well as insights from our CenterWell assets, including SNF insights from One Home, drug pipeline and authorizations from our pharmacy, which can be a very, very early indicator of challenges if they are arising, patient utilization from PCO. And we also spent a lot of time with other provider and vendor partners. And nothing we're seeing through the April suggests trends outside of our guidance. In terms of complete claims, we have fully completed claims, mostly fully completed claims through the end of February, but significant data through the end of April. George Renaudin: And then so I'll ask with regard to your other question about member acuity, I'll just repeat what I said before regarding we're seeing a shift to higher lifetime value segments. We have strong in-year performance in markets where we have very good performing value based partners like Florida and Illinois and Texas, and we continue to see that develop as we would like it to as this year goes on. And we're also seeing an interesting thing that we're seeing right now is higher overall member bounce back rates in OEP than we are expecting, which is all very positive to our projections. Operator: Our next question comes from Anne Hines with Mizuho. AnneHines: Hi, good morning. Thank you. What is the V28 headwind in 2026 MA rates versus the 160 basis bps in 2025? George Renaudin: I'm not sure exactly, where that question, how to answer it other than to say that, you know, V28 was phased in over three years. And so when we gave our guidance and when we talked about what we thought the impact was going to be for V28, it is exactly in line with what we talked about at the time. We called out that significant impact versus the industry that CMS released in their note, and we're seeing it develop just as we said, where for us, it's about a 160 basis points higher than what CMS has said the industry impact would be. James Rechtin: Hey. I want to thank everybody for joining us today, and I want to thank you for your interest in Humana. I also want to thank our 65,000 associates who serve our members and patients every day. We appreciate everybody's support, and we hope you have a great day. Operator: Thank you. This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to Humana Inc.'s Fourth Quarter 2024 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question and answer session. To ask a question during the session, you'll need to press star one one on your telephone. You will then hear an automated message advising your hand is raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President, Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. Hope everyone had a chance to review our press release and prepared remarks which are available on our website. We will begin this morning with brief remarks from James Rechtin, Humana Inc.'s President and Chief Executive Officer, and Celeste Malay, Chief Financial Officer. This will be followed by a Q&A session where James and Celeste will be joined by George Renaudin, President of Humana Inc.'s Insurance segment. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-Ks or other filings with the Securities and Exchange Commission in our fourth quarter 2024 earnings press release, as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are also available on our investor website. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana Inc.'s website, Humana.com, later today. With that, I'll turn the call over to James Rechtin. James Rechtin: Thank you, Lisa, and good morning, everyone. Thank you for joining us. I have three topics today. First, we have some new members of the team to introduce. I am going to spend a minute talking about our performance through the framework of the four levers that drive this business. Those are the levers that were introduced in the CEO letter last summer. And I'll spend a minute on industry context. First, let me just reinforce a couple of headlines. 2024 adjusted EPS is in line with our initial guidance. This does include the investment that we made in stars and in growth in the back portion of the year. We are reaffirming our 2025 outlook. We remain committed to achieving at least a 3% margin in individual MA. We do view 2025 as a key year in that journey. And we have some new management team members to help us bring fresh perspectives to that task. I'm pleased to introduce them today. I'll start with Celeste Malay, our new Chief Financial Officer. Celeste joins us with a lot of experience leading finance in organizations that have worked their way through difficult external headwinds. This is a good experience given the circumstances in our sector over the past couple of years, and today. This includes her experience at Morgan Stanley and at Fannie Mae. You will, of course, be hearing from Celeste today, and I look forward to introducing you in a moment. We also have Michelle O'Hara joining us as Chief Human Resources Officer. Her experience has been focused on evolving HR capabilities through periods of change. She comes to us from SAIC. And we're introducing Joppa Mehta as our new Chief Information Officer. Joppa brings a wealth of experience managing large IT organizations in scale-regulated industries. He also has experience using data and digital to better engage. This is a big part of our future, we believe. He was most recently at Citi. Now let me turn to the four things that drive this business. The first of those four levers is product experience, which drives customer growth, retention, and lifetime customer value. In this area, we feel that we are moving in the right direction, though we also believe that we're just scratching the surface of what can be done. As a reminder, in 2024, we proved to have a good year of growth with nearly 5% membership growth. Despite repricing our product to reflect the elevated medical cost trend that we began to see nearly two years ago. When we look at the most recent AEP and expectations for 2025, we are accomplishing the things we wanted to achieve. We're shedding unprofitable plans, we're resetting expectations in lower margin plans, and we are shifting our membership mix with a focus on sustainable long-term value. The membership losses that we've experienced have largely been consistent with our strategy. The exception to this is our position in the D SNP space. However, we are comfortable that we can quickly improve our positioning in this space. I also want to emphasize that we feel very good about the new member mix that we've been attracting. The second lever is clinical excellence. This is the engine of the business. When we deliver better outcomes for our members and our patients, we also reduce system cost. When we reduce system costs, we improve our own product profitability. Clinical excellence starts with delivering on STAR's performance. In the fourth quarter of 2024, we closed 650,000 care gaps. This is a significant improvement from where we started in September. We feel good about the progress that we made over the last quarter of the year. And the question, of course, is will these steps that we've taken be enough to return us to an industry-leading position in 2027? As we acknowledged back in October, it will be tight. And ultimately, it will depend on the final threshold. Having said that, I will reemphasize that we feel good about the progress we made in the fourth quarter. We are right now putting all of our energy into which is bonus year 2028, where we have a full year of runway to drive operating. Our third lever is operating with a highly efficient back office. We have made a lot of progress in this domain over the course of the last couple of years. In 2024, we improved our operating expense ratio by 40 basis points. Just to provide a few examples of what enabled this, we optimized our care model, we unified shipping activities across the enterprise, we outsourced some non-core capabilities, and we streamlined our internal distribution. I'd like to note that our internal distribution team performed better this year than ever. Even while driving efficiency. Efficiency does not mean a decline in performance levels when we do it the right way. It is important for our team to note this and for our investors to recognize. Despite the good progress over the past few years, we believe there is more to do. And we expect to communicate a path towards additional efficiencies in the upcoming months. Finally, let me touch on the last lever, which is capital allocation and growth. We feel good about the opportunities we found to expand our primary care footprint in the second half of 2024. We also feel good about the continued expansion of Medicaid organic. However, in the near future, we will need to strike a balance. Priority number one is recovering in a margin as we have repeatedly said. This will require being prudent with our balance sheet as we navigate the stars and we must continue to grow our earnings capacity through organic reinvestment and acquisitions. This is clearly a second priority, but it is a priority nonetheless. Both CinerWell and Medicaid are important enablers of our long-term strategy. We will be thoughtful in identifying opportunities that make sense in our current environment, that allow us to continue to grow our earnings capacity while being prudent with our balance sheet. Now let me spend just a moment on the insurance industry and on Medicare Advantage. It's been a volatile couple of years and more so it's been a volatile few months. The US healthcare system is complicated, fragmented, and it's expensive. I think all of that has been pretty well established. Americans, understandably, want high-quality affordable care that is easy to navigate. Too often, that is not what they are receiving today. There is no one company and there's no one sector that is responsible for it. It is a system challenge. It is the challenge of our American healthcare system. Still, as I mentioned in my CEO letter last summer, Medicare Advantage plays an important role. Medicare Advantage delivers better outcomes than original Medicare. If you need evidence of this, look at the steady improvement in HEDIS performance that has been driven by MA programs. Medicare Advantage operates more efficiently than original Medicare. This can be demonstrated in our recently published value-based care report or through the work done jointly with Harvard University looking at value-based primary care, which operates inside of the Medicare Advantage system. Medicare Advantage also enables more affordable healthcare access to seniors. There is a reason that more than 50% of eligible Americans choose Medicare Advantage. It is of good value. It makes healthcare more affordable and easier to access. And, of course, the Medicare Advantage program can be improved. We are open to partnering with anyone interested in engaging constructively to do that. In the meantime, there are things that we, Humana Inc., can do on our own. While we cannot fix the entire healthcare system on our own, we can make it easier for our patients and our members to navigate. We can make it easier to understand what our members will have to pay when they see a doctor or require a procedure. We can do more to support our members with reminders to do preventative care and to manage their chronic illnesses. We can take complicated healthcare topics and we can communicate about them more clearly and simply to our members. We can provide them better service every time they call us with a question. Those are the things that we can do. That is our intent. And that is the work that is underway within Humana Inc. With that, I will turn it over to Celeste for her to share a few words on her first month at Humana Inc. Celeste. Celeste Malay: Thank you, James. I'll start by echoing your belief in Humana Inc.'s value proposition. This is a great company with a long successful history, strong DNA, and differentiated capabilities that has demonstrated it can improve outcomes for members and patients while driving significant value for shareholders. Our long-term potential remains strong. Our industry is in transition, facing significant regulatory and other headwinds. I have had the opportunity to lead companies in regulated industries through similar periods of volatility. It is incumbent upon us to evolve how we serve our members and operate the business to be more nimble, better able to absorb fluctuations, and more consistently deliver compelling financial performance and shareholder value. As we execute on the four levers James has articulated, we will be stronger and better. I am thrilled to join an incredible team that will guide Humana Inc. through this transition. I have enjoyed getting to know my team and many of my colleagues over the last several weeks. It has been great to see how talented and committed the company is to serving our members and patients. I am energized by the opportunity to bring a fresh perspective and challenge the organization to rethink our norms so we are constantly improving. While at the same time ensuring the aspects of our culture that have been so critical to our past successes are retained. And enabling long-term profitable sustainable growth. And I look forward to working with many of the participants on this call over the coming months. With that, I will turn the call back to Lisa to start the Q&A. Lisa Stoner: Great. Thank you, Celeste. Before starting the Q&A, just a quick reminder that to fairness in those waiting in the queue, we ask that you please limit yourself to one question. So operator, with that, please introduce the first caller. Operator: Our first question comes from Ann Hynes with Mizuho. Ann Hynes: Hello. Good morning. James Rechtin: Can you hear me? Lisa Stoner: Yes. Good morning. Hey, Ann. Ann Hynes: Okay. Sorry. Yeah. There was a kind of a time out. Okay. I just want to focus on 2025 MLR guidance. Can you just break down the levers of the increase? What base are you assuming? What's the overall cost trend? How much is driven by IRA changes and what the impact of the greater than expected loss of decent amount of MLR, that'd be great. Thank you. Celeste Malay: Hi, Ann. It's Celeste. Thanks for your question. So to give you some additional color on top of what we included in our prepared remarks, first, I'll give you the drivers of the decreases in the ratio, which are improving the ratio. First, the majority of the improvement is driven from the MA plan exits, which all had very high benefit ratios. We also made other adjustments to our benefits in our remaining plans, which also improve the ratio. And then finally, the favorable calendar in 2025, given both how the days fall, and the extra day in 2024 due to leap year. Second, the increases to the ratio, which are our drag, first, business mix changes given Medicaid is growing. Medicaid carries a higher benefit ratio versus MA, as you know. Second, the IRA impact, which increases the benefit ratio given increased revenue with offsetting increases in claims. And third, incremental investments, which are important to the long term, but increase the benefit ratio in the near term. The arrows we provided in our prepared remarks are in order of size. And we gave you the puts and takes, but we'll leave the modeling to you in terms of the impact overall. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks. Good morning. As you might expect, people are trying to look for now that you gave us 2025, trying to look through 2026 and understand the moving parts there. Maybe you could just say, hey. Assume you're gonna give us a lot more at the investor day once you have the outcome of the appeal. But maybe you could just frame for us if you think about it in two, you know, two buckets. One, the core business. Last year, you said before the rates came out disappointing, you the company could grow six to ten dollars of earnings. Rates seem to be coming in better. Is that a reasonable framework x the x the stars? And then how would you think about stars relative to that to give us an idea of how 2026 kind of moving parts might shape up. Thanks. James Rechtin: Hey. Thanks, Justin. Let me just, you know, start by acknowledging that you know, we typically do not provide guidance that far out all the way out to 2026. And really, that is driven by several of the factors that you just outlined. There's a bunch of unknowns that we're still navigating. The STARS litigation is a big piece of that. The final funding for MA is a big piece of that. Obviously, the preliminary notice is out. Things can change between the preliminary notice and the final rate notice, and so we'll be waiting to see how that plays out. What I can tell you is that what we are focused on differentially is how do we drive operating performance? And so what are the things that we can do fully under our control to get better at managing the business? When we do that, that leads us to a place where we can get to a sustainable compelling competitive position in the market, and then you know, look at some level pricing and benefits become easier and they take care of themselves if we're nailing that underlying operating performance. And so that's really where the orientation is right now on 2026. And, you know, when we talk about operating performance, what are we talking about? We're talking about that second and that third lever. It's clinical excellence. And all the components that go into it. And it is driving an efficient back office. Those two things, more than anything else, is really the focus for 2026. But we're not yet ready to provide guidance around that. Operator: Our next question comes from Sarah James with Cantor Fitzgerald. Sarah James: Thank you. How do you think about the path to 3% margins? Does that assume any sort of stars improvement needed to get there? How does that balance against what you're doing on cost and pricing? Do you think the book has to shrink further to get there? And then should we think about that as being ratable or back end loaded? Thanks. James Rechtin: Yeah. The way to think about STARS, I'm sorry. The way to think about the 3% margin is, yes, you would need to have a competitive stars position. And I'm going to go a little bit back to where I was before. You need to have a reasonably normalized rate environment. And then you need to have optimal operating performance on the levers that I just described on clinical excellence, which again is stars. It is accurately understanding our patients' needs. And doing the follow-up care that goes with that, all of which then positively impacts both quality and medical trends. And then you need to optimize G&A. You need to be at a competitive place on G&A. When you get those things right, you have the financial capacity to price your benefits competitively in the market and achieve 3%. So STARS is absolutely a part of that. But that's the those are the operating levers that we are super, super, super focused on because those are what give you the freedom to price the right way in the market. And, you know, look, we feel like we have opportunities in every one of those. And that's that is what we're driving right now. Some of those will hit in 2026, some of those will hit after 2026. But it'll be a steady march. Celeste Malay: Yes. James, if I can add to that, you know, one of the things you've talked a lot about in the past, I think, to this audience is we need to get better at multiyear planning including getting better at looking around corners and looking ahead. We have to be a lot more proactive in our decision making and planning to be much more flexible to react more quickly, and we need to be better at making trade-offs really creating the capacity as you called out for the most important thing. We need to be ruthless about stopping things that are not driving better outcomes for our members and better returns for our shareholders. And again, really focusing on creating capacity to do the things we really want to do and creating the most long-term value. As part of this, we'll continue to assess how to balance the aspects of our cost structure that are fixed versus variable and how we evolve to over the longer period of time become more variable in our structure. I really believe there's an opportunity here which will allow us to absorb change faster and drive more consistent results. Along with stars, this is one of our top priorities. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Hi, thanks. Good morning. You spoke to a few hundred million of investments that are sort of offsetting the underlying earnings growth in 2025. Can you just give some details on, like, the major buckets of those few hundred million? And then are those going to be ongoing each year? Are those truly one-time in nature? Then, obviously, the last one may be more of a follow-up even on the prior discussion, but should we think of 2025 as a floor EPS number or do you need to win the appeal on STARS for that to happen? Celeste Malay: Hi. Thanks for your question. So just to be clear, we make investments in our business every year. What we've called out and what's included in our guidance are incremental investments of a few hundred million. It's just across a set of initiatives, designed to improve our operating performance. So we're focused on STARS, of course. We're investing in clinical excellence, membership strategies, and other areas. And we'll share more detail as the year progresses as to where this, you know, the ratios they hit, either the operating cost ratio or the benefit ratio. And we'll leave it at that. Operator: Our next question comes from Joanna Gajuk with Bank of America. Joanna, your line may be on mute. Our next question comes from A.J. Rice with UBS. A.J. Rice: Hi, everybody. And good luck to Celeste in the new position. Look forward to working together. Let me maybe just come back to the Star's commentary. Obviously, for 2026 payment year, a lot's riding on the appeal and so forth. But I noticed in your prepared remarks, the way you're describing and I know this is out there, but we're also trying to just think about the earnings power of the company. Going forward. There's discussion about 2027 payment year. It sounds sort of cautious about that, but then 2028 sounds like the year where you think the investments you're making will bear fruit and pay off. I'm trying to understand the issues around 2026 stars seem to be totally different than what you're highlighting. Or quite different than what you're highlighting for 2027. And maybe that's some of the underlying way in which STAR's calculations are changing. I wonder if you could speak a little more to why there's a little bit of caution on 2027 and whether a favorable appeal on 2026 makes any difference for 2027. And the 2028 seems like the year where you really think you'll and these are payment years, obviously, really be back to a normalized star rating level. James Rechtin: Yeah. Hey, A.J. This is James. Let me take this one. First of all, let me just start by saying we are not trying to communicate anything different about 2027 than what we communicated back in October. So we are trying to hit the same tone. If anything, I think what we'd say is we feel good about the operating progress that we made in the fourth quarter of the year. So that actually is a positive. We communicated that there would be uncertainty because of threshold movement back in October and we are simply reiterating that that still remains the case. Right? Like, there's just a bunch of uncertainty around the thresholds, and we want to be clear and transparent about that. But that is not different. So now let me try to tease apart the different pieces here real quick. So 2026, again, not much we can say about the litigation. It's progressing as you would expect. It is unrelated to 2027. So whatever happens in 2026, with the litigation does not impact performance in 2027. 2027, I'm just gonna reiterate it one more time. We feel good about the progress we made operationally in the fourth quarter. I think we told everybody I know we told everybody back in October that the thresholds that came out last year represented a different level of performance than what we had anticipated at the time. We were resetting our targets in the fourth quarter to reflect that and we were on a sprint. We did sprint, we made a lot of progress. We feel good about the progress. And we don't know what the thresholds are gonna look like next year. Like, it's kind of that plain and simple. And then as we move into the current measurement year, so think about the activities that we're doing right now in 2025, that influence 2028. We have a whole year of runway now. And we have the ability to layer in more buffer or more cushion to our targets. And so we feel better entering with the new year with a full year's worth of runway. And that's really what we're trying to convey to everybody. George, is there anything I was wordy there. George Renaudin: No. That's okay, James. I would just add to that, A.J., that you know, we saw that a lot of the new things we tested in the fourth quarter of last year delivered the results we are looking for. We saw great progress from the outreach we did to our members. We saw great progress of our teams working with our providers through various means to help our providers close gaps in care, and we also have seen great progress in our working with our vendor relationships. So on every front that we talked about back in October and before that when we had our stars update, we have made significant progress. We feel very good about that progress. As James said, though, we are taking a very prudent approach to how we think about setting our threshold and targets in the future and have set them away to have them be a significant stretch to our organization to push them to continue to excel. And so that's the reason for some of the caution you're hearing. And that we are pushing our teams. We've seen great progress and feel good about where we stand right now. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Ben Hendrix: Hey. Thank you very much. You discussed in your prepared remarks higher than expected D SNP attrition for the year and caution around change in SCP rules. And he was wondering if you could provide some more detail around how you're thinking about the range of outcomes there. And then by extension, how is the attrition you saw in the SEP in the that population kinda impacting or informing your NCR guidance range? Thanks. James Rechtin: I'll start and then maybe, Celeste, add on the benefit ratio. So look, first of all, we are pleased with the outcomes of our AEP given the members we gain versus those we lost. We have seen that our pricing strategy worked and that we are retaining members that are on path to necessary margin recovery expansion that is critical to the points that James made before. We are seeing members that have a shift to higher lifetime value segments and membership. We're seeing strong performance to date in markets with a strong concentration of our best value-based partners including states like Florida, Illinois, and Texas. We are seeing higher than historical percentage of our non-SNP, our core members, sales coming from members switching from our competitor MA plans. And as James mentioned, we're seeing continued shift to our higher value distribution channels. So all those things feel good. In our pricing strategy. However, as you point out, we were retained fewer members than we expected in our dual products. There's a lot to be learned there and we are learning from that. We have a number of pilots in the AEP that will help us progress toward our strategies moving forward and help in our pricing as James has called out. I would also add that when you think about the dual product, don't disconnect that from the very exciting success we've had in Medicaid RFPs. With the recent wins we've had in Georgia and Texas, that takes us to thirteen states. And as I think you all are aware, the connection between Medicare and Medicaid is growing stronger and the integration and the rules are coming. And so having a larger Medicaid footprint successfully implementing those states will also help us going into the future. So while we retain fewer members and we feel good about how we're set up for the future. Celeste Malay: Thanks, George. Just to come back to what I had said earlier on the benefit ratios, so the majority of the improvement that the underlying improvement is from plan exits. But if you recall, we deliberately exited unprofitable plans to additional CSNIP losses helps on the margin, but most of the underlying benefit improvement was something we did very intentionally. And then we also made some adjustments to benefits in our remaining plans. So the improvements are very intentional. Just one thing I wanted to add to George's comments on D SNP is thirty thousand of the D SNP losses were due to redetermination. As you know, the way each state did it varied from state to state. So about thirty thousand was included in that number. Operator: Our next question comes from Whit Mayo with Leerink Partners. Whit Mayo: Hey, thanks. May have missed this, but just wanted to get an update on expectations for Part D seasonality this year given all the changes this year and the higher deductibles that we see in the market. So just any observations would be helpful. Thanks. George Renaudin: Hi, Whit. It's George. So as we think about our PDP strategy, you know, we are pricing for margin given the additional risk of the IRA. And we've taken a very disciplined approach to how we're pricing that given that increased plan liability. As you know, we're participating in the premium stabilization demonstration. And we are expecting to see growth of roughly two hundred thousand members versus our prior expectation of flat. There are a number of competitive dynamics that are driving that increase including number of plans available in 2025. Of course, the premium stabilization demonstration has an impact on that. And we've maintained strong relationships with our brokers. We feel good though about the way we price the product. While we price for margin, we're taking a measured approach in our assumptions to our guidance given the IRA changes and given the uncertainty there, we are monitoring throughout the year the most recent data given that Part D and MAPD does complete more quickly in the drug space. We don't see any problems there at this point. We see that the current data supports our pricing strategy in tactics that we've taken. Celeste Malay: Yeah. And just to add to that in terms of seasonality, and I'll address the seasonality in our guidance in general since the IRA is the biggest piece of it. So first, to remind you, we expect sixty to sixty-five percent of our earnings in the first quarter which is a significant shift from last year on prior periods. And there are really four key drivers of that. First, are the IRA changes. Which shifts more responsibility to the plan but seasonality also changes because members are working through their MOOP earlier in the year and plan liability increases as the year progresses versus CMS reinsurance kicking in in the back half of the year, like, in 2024. Second is plan benefit design changes including the addition of deductible that were made in line with the focus of the driving sustainable long-term membership growth. In both the cases of the first and the second, the member bears more expense the beginning of the year, and we bear more expense in the end of the year shifting earnings more towards the front of the year. There are two more drivers which are less impactful. One, and I called this out earlier, is the change in the number of days and how they fall on the calendar including the leap year in 2024, and then finally, the timing of when we expect to make the investments we mentioned previously. Operator: Our next question comes from Erin Wright with Morgan Stanley. Erin Wright: Great. Thanks for taking my question. You touched on this a few times during the call, so I want to circle back in terms of digging into it a little bit more. But in light of that CMS push for further integration, across Medicare and Medicaid and to service that decent population by 2030. There are some certain requirements by 2027 as well. You know, how do you think about your positioning at this point and kind of that spirit of being proactive and looking ahead, just do you think about that in light of your Medicaid strategy and do any of these efforts, whether it starts mitigation, cost savings, other initiatives detract at all from your efforts on that front. James Rechtin: Hi, Erin. Thank you for the question. As we think about the further integration Medicare, Medicaid, as I said, the impressive win rate that our Medicaid team has had in increasing our footprint is really in line with our plans as we go out as we think towards 2030. As we've talked about before, we have a five-year plan that we started last year that carries us almost to that same period and we are progressing very nicely along the trajectory that we expected in morning Medicaid states. And increasing that footprint for that future integration. Do keep in mind though that the integration applies only to those states who have moved forward with Heidi and Heidi Snips. And so when you think about that, that is almost half the states are in that bucket. So just keep that in mind as you're thinking about the Medicaid and Medicare integration rules and how they apply. One of the things we're paying a lot of attention to as we are selectively choosing which states to participate and what states to submit our fee responses is we're making sure that we are looking at where our current duals are, not just where our dual SNP members are, but also where duals exist in our core underlying products, you'd have to look at both. And as we're doing so, we are making sure and we're ensuring that we are prioritizing those states and that we will continue to cover the dual membership that is necessary to protect our margins and to protect our growth going forward. Celeste Malay: Yeah. I just want to come back to your question about creating capacity and the way I think about it and these are all tied together in terms of our ability to deliver for shareholders, is we need to do better on the clinical side and reduce operating costs to, one, invest in our membership, so we continue to grow profitable long-term membership. Two, invest in stars. And they're not in any particular order. Three, invest in our Medicaid growth. As you probably read in our prepared remarks. There is a j curve associated with the business. There are the initial years, we are they are a drag on our earnings, so we need to make sure that we can do that. And then four, is to invest in growth in Tenerifeld, which we believe is better for our members. All of these things are better for our members. We really need to think about are the things we are doing getting us to one of those four things? And they tied to James's levers as well. Operator: Our next question comes from Scott Fidel with Stephens. Scott Fidel: Hi. Thanks. Good morning. Was hoping to get maybe a little more visibility or insight just into the Medicaid margin trajectory and sort of how that's flowing from 2024 into 2025. I know that you were expecting Medicaid margins to be at a loss in 2024. Just curious, maybe you could give us a little more pinpointing on sort of where that sort of negative pre-tax margin percentage was in 2025 and then how you're thinking about, you know, I think in the prepared remarks, commented on some incremental improvement but curious on whether you think the business will get to profitability in 2025 or still stay in that negative margin area. If I could just sneak a quick follow-up in as well. Just would love an update just on sort of what you saw in the fourth quarter as it relates to, you know, specialty RX trends. I know that's been sort of a key area of pressure. And specifically just around the oncology drugs, which I know have been, you know, a key area of focus. Sort of how you saw that playing out, you know, exiting the fourth quarter? Thanks. George Renaudin: Hey, Scott. So I'll start with the Medicaid and then others can add in. James, I think we'll pick up from there. But the Medicaid business, given all these wins and the strength of our progress there, Medicaid's emerging as strong scale business with meaningful earnings potential we look forward. 2024, as you mentioned, did come in line with our expectations and we feel good about how we ended 2024. What we're seeing is you think about 2025 is we are going to see roughly 175,000 to 150,000 member growth in the Medicaid block of business. That's going to come split if you think about it that way between Virginia, which is a new state that we're implementing in the summer of this year, that's when we're expected to, given the state's recent discussions with us. And then we also are expecting an additional allocation of members from Kentucky. So with that, we do expect some modest improvements in margin. But as we've talked about and as Celeste mentioned the j curve, currently, 45% of our members in 2025 are in states with less than three years of experience. So there's still maturity to do there and we are making good progress down that maturation lines. You think about our margin recoveries in that line of business. Our most mature state, Florida, is performing the expected margin that we would have for this business. So we have a proof point that not only is it our longest day, but actually it's our largest membership as well. Has matured and is in the place that we expect it to be from a margin standpoint. The 2025 rates, roughly 75% of our revenue, we now know exactly what those rates will be for 2025. There's an additional 25% that are in what is called the pre-draft state that we do not have total clarity to. So overall, we're feeling good about where we are. The states have been very collaborative in helping to ensure that rates meet the acuity of the membership and that those discussions are ongoing and are progressing well. James Rechtin: Yeah. And, hey, let me just hit the specialty drugs, this will be quick. Got the specialty drug spend it looks very much the way it has looked the last couple of quarters. It is elevated. It is relatively stable. You know, we're gonna be talking about specialty drugs. My guess is for a long time in the industry, but we feel like where we have priced and forecasted is the right place given what we're seeing. So, yes, elevated. Stable, and kind of within the range of expectations that we have. Operator: Our next question comes from Juliana Gajuk with Bank of America. Juliana Gajuk: Oh, yes. Hi. Thanks so much for bringing me back in. Sorry. I got disconnected. So thanks for taking the question. Maybe just a couple of follow-ups, you know, one question on the 2025 guidance. Can you give us either a numerical or qualitative, I guess, commentary about specifically the trend outlook for 2025 and how does it compare to what you had experienced in 2024? And I guess the other piece of this equation, right, rate and all that, so I understand, you know, you want it to be final, rate update there. But would you assume in your guidance do you assume something in that range of preliminary rate notice because I guess, you know, historically, most of the time, final rate been better than proposal, but just kinda what do you assume in your guidance for those elements would be helpful. Thank you. James Rechtin: Yeah. Hey. Let me try to tackle both of those real quick. On trends, we're really forecasting expecting kind of normalized trend in 2025. Coming off of what was elevated trend at 2024. That's, I think, the kind of easiest and simplest way to describe it. And as of right now, it's obviously very early in the year. We're not seeing anything inconsistent with that. And but, yep, a lot of data will come in over the course of the next sixty, ninety days. On the rate notice, you know, we're not gonna do a lot of commentary on the rate notice at this time outside of the commentary that we submit to CMS. What I will simply note is that, yes, the rate notice can change from the preliminary to the final. That's part of the reason we don't want to spend a lot of time commenting on it. And when we look at the preliminary that is out there, we would say the retrospective portion of that notice reflects what we all saw in the industry over the course of the last, you know, year year and a half, and the forward-looking is still an open question. There's a forward-looking component that I think, it's a forecast, but I think we would say it probably underestimates. And so we are that's kinda how we think about it right now, and there's a lot more to let develop over the course of the next few months. Operator: Our next question comes from the line of George Hill with Deutsche Bank. George Hill: Yes. Good morning, guys, and thanks for taking the question. Guys have kind of gotten to a lot of the big picture stuff. I think I have a follow-up on Part D. Which is, I guess, James, early given that it's early in the year, are you seeing anything that's kinda changed your margin outlook or expectation for Part D in 2025? And then kind of a follow-up is, are you guys doing anything more aggressive to manage the drug benefit in the B space like, trying to shift B drugs to D coverage such that you can do like, shift financial responsibility a little bit to the government and to the manufacturers and whether or not you're seeing any success there. George Renaudin: Hey, George. It's George. I'll take this. So the early data that we have on our claims for Part D, which do process more quickly, seem to confirm our expectations for utilization that we would have with the pricing. Things look sustained on the specialty side, as James mentioned, and on the traditional pharmacy side, things are moving along just as we would have expected. So again, it's confirming our strategy and our tactics and how we price the product and how we priced our bids for this year. We feel good about where we are. As far as a B to D strategy, that's not a level of detail that will go into. But we continue to look forward to the Part D product within our MAPD, and we're seeing good progress in the PDP realm. Operator: Our next question comes from Ryan Langston with TD Cowen. Ryan Langston: Hey. Thanks for squeezing me in. You talked about margin pressure on group MA. Maybe just a little bit more detail there and specifically driving that? Is that more your strategy, competitor dynamics? And then I guess how do we think about or how do you think about margin improvement in the group versus the slope of where you think you can get to on individual kind of into 2027 and beyond? And then just what is kind of included in guidance for 2025 on group? Thank you. George Renaudin: Sure. I'll start, Ryan. The group product, you know, we have roughly half a million members there. Slightly over that. In the group in a market, what I would say is supposed to be individual market is somewhat less mature as an industry. There was a period of time not very long ago that we're still living in where the industry was continuing to evolve and mature and offered rate guarantee contracts multiple years. Historically, those contracts or the long-term contracts were in place. That is beginning to change. We're seeing change in the industry. We're seeing change in the ways plans are responding to RFPs coming from large groups, especially when you think about large jumbo groups. And that's changing, but that will take some time to flow through the financials. We do expect margin improvement 2026, through pricing actions as those long-term contracts come up for renewal. But we will see some more pressure in 2025 that's built into our guidance for 2025. Operator: Our last question will come from the line of Andrew Mok with Barclays. Andrew Mok: Hi. Good morning. Can you share the splits of the incremental STARS investments across the MLR and OpEx line? And secondly, do you have any updates on the STARS mitigation effort for 2026 in the event of an unfavorable lawsuit? I know you've disclosed discussed the possibility of crosswalking the group contract, but I don't think you've committed to that plan. So any clear actions that you can point us to on the mitigation front would be helpful. Thanks. Celeste Malay: Hi, Andrew. It's Celeste. Yeah. On the investment we'll provide more color as the year progresses both in terms of where on the income statement will flow and the impact to the ratios? But we'll do that as the year progresses. Depending on various tests and things like that, they may fall. They may move throughout the course of the year in terms of where they come in. James Rechtin: Yeah. Hey. On the group book, I'll hit that real quick. We are still assessing that. So we have not made a decision. That's not a decision that we need to make until really late summer or even early autumn. And so we have time and depending on how a number of things play out, that could influence the final decision. So once we have gotten there, we'll be clear with folks, but we are not there yet. Hey. Let me just shift to saying thank you to everybody for joining us this morning and for your interest in Humana Inc. I also just want to thank the sixty-five thousand associates that we have who are serving our members and patients every day. When we help our members and our patients get the right care at the right place with the right outcomes, everybody wins. And that is what we are working to do every day, and that is what our sixty-five thousand associates are working to do every day. We appreciate your support, and we hope you have a great day. Thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Humana Third Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President, Investor Relations. Please go ahead. Lisa Stoner: Thank you and good morning. I hope everyone had a chance to review our press release and prepared remarks, which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana’s President and Chief Executive Officer; followed by a Q&A session, where Jim will be joined by Susan Diamond, Humana’s Chief Financial Officer; and George Renaudin, President of Humana's Insurance segment. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risk and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K or other filings with the Securities and Exchange Commission and our third quarter 2024 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today’s press release, our historical financial news releases, and our filings with the SEC are also available on our Investor Relations' site. Call participants should note that today’s discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management’s explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana’s website, humana.com, later today. With that, I’ll turn the call over to Jim Rechtin. James Rechtin: Thanks Lisa and good morning everyone. Thank you for joining us. In the last quarter, I outlined four basic drivers of our business that we need to be able to deliver against over and over again. Those are; first, providing a Medicare product experience that delivers against consumer needs and is priced with discipline. Second, it is operating with clinical excellence. This really is the foundation of industry-leading margins. It is -- third, managing a highly efficient back office and its fourth, deploying growth capital in a way that complements our Medicare Advantage core business, but really focused around CenterWell and Medicaid. I'd like to review the quarter's results with a little bit of a lens towards those four drivers. Before I do that, let me just start with a few headlines. First of all, as we noted, we exceeded expectations for the for the quarter. We're also confident that we will achieve at least $16 of EPS full year and we are comfortable with where 2024 EPS consensus sits today. Exactly where we're going to land is largely dependent on a number of investment decisions in AEP and in STARS that we continue to evaluate. We also feel good that we priced our MA product margin expansion in 2025. However, similar to our strategy for the rest of 2024, we will be balancing near-term earnings progression with investment in the business. And when we say investment in the business, certainly, that is STARS, but it's also looking at investment opportunities in growth, admin cost efficiency and medical cost management. We understand that investors would like more clarity on the multiyear outlook of the business and to address this, we are targeting an Investor Day in May of 2025. So let me turn to the four basic drivers for a moment. So right now, if I start with product and experience that we are delivering through our Medicare product, we're feeling pretty good about what we're delivering. And let me point out a couple of things our individual MA membership growth continues to outpace our expectations for the year. We anticipate at this point, full year growth -- year-over-year growth of around 5%. The year started slowly in AP last autumn, but we've made pretty significant gains over the course of 2024. When we look at it, we believe that this is a reflection of disciplined product pricing that has allowed us to continue to emphasize growth at a time when others in the market have pulled back. And also attribute some of the growth to incremental marketing investments that we've made in our internal sales channel. This is a channel that we believe is increasingly important for us in that and those investments have been paying off. We continue to deliver best-in-class service. Recently, we were ranked the number one health insurer for customer experience by Forrester. This is now four years in a row being right number one by Forrester. And finally, while it's early in this year's AEP cycle from what we can tell, sales appear to be generally on track with expectations. Turning to the second driver, clinical excellence let me start with STARS. We've acknowledged now that we've got work to do to get back to the results that we expect of ourselves and that we expect for our members and our patients and our investors. We've been moving quickly to make investments and to align incentives in our provider and pharmacy networks to close more gaps in care. We've also redirected care management and call center capacity to increase member outreach and that is also related to gaps in care. Just last week, those efforts resulted in about 5,000 incremental primary care appointments. And I learned last night that we've got about another 3,000 to start this week, 3,000 primary care appointments scheduled. We're also making technology investments. This includes improvements to our plan finder capability. And really the way I'd characterize it, we're on a sprint to take ground to impact 2027. And I simultaneously feel good about the team's focus and the effort and the impact that we're making and frankly, frustrated that we have allowed ourselves a shorter runway than we would like to make up that ground. Clinical excellence also translates to lower cost when we deliver better care. And so in Q3, medical costs are largely in line with our expectations. There's obviously some give and take across categories. The environment is still dynamic. And we will be careful with our expectations around medical cost trend. However, right now, are seeing some success in a number of our cost control efforts. The example I'll give is -- we've been extending value-based care contracts beyond primary care into areas like kidney disease and oncology management. And we're seeing good results from that effort. Shifting to the third driver, highly efficient back office, we do continue to make progress in this area. We're expecting a 30 basis point decrease in our adjusted operating cost ratio for the year. And just to give one example of the type of work that is helping to drive this, we're implementing more and more use cases for AI. We recently launched a generative AI solution that allows our care management team to spend about half as much time on post-call documentation. They are still doing all the same human oversight for any clinical decision-making, but they're spending less time on documentation. That brings us to our final driver, deploying growth capital to drive efficient growth. I would argue that we're quietly building the leading senior-oriented primary care organization in the nation. Our primary care clinics are hitting their clinical and their financial targets. They're on track to mitigate V28. We recently released a study in collaboration with a leading researcher and professor of Harvard that demonstrates both the clinical and economic value of the clinics V28. It found that our members have a better experience when they are part of a senior-focused primary care clinic. We expect to add another roughly 40 clinics this year often, this is through an acquisition of underperforming clinics that we've demonstrated we can pretty rapidly turn around, and our patient growth continues to outpace expectations. I'm encouraged by our recent performance trajectory and growth, absent our STARS performance in BY26. And at the same time, recognize that these continue to be dynamic times for the industry, and I believe it's critical that we continue to strengthen the organization by making investments to drive long-term shareholder value. This is obviously a balance with how we think about short-term earnings progression. We look forward to providing formal 2021 guidance on our fourth quarter call, and we will also look forward to providing a more fulsome update on our strategic initiatives and their expected impact at Investor Day, which again, we're targeting in May of 2025. Finally, I'd just say, look, our conviction remains high regarding the positive outlook for MA and value-based care. And with that, we will turn to Q&A. Operator: [Operator Instructions] Our first question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks. Good morning. I wanted to ask about your comments on 2025 and specifically your comments on investment spending. Prior to this call, you talked to a margin improvement in MA next year. And combined with top-line growth, I think the expectation in the market was for $2 to $4 of improved earnings year-over-year -- given that you're talking about now more flattish, that would seem to put that investment income spending or investment spending, I should say, at $500 million, give or take. Is that a reasonable ballpark? Number one. Number two, can you give us some more color in terms of what you're spending that on, given you had just caught admin spending pretty dramatically over the last two years to three years? Is there stuff that you overcut, you have to bring back? And then how should we think about that rolling forward? Is there going to be a return there where it kind of nets to zero because you're going to get improved STARS or what have you. And over what time frame does that happen? Thanks. James Rechtin: So, Justin, thank you for our first four questions. This is Jim, I'll start, and then I'll let Susan jump in. So, let me just start with 2025. And I recognize that we're not going to be able to answer everything people would like. Obviously, we're going to give guidance here in a few months. But I'm going to try to be as clear as I can in kind of what we are saying and what we aren't saying about 2025 right now. The first thing I would just reemphasize is we told everybody we felt good about our bid, meaning both our pricing and our plan exits. And what we're essentially saying is, hey, we're reaffirming that even after you incorporate the things that we've learned since the bid season, we still feel good about where we're at with our product. The result of that is that, look, at a minimum, we see a 2024 performance floor -- we see 2024 performance as a floor as we head into 2025. So in other words, we have room for EPS progression. What we're also saying is we do need to see some things unfold over the next few months to establish how much room is in there. And so whether you think about AEP results, both the final member count and member mix as well as thinking about continued monitoring of medical cost trend, the better visibility that we have into those things, the more confident and precise we can be in where we think we'll be next year. We also are telling you, in fact, that just as importantly, we're going to be approaching 2025 with a similar posture to how we've approached the last quarter or two where we can make good investments to put ourselves on better footing in 2027, we're going to do that. And we're going to prioritize leaning into that long-term earnings potential over near-term EPS progression where we have good investments to make, but we're going to do that with a floor. I would love to tell you that we've got precise numbers on all of those choices and decisions. We don't. Some of that is still in flux. And in some cases, we're actually making smaller investments. And as we see those generate returns, we're doubling down on. And so we don't have a precise number today. What we're making sure is that we're creating room to make the right decisions for 2027 and the long term, but we're telling you we can do that while establishing a floor. So, again, I recognize everybody would like more clarity. I really do. And I want to reiterate that we're kind of trying to balance or focus on two things. Given the dynamic in the market, we want to be appropriately prudent and make sure that we're doing the right things to establish targets, hit those targets, build credibility over time, and we are trying to establish the best way to navigate through the next 24 months. I mean that's really the two things that we're trying to balance here as we try to give -- set expectations the best we can. Susan, what would you add to that? Susan Diamond: Yes. No, I think that says it well. The only thing I might add is, Justin, that as we've begun to talk about some of the investments that we believe are needed, both for starts, but also to improve core operating performance given some of the benchmarking work that we've done, we got some questions and concern, well, gosh, could the level of investments cause you to go backwards year-over-year. So, I think that was one of the reasons that we wanted to introduce the floor for 2025 just to make sure that was -- so we're prepared to give formal guidance that we made it clear that we felt like with the pricing action we did take in the 2025 bids that did give us the room and flexibility to make these needed investments while not creating a situation where we might go backwards. Operator: Our next question comes from the line of Ann Hynes with Mizuho. Ann Hynes: Hi, good morning. So your MLR results imply trends were relatively stable sequentially. Is that a good characterization? And if so, what does this mean for your 2025 bids. Are they tracking in line or better than your expectations? Thanks. Susan Diamond: Yes, Ann. So as we saw the results developed for the third quarter, as we said in our posting commentary, current year claims did develop as expected in total for the MA business. There were some geography differences in terms of seeing some improvement on the inpatient side seems like deterioration of the non-inpatient but in total, in line with expected in terms of claims development through the third quarter. As Jim mentioned, as we continue to evaluate emerging trends versus what we expected at the time of bids, we continue to feel confident in how we've approached the trend assumptions within our pricing. Again, some geography differences both across claims and risk adjustment as we've talked to you guys in prior quarters, but the aggregate, continue to continue to feel good about the MLR that we would have been targeting inherently within our bid. And as we also mentioned, at least based on the early information we have access to feel like our assumptions around membership for next year, meaning the loss of a few hundred thousand members continues to feel like a reasonable question. Operator: Our next question comes from the line of Andrew Mok with Barclays. Andrew Mok: Hi. I wanted to follow up on the 2027 margin target and how you're thinking about the STARS recovery in the context of that 3% target? One is that a realistic goal with the elevated investment spend and where your Star scores sit today? And is there a minimum bonus level that you have in mind to deliver on that target? Thanks.. James Rechtin: So, I want to make sure I captured the question. So, let me just play this back real quick. I think what you said is focus on 2027 is the 3% margin target, a realistic target at this point. And then what does that assume around STARS progression basically, right? Andrew Mok: Is there a minimum level you need to recover in order deliver on that target? James Rechtin: Yes. So look, I'm going to talk a little bit out of both sides of my mouth on this 3% is realistic, and there is risk to that number. And so we just want to be super clear. We're going after it. We're doing everything we possibly can to get to that point. And in light of STARS, yes, there is risk whether we will get all the way the way there in 2027 or not. We have to make meaningful STARS progression is that I would describe it. We're not putting a specific number on it. There are too many puts and takes across different variables in the business to try to put a specific number on it. But yes, you're going to have to make some meaningful progression in STARS to get there. Susan, what would you add? Susan Diamond: Yes, I agree that. And then the other thing, Andrew, that obviously, the rate environment, the competitive environment, those are all things that, as we say every year, will also be important -- as you know, 2027 is the year where we'll have 2028 behind us, hopefully, IRA will then, at that point, be very good guy versus a headwind. And so there are -- there is an environment, hopefully, where we do have the room to take some additional margin, which we've talked about, but those will be variables that we'll have to consider. And then I would just say some of these investments that we've been discussing now should pay off in terms of returns over that time frame that also support that continued margin recovery. Operator: Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Ben Hendrix: Thank you very much. You flagged higher specialty drug costs within the non-inpatient utilization for the quarter. One of your peers noted a pull forward of some specialty drug utilization ahead of Part D changes next year. Is that something you would expect would be priced for as we head into 2025? Or is there a component there that we should assume as a headwind for MCR modeling? Thanks. Susan Diamond: Dan, yes, as you said, we did see some higher oncology costs, in particular, I did call that out. I think one was seeing in a conference I was at in early September. So we have been seeing it for a bit. We would say that our view is that it is not really largely attributable to IRA changes, they were relatively minimal in 2024 in terms of sort of member out-of-pocket exposure. And so what we have seen so far is that we believe it's mostly attributable to either new treatments that have come to market or label expansions around existing treatments. And what we're seeing is, in some cases, these treatments are being added to existing therapies, resulting in net higher unit costs than we've seen historically and higher than you had anticipated as we evaluate the pipeline. We do anticipate that we will see some further uptick in trends next year just given the IRA changes and the introduction of the much lower maximum pocket -- and so we have built in induced utilization assumptions into our 2025 thinking as well as just, again, continued sort of expectations around the emergence and uptake of some new therapies. So, we have considered that. Obviously, with IRA, there is more exposure on the plan side in 2025, which is why we said you can expect that we'll start -- we'll take a more thoughtful approach in terms of our early guidance around some of these things that we can see how the trends emerge relative to our expectations in IRA. Operator: Our next question comes from Sarah James with Cantor Fitzgerald. Sarah James: Thank you. I was wondering if Star stay where they are, how much crosswalk is possible in 2026, given how you think about geographic overlap and planned ratings. And then if you could clarify on your 2025 guidance, what MA margin is implied in that? Thanks. Susan Diamond: Yes. So, George, do you want to take a third question then I can take the MA margin question? George Renaudin: Sure. thanks for the question, Sarah. So as we think about the cross possibility, we'll be evaluating that in line with lots of other things. So we certainly want to derisk the amount of members that we have concentrated in certain contracts, and we'll be thinking through that as we go into the next bid cycle. And one of the considerations will, of course, be how much progress we're making in the current STARS work that we're doing as well as thinking about the opportunities that we have for Cross with regard to our group contracts. So, there are a number of considerations we'll be taking into hand when we do that as well as what our 2025 membership looks like in membership mix and the progress that we're seeing in medical cost management, some other items. So it is certainly one of the levers we'll be exploring, but I don't think that it is the sole by any means. There are a number of issues that we'll be thinking about as we go through thinking about our STARS mitigation efforts as we go into next year. Susan Diamond: Yes. And then, Sarah, as far as 2025 MA margins, obviously, we haven't given any specific guidance yet. Jim provided some commentary. So I'll just remind you, as we previously have talked about our 2025 margin expectations on the MA side, we acknowledge that the because of the pressures that were absorbing within 2025, including the higher trend than emerge after filing of our 2024 bid, V28, IRA, et cetera. And given the TVC threshold, there was limited ability to take true margin expansion within the pricing because the PBC would offset all of those headwinds I just mentioned. So, we had mentioned the majority of the margin progression we would be achieving would largely come from the plan exits where we had exited plans that were historically performing unprofitably, and we didn't feel like we had a reasonable pathway to getting them to profitable or contributing performance levels. That continues to be the case. Again, all of the emerging trends that we've seen, we continue to still feel good about those pricing decisions and how we thought about trend in the aggregate. As Jim mentioned this morning, though, we are now contemplating those some additional investments. The pricing action we took allowed us some flexibility to do that. And so as we've established the notion of at least the floor, obviously, if we end up close to flat, the margin be relatively comparable. But ultimately, we'll have to evaluate again how membership growth comes in, what level of investments we choose to make and a variety of other things as we set guidance. And certainly, when we do can talk more about the inherent margin within our guide. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Hi. Thanks. Good morning. Do you have a view on MA market growth in total for 2025? And then where do you think the lives that you're losing from those exits are going? Is that that sort of one or two larger plans, do you think smaller plans or are people going -- seniors going back to fee-for-service. And I think you just answered this, Susan, but we should assume that those loss lives have lower margin. But does mean they had lower benefit levels, less rebates? And then lastly, how are you thinking about retention outside of the market exits? George Renaudin: Hi, Josh, it's George Renaudin I'll take the question. So on the overall industry growth, we are thinking 5% to 5.5% in this coming year versus the roughly 6% the industry saw this year and our 5% performance that we are expecting as we finish out the year. So we feel pretty good about where that growth is going to come from. And if we think about our competitive positioning, it is very much in line with our thinking at the time of bids [ph]. We continue to anticipate Susan said, a few 1,000 members in 2025 down so we feel pretty good about that. From a standpoint of retention, there's a lot of work that we're doing to focus on that. We're helping our brokers. As you think about the county and plan exits, there's, of course, going to be a lot of shopping. And so we have put in place lots of tools to help those -- the sales teams, both our internal sales and outside brokers work through the shopping experience to make sure it's a better consumer experience for our customers. And so we put in place things that allow them more real-time access to benefits help them with a best fit tool so they can choose a plan that fits their needs better. And we have also put in place with our internal team capabilities, including AI to help them with helping those members make better decisions into the needs of -- I would just say that on another item in retention that we're seeing very positive results from and I think in the opening comments Jim made a comment about this, and that's that we are getting a better focus into our digital sales and our new digital sales tool also is allowing us to handle members who are trying to find out as we did do some of those exits because keep in mind, 98% of our members in those exit areas have another planned choice so the digital tool is helping them make those choices easily, and we're seeing a very significant increase in the amount of digital sales were happening as a result. All that will lead to increased retention. James Rechtin: And then, Josh, one thing I'd add to George's comments on growth. One thing to keep in mind is we do believe that 25% growth for the industry will still have some impact from the ongoing redetermination process on the MA side. We think it's probably worth about 80 basis points, where given the gaming period, we will continue to see some attrition in the duals in particular as they lose eligibility. In terms of your question about how to think about the contribution of loss lives, I would say it depends. As we've always said, for the members impacted by plant exit, those are unprofitable. So to the degree, we don't retain them, that is positive to the degree, we do retain them, as George mentioned, because most of them have other plan options that is incrementally positive because those planes that are available would be positively contributing. Across the rest of the book, if you remember, we did work very hard and intentionally to make sure we try to protect our higher-performing plans as we did our 2025 bids, so it would have taken less benefit action in those higher-performing plans and where you see larger cuts is going to be those that were below our targeted margins. So our hope would be that within the attrition that we see, it is more concentrated within the lower-performing plans. But, obviously, we'll have to see how the AP results come out. as you know, it takes longer to see the attrition information because a benefit are you have to enroll in and that are playing same process and give it cut. So we have no real visibility into that just yet, but something we'll be watching closely. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Hi. Thanks. You mentioned that the inpatient unit cost of Medicare came in better than expected. Can you just talk a little bit about what you saw with two midnight rule in the quarter? And then just maybe more broadly, how you think about the ability of the 2025 commentary to tolerate a higher level of inpatient unit costs in 2025? Thank you. Susan Diamond: Hi Stephen, yes. So, as you might recall, we've been talking about seeing lower in patient unit costs really over the course of the year. And I'd say the team in retrospect has just been somewhat cautious and fully stepping up to that until we see further run out to make sure that what we were seeing was durable and would continue. And that has proven to be relatively consistent, meaning if we had fully accepted to what we were seeing early, what we're ultimately seeing emerge continue to be consistent with that. So, we feel good about what we're seeing. I'd say, within the third quarter itself, we start to see some loan respiratory seasonality, which also tends to be lower average unit cost, which would be included in that as well. In terms of 2025, as we've always said, the way we've approached 2025 is we've incorporated all of the impacts that got into our baseline. With the changes we've seen across the geographies, the lower patient unit cost, higher non-inpatient that is all now embedded in our thinking as a jumping off point for 2025 and then we've got the normal trend assumed for 2025. We now have final rate changes from CMS for reimbursement so that obviously is included in our estimates and so really what we'd be exposed to is any mix changes. But I'd say based on what we've seen and the consistency of what we've seen, we feel good about how we're thinking about unit cost trends in 2025. Operator: Our next question comes from Joanna Gajuk with Bank of America. Joanna Gajuk: Hi, good morning. Thanks so much for taking the question. I guess a similar question to Steve's question, but I guess, from different angles. So instead of talking about unit costs, can you talk about utilization trends because we've obviously been hearing from some of the hospital companies or the public traded companies guiding for volume growth still above average, again in 2025 after growing well-above average this year in terms of just volumes, not just cost. So, the question for you is curious what are you currently assuming in your 2025 outlook when it comes to utilization? And then can you grow EPS in that scenario that this is happening based on that pricing consumption? Thank you. Susan Diamond: Hi, Joanna. Yes, so in terms of utilization, we have seen results that are very much in line from a utilization standpoint since we updated our estimates as of the second quarter call. At that time, you might remember, we did step up our utilization assumptions and lower non-inpatient just based on what we're seeing in terms of some additional sort of site of service shift related to two-midnight rule. Our utilization has been very much in line with that since. Obviously, you've got things like respiratory season, the hurricane impact, those things that we can discretely identify but our core utilization, we continue to feel good about. Our utilization management impacts have been very consistent coming out of really the first quarter as well. So, we feel good about those trends. In terms of 2025, we have seen normal sort of utilization trend on top of that higher 2024 baseline, that is inherent within our bid. And so again, there's no large incremental regulatory change expected for 2025 that should create this level of uncertainty like we were dealing with for 2024. So I think feel very good about the assumptions we're making in terms of secular sort of utilization churn. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: Yes. Good morning. A little bit of a different topic. Can you guys talk about inpatient claims denial rate and have trended over the last 12 months? I know in the second quarter, kind of claims appeals was a topic that came up at the margin and a lot of the publicly traded hospital companies and private hospital companies have talked about an increase in claims denial rates. So I'm just trying to see if -- like if there's any meaningful trend to call out there and whether or not clean and aisles have impacted MLR in any meaningful way? Susan Diamond: Hey, George, yes. So, with the Humana real implementation, as we've been saying, we had -- that result in more initial approval. So in theory, you would expect fewer denials, fewer appeals. As we mentioned throughout the year, when cement role was implemented, we did see initially higher appeal rates and higher uphold rates for those appeals than would have expected based on historical performance. As you've mentioned, we've completed audits ourselves. We've been through the CMS which is validated that we believe we're appropriately evaluating the clinical rules. And what we would say is, at the time, there was a question about, was that just a pool for and a change in seasonality of how appeals would come in and maybe see few repeals in the future because there's a reasonably long tail over which providers can appeal. We made the assumption that it would just result overall higher appeals and ultimately, uphold rate. That is what we have been seeing to date. We would just say we call it early and incorporate into our estimates coming out of the first quarter. I think why you may be hearing some different commentary from hospital systems is they may not have recognized that as quickly and may have seen that higher appeal rate initially and assume that the absolute appeals would still be comparable year-over-year. And what we've just seen is those appeals have been higher, which when you think about just the magnitude of the changes, I think it's everybody just trying to understand how those new rules are being applied across the payers and then the providers. So that's, I would say, very consistent with what we've seen since the first quarter and no meaningful variation since. And then George, I don't know if you want to add anything? George Renaudin: Yes. Susan, I would just add that I think you're right about the question of testing the appeals and seeing where they are trying to figure out exactly how to mini rule will be applied. We, as you said, feel very confident about how we're applying given the CMS audit we had at the very start of the year that came out positively. The other thing I would just add to that is that our clinicians continue to speak with many of the provider clinicians to talk through the issues to make sure we all have a similar way of approaching that everyone is clear in understanding what the two midnight rule is and is not. James Rechtin: Not to pile on here, but let me just try to wrap all the inpatient stuff together broadly, I think what we're try to convey is that since late first quarter, early second quarter, we've seen relatively stable trends. And so there was a fair amount of noise in the first quarter. I think everybody was adapting to the regulatory change. For us, we put a lot attention on it at that point in time. And we think we worked through all the changes in process and approach and whatnot and have gotten to a relatively stable place. So, when we look forward, we're feeling pretty good about the outlook and our ability to project what the inpatient cost is going to be, whether that's denial rates, utilization, unit cost, et cetera, relative to where we were back in the first quarter. Operator: Our next question comes from Whit Mayo with Leerink Partners. Whit Mayo: Hey, good morning. Maybe just a question on STARS as it relates to the lawsuit or appeal. Just looking at age contract 5216, maybe the math is off a little bit here. but it seems like you might need to flip both the Part C and D ratings on the call center to a 5 from a 4 to get back to a 4-star rating on that contract. It doesn't seem like you can do it with just improvement in one category, it seems like both. So, is that an accurate statement? And I'm just wondering like how many calls ballpark are we talking about to have to overturn to see improvement in either categories. One, is it multiple calls? Just any color would be helpful. James Rechtin: Yes. In total, it's three calls across both metrics. And yes, we would need to see the three calls overturn. George Renaudin: I would just add into that, Jim, bit. In addition to the three calls, one of the other things that we're talking that we are pursuing with CMS is the need for greater visibility and transparency into how the threshold to calculate. James Rechtin: Yes, that is correct. Yes. Operator: Our next question comes from A.J. Rice with UBS. A.J. Rice: Hi everybody. Just want to make sure I understand the early thinking on 2025. If you are successful in your appeal on the STARS through litigation, would that change your view on the amount of investment you need in 2025? It almost sounds like up to this point, the discussion STARS ratings hit has been around the arbitrariness of the CMS presold cut points and some of that. And you had a great track record of having very high Star ratings. Now, all of a sudden, it sounds like, as you guys have looked at this, you now think you need to make a lot of investment to get back on track on STARS. And I wonder if your appeal is successful, would you not have to do that? And would that change your outlook for 2025 for the better? And then in the broad discussion about out years, there's always a discussion about trading off enrollment for margin. And obviously, we've got a lot of focus on getting you back to 3% margin. But any philosophical commentary about how much of an enrollment hit you might end up taking if the appeal is unsuccessful to get back to that 3% margin over the next couple of years with a view to 2027? James Rechtin: Yes. So, let me start with the appeal and its impact on how we think about 2025. So, the way to think about STARS is there's two related but slightly different things. So, there's the appeal related to the single -- or I guess 2, but similar metrics that that are kind of the difference between 3.5 and 4 Stars a whole bunch of our members. That is one thing that is working its way through litigation, we're really can comment on that beyond what we have. But separate is the broader trend within the STARS program of cut points and thresholds getting harder. And that's across a lot of different metrics. And so while there's one critical metric for BY2026, broadly, I think the entire industry is looking at a movement in metrics and cut points and thresholds that is causing pretty much everybody to reevaluate how far do you have to lean in, to investment in this program to make sure that you can keep up with those -- with that metric movement. I don't think we're alone to that. So as we contemplate investments for next year, if the -- I don't -- the appeal is not going to have any kind of meaningful impact on how we think about investment. The investment is going broadly in the program to drive better and better and better performance at a pace that exceeds what we expected previously. That's really what the investment is about at the end of the day. George would you -- anything would add to that? George Renaudin: I would just add, Jim, that the other thing about the investments we're making in STARS in many ways is the right thing to health outcomes for our members overall. The investments we take here enhancing provider and member performance. We're talking about incentive programs to close gaps in care, which helps our health outcomes while also improving the customer experience. It is a good thing for us to continue to work with our vendors to improve our relations with them and to improve their performance. And finally, the strengthening that we're doing around technology and integration to support operational excellence also nicely fold into many of the other things that Jim has talked about, we need to focus on moving forward in both his opening comments and in his earlier letter. Susan Diamond: Yes. And then, A.J., the only other thing I'd remind you is we talked about investments for 2025. Just keep in mind, STARS is one piece of it, but there are investments remaining more broadly to drive just improved operational performance across a number of areas that Jim has referred to. So, a STAR is just one component. And then, Jim, the last question, I don't think you touched on is just the philosophy of membership growth and margin trade-off, if you wanted to touch on that. James Rechtin: Yes. And again, I think this was related to how would, we react to the STARS mitigation or STARS progression. Look, the short answer is we have a lot of questions around that very thing that we're going to have to answer over the next three, four, five months. So we don't have a perfect answer. We've got to understand how does -- what does the rate environment look like? How are we feeling about the progress that we're making on 2027 STARS, et cetera. So there's just a bunch of factors that we don't yet have visibility into to answer that. What I would say just generically is our intent is to balance long-term earnings potential with near-term progression. We need to balance those. All-in-all, we're not going to do things that harm the business long-term to work our way through a short-term issue. Now, what does that mean practically? We don't know yet. We have to sort that out. Operator: Our next question comes from David Windley with Jefferies. David Windley: Hi. Good morning. Thanks for taking my questions. I wondered on two fronts. First, on channel investment, basically, you've touched on some of this already. I recall last year, that after AEP, the discussion was that the brokers were more consumed by helping existing members shop and therefore, couldn't talk to new members as much resulting in AEP growth being relatively low, more shopping expected for 2025. I'm wondering, what you've done to address that issue and kind of relatedly, how should we think about the cadence of membership AEP versus intra-year. And then lastly, I'm wondering just if you have any early thoughts or expectations about 2026 rates for early next year announcement. Thanks. James Rechtin: Yes. So, I'll start. And there are number of -- thanks for the question. There are a number of things that we've done in preparation for what we knew was going to be a sales view where there's going to be a dynamic change in the industry given the industry reset that we've all talked about we're going through with benefit changes, member disruption as we have had planned in county exits, a number of our competitors have as well. So, we know that, that's going to be something that we have to focus on. So we continue to make investments in both our internal sales channels to include improvements in, as I mentioned before, digital self-service options We also are making investments to help our external brokers. You also realize that we have a pretty large internal brokerage as well, we're seeing a 70% increase in sales in that internal brokerage channel. So, we're going at this from both improving the experience for the members to be able to sell service in digital, improving when our sales team gets those calls in person, how they can answer those questions by giving them better tools and leveraging AI as well as are helping our external partners in providing them with more real-time data and information and helping them on best benefit choices. So, there's a whole host of things we're doing across the whole marketplace that we are prepared for, knowing that this is going to be a year of pretty significant change in this AEP. David Windley: Okay. All right. George Renaudin: Yes. And let me just kind of headline that our external partners are really important to us and building and strengthening our internal channel is what we have the most direct control over, and we've been building capacity in that internal channel for that very reason. And that channel is also very important to us. And so, we have built capacity to the degree that we feel like we reasonably can under the timeframe and the circumstances, et cetera. And at the end of the day, we still look at the market and we expect 5% to 5.5% growth at the end of the day, even with the need to kind of balance these capacity constraints. Susan Diamond: And then I think the last question was around 2026 rate, which, David, I would just say it's hard to right, we can't really predict working, we would say we still have 2028 and IME to be phased in. So we know those are impacts. And the big question will be, given the trend that we have seen, we will see some positive restatement embedded within the 2026 rate, recognizing their forward-looking 2025 rate hit as seen some trend improvement, which obviously hasn't transpired. The ACO reach detail that's shared by CMS is one sort of indicator of the trend they may be seeing. That does suggest that they are seeing some of these kind of trends as well. So I think we're cautiously optimistic that the rates for next year will include an appropriate adjustment for the trend that we're all absorbing. David Windley: Okay. Operator: Our last question today will come from the line of Michael Ha with Baird. Michael Ha: Hi. Thank you. Just firstly quickly to confirm. On DSP redetermination, Susan, did you mention 80 bps of industry growth headwind expected for next year. Is that presumably because of the six-month grace period they have, are the bulk of those lives so yet to be redetermined what percent of those lives are expected to fall off your book. And then number two, I guess given that you're already 11 months into the measurement year, 2024 for next October's released Star ratings. I know cap still run through June, but based on the other I guess, let's call it, roughly 70% weighting or actually, I guess, 80% now that caps is being reduced. I know you're in a sprint right now, but how are you tracking on those 80% of measures? More specifically, I guess, what's the realistic likelihood of being able to sort of fully snap back to 80% to 90% of members in 4-Star plus plans? What's your level of confidence, conviction? Or is it just very unlikely given how late into 2024 it is and how late it was realizing how aggressive cut points are and just the time you have left to make incremental improvements? Thank you. Susan Diamond: Sure, Michael. I'll take the first question and then hand it over to Jim or George for the SAR question. On D-SNPs, yes, you heard that correctly. We do anticipate a headwind in 2025 as the redetermination process completes. There was pressure in 2024 as well, slightly less than we would say, 70 or so basis points in 2024, and we think it will be about 80 basis points of pressure in 2025. Frankly, part of that is because of the Change Healthcare disruption, which disrupted the ability to confirm eligibility. And so even though we've largely seen the impact on the Medicaid side because of the deeming period on the MA side, there is that six-month period. And so we do expect that we will see some additional dual disenrollment as they lose coverage. Some of those we would expect to recapture within our non-D-SNP offerings, but some obviously are no longer eligible. So we've built that into our expectations all along for 2025 in terms of the loss of a few hundred thousand members that is already contemplated. But yes, you did hear me correctly. And then George or Jim, do you want to take the starts question? James Rechtin: Yes, I'll just jump in on that. The short answer is, at this point, one, you've just got limited visibility into even your own performance and you've got no visibility into industry performance. And so we're not going to comment on industry performance or cut points of thresholds until they're actually out next year. On our own performance, we feel good about the progress that we are making. And there is risk, like we're resetting expectations with four months, three and a half months to go in the year, setting those expectations higher, driving towards higher goals. And while I think we all feel good that we are making progress and leaning as an organization into it as heavily as we can, we still need time to understand exactly how those things are going to play out. So there's just -- there's not a super clear answer to the question at this point in time. But everybody is leaning into it, and that is what we need right now. With that and being the last question, I'm just going to transition here and thank everybody for joining us this morning and thank everybody for your interest in Humana and in what we are trying to do to serve our patients and our members. And I want to thank our 65,000 associates who serve those members and those patients every day. We appreciate the work that they're doing, and we appreciate the support that you're giving us. So thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Humana Second Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions]. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, as well as a letter from the CEO, all of which are available on our website. We will begin this morning with brief remarks from Jim Rechtin, Humana's President and Chief Executive Officer; followed by a Q&A session with Jim and Susan Diamond, Humana's Chief Financial Officer. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our second quarter 2024 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share, or EPS, made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Jim Rechtin. James Rechtin: Thanks, Lisa, and good morning, everyone. Thank you for joining us. Let me start by just saying that it's a privilege to be able to serve as Humana's President and Chief Executive Officer, and I want to say thanks to the Humana Board of Directors for providing me this opportunity. I also just want to say thanks to Bruce for the last six months of his mentorship and partnership. It's been really, really great, and I actually look forward to continue to work with them over the next year. So Bruce and our 65,000 teammates have built a great company here and it's pretty exciting to be a part of it. I shared some thoughts on Humana and the industry and the opportunity ahead in the letter that I posted on our Investor Relations website this morning. I encourage everyone to take a moment to read the letter that goes along with our second quarter prepared remarks in the earnings release. I'm not going to repeat what is in the letter, but I do want to hit a couple of themes. So let me start by just reinforcing what I think is basic truth about the business. It's a good business, it's good for our members and it's good for our patients. This is well documented in my opinion. CMS and the Federal government, state government, and by extension even taxpayers are also our customers. I think we need to constantly remind ourselves of that. What we do creates value for those customers as well. We need a regulatory environment that allows that value to be fully realized and that requires constant collaboration and adjustment. We need to be a proactive partner with CMS in that process, and we need to do this to make sure that we've got a long-term, stable Medicare, Medicaid program. This is also good for investors, for all of you. And I think you guys know that the sector fundamentals have not meaningfully changed. They're still attractive, and we still have differentiated capabilities to compete in that space. We understand that there is frustration with the volatility that we've been experiencing. I want you to know that we also acknowledge that right now we are not achieving our full potential. The external environment has certainly been difficult. However, the message that I want to keep driving home is that we need to see the external environment for what it is. It's context. We need to shape it to the degree that we can and we otherwise need to be focused on the things that we control within that context. That's our product, it's our pricing, it's our clinical capabilities, it's admin costs and it's growing our business. To execute well against the things that we do control, we need to be incredibly focused on operating discipline. We're good at operating discipline, but we need to be reminding ourselves of that day in and day out as the external environment changes. We also can do a better job with multiyear planning in order to deliver consistency and performance over time. We got great teams. We know how to do this. It's simply about maintaining focus on the things that we control, even when the environment around us is shifting. Now let me turn to second quarter performance. I'm going to give a quick headline. I'm going to give some examples to support that headline, and then I'm going to come back with some implications on our outlook. The headline today is that our second quarter results exceeded expectations. We feel good about where we are at mid-year, but we did experience some medical cost pressure in the quarter. So let me expand on that a little bit. Much of the good news comes from our Medicare business, which is outperforming the expectations that we had at the beginning of the year. Our member growth is better than we expected. We raised our forecast by 75,000 members. That means that we should grow at just over 4% for the year. Our benefit ratio for the quarter was lower than we anticipated. That was driven by claims development and higher than expected revenue, and that was also offset by the higher inpatient costs that I referenced earlier. More specifically, inpatient admissions were higher than we expected in the back half of the second quarter. That pressure has continued into July. For now, we believe that planning for continued pressure within our guidance is the right approach, that we also feel good that this pressure ultimately can be mitigated. We've taken several measures to mitigate that pressure. So, for example, we're continuing to ensure clinical appropriateness of admissions, especially in light of the 2-midnight rule we are enhancing claims audits and we are negotiating with provider partners to achieve better clinical and contractual alignment. In Medicaid, we're excited about our continued growth through both contract wins and member growth, and we continue to wait for additional RFPs. We have some modest claims pressure in Medicaid, but we do not expect it to impact our full year results. In CenterWell, Primary Care is delivering strong clinic and patient growth, and we're confident that we're on track to mitigate v28 as it phases in. Overall, our pharmacy volumes are in line with plan and we continue to drive lower cost to fill, particularly in our less mature specialty pharmacy business. The home business has generated high single digit admission growth and the team continues to improve their cost structure, anticipating continued rate pressure in that space. We continue to make progress managing our admin costs and where had a plan for the year. Broadly, we are focused on automation. This is in reducing our cost to fill in our pharmacy business and it's also in lowering member service costs within our Insurance segment. Give just a few examples of the type of work, actually really good work, that our teams are doing. We're seeing an increased Medicare claims auto adjudication rate by about 70 basis points. This does improve the provider experience and it does also reduce claim processing costs. We've optimized logistics across our specialty pharmacy facility in a way that reduces transit times and also lowers average delivery costs. We've improved our digital enrollment experience. This is leading to higher conversion rates and again, it's lowering our distribution costs. Finally, we're making good progress on multiyear initiatives. We recently announced a partnership with Google. This will help accelerate our AI efforts. That will in turn help reduce cost and improve the consumer experience. We're excited about a recent investment that we made at Healthpilot. Healthpilot uses AI to make the consumer purchasing experience better when shopping for Medicare Advantage. And we just entered into a lease agreement with Walmart that should help accelerate our primary care clinic. The implication as we look forward is that we're reaffirming our full year 2024 adjusted EPS and benefit ratio guidance. This prudently assumes that the higher inpatient costs will continue. Even as we work to mitigate that pressure. We're looking ahead to 2025. We continued expansion in adjusted EPS growth as a first step on what will be a multiyear path to a normalized margin. We continue to feel good about our bid assumptions and our product portfolio as we head into AP. I am excited about all of the momentum and the opportunity ahead. And so with that, I'll just remind you that we posted the prepared remarks to our Investor Relations website so that we could spend most of our time on Q&A today. And we will now open up the lines for your questions. Operator, please introduce the first caller. Operator: Our first question comes from the line of Ann Hynes with Mizuho. Ann Hynes: Hi, can you hear me? Susan Diamond: Yes. Good morning, Ann. Ann Hynes: Hi. Sorry about that. She cut out. So maybe going to the inpatient trends, is it really only the 2-midnight rule you're seeing pressure, or are there other areas of pressure that you're seeing? Thanks. Susan Diamond: Yeah. Hi, Ann. Happy to take that. So, yes, and as we described in our previous commentary, both in the first quarter and then at conferences in the second quarter, we have seen some variation in our month-to-month inpatient results for, and then also the avoidance rates as we implemented the 2-midnight rule requirements, which, if you remember, that was a meaningful change and we need to make some assumptions around how it impact our historical patterns. As we described in the first quarter, our avoidance rates initially were lower, but then ultimately did come in line with our expectations by the end of the first quarter. Those have remained stable and continue to be in line with what we would have expected. The inpatient absolute level, however, has seen some more variation and was higher in the back half of the second quarter, in particular. As Jim mentioned, that has continued into July at relatively similar levels. Based on everything that we are seeing, including the fact that these continue to be lower acuity and lower average cost, as well as the fact that we continue to see corresponding reductions in non-inpatient on observation side, it does all point to a belief that it is likely largely due to further impacts from the 2-midnight rule implementation. We would say this is also consistent with what we've seen reported from the hospital systems with their results in terms of volume and revenue per patient. So we do believe it's all consistent. With respect to July, it is relatively consistent. We are seeing just a slight amount of COVID as well on top of that, but otherwise consistent. So as far as everything we have visibility to right now, it does seem to have stabilized, but is higher than we had anticipated entering the second quarter. Operator: Our next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah James: Thank you. The guidance implies a good step up in second half MLR. Can you speak to how much of that is seasonality versus assumed continuation of the July trend? And is there a way to break out the impact of the increase inpatient in July on the 2Q MLR? Susan Diamond: Hey, Sarah. Yes, so in terms of the second half MLR, as we said, it does anticipate that the higher inpatient volumes, which are partially offset by lower average unit costs and then those lower observation stays will continue into the third quarter and the back half of the year. So that is fully accounted for. To your point, there is some workday seasonality that impacts the quarterly progression as well. For the third quarter, specifically, it is contributing about 80 basis points to the expectation for the third quarter MLR. So that is accounted for as well. The offset to that is largely in the fourth quarter, where we expect to see favorable workday seasonality relative to last year. I think your second question asked whether the higher July activity impacted second quarter results, which obviously it wouldn't. That would be considered in our third quarter results. Sarah James: Right. Sorry. Is there a way to quantify the July impact on MLR? Thank you. Susan Diamond: No. So I would say again, the core admission volumes is in line with what we had anticipated. Based on the second quarter performance, there is a slightly higher amount due to COVID, which again, I wouldn't say that's overly concerning to us, and given it's clearly COVID related, we would expect it not to persist for the full balance of the year. But something will certainly continue to last. Operator: Our next question comes from the line of Andrew Mok with Barclays. Andrew Mok: Hi. Good morning. Hoping you give a little bit more color on the MLR progression this year. You're guiding 3Q insurance MLR up about 100 basis points sequentially, but it sounds like you're leaving that assumption relatively flat. Is that right? Because I would think 4Q MLR would be even higher than 3Q MLR just based on normal seasonality. Just want to understand those two points. Thanks. Susan Diamond: Yeah. When you think about the back half of the year, we do anticipate higher MLRs for the third quarter relative to last year. Relatively consistent, which again includes that workday impact I just mentioned. For fourth quarter, we obviously saw that very high utilization in the fourth quarter last year. Obviously, we jumped off of that in terms of expectations for this year, we see some slightly higher incremental pressure just because of the expectation of abnormal trend on top of last year's jumping off point. But because of that favorable workday seasonality that I just mentioned, it will positively impact the fourth quarter MLR, which is going to offset some of that. Operator: Our next question will come from the line of Justin Lake with Wolfe Research. Justin Lake: Thanks. Good morning. First, the higher inpatient cost, if I just run some simple math, your typical seasonality first half, the second half on MLR, typically pretty flat to up slightly. Let's call it zero to 50 basis points. So it looks like you're up closer to 125. So am I right in thinking that this impatience pressure is about 100 basis points to MLR in general? If not, can you quantify it somehow for us in terms of the level of pressure that this is specifically putting on MLR? And then, what's embedded in the second half relative to what you expected previously. And then you talked in the prepared remarks about being comfortable with your 2025 bids. You said this came in the back half of the quarter, so that's second half of May. Those bids are due in the beginning of June. How do you get investors comfortable with the fact that your bids would be able to absorb this type of pressure given that you didn't see it until right when bids were being submitted? Susan Diamond: Yeah. Hi, Justin. So in terms of the MLR seasonality, there are some impacts year-over-year just because we continue to see increasing pressure last year. So it sort of impacted the progression we saw last year. With respect to this year, when you think about first half and second half, there is some favorability in the first half of the year that offsets some of the higher costs that we did see beneficially impacting the benefit ratio. And those are some of which are one time in nature where they won't run rate. Some are unique to the first quarter or the first half of the year. Typically, things you can think of like prior year claims development, which we've acknowledged has been favorable versus our expectations. We've also mentioned that we saw favorability in our '23 final MRA payment, which is more one time in nature still positive, but won't run right into the back half of the year. So some of those things are disproportionately impacting our first half MLR this year relative to some prior years and so, obviously won't repeat in the back half, which can create some differences in what we're expecting first half and second half. So within our second half assumptions, as we've said, we have assumed that the higher absolute level of inpatient volumes plus the naturally offsetting unit cost and observation stays that we've experienced, those are all assumed to continue for the balance of the back half of the year. And then, as we said, there are some workday seasonality impacts that are a little bit different this year. They're also embedded in that as well. As far as '25 bids, to your point, we submitted these bids prior to some of the development of this inpatient pressure. So that is not explicitly contemplating the bids, but we would say some of the offsetting positive news, the higher risk scores in the final MRA payment, as well as the lower inpatient unit cost, the lower observation stays, and some of our other favorable prior year development coming from things like claim cost management and audits were also not contemplated in the bids. And so more durable. And so all told, and considering all of those factors, we continue to feel good about the bid assumptions in the aggregate and the ability to deliver the margin and earnings expansion that we had always contemplated. Operator: Our next question comes from the line of David Windley with Jefferies. David Windley: Hi. Thanks for taking my question. I wanted to ask a clarification and then a broader question. The clarification being, Susan, I think you had previously said that 2-midnight rule was worth about 50 to 75 basis points in the MLR. I wondered if you could give us an updated number on that. And then the broader question I have is, over multiple years of value creation plan activity, the company's endeavored to drive efficiency and take cost out. I'm wondering if essentially you've cut the muscle, if you've cut so much cost that your kind of anticipatory mechanisms and ability to react and act quickly on elevated cost activity has been hampered by the depth to which you've cut costs. Thanks. Susan Diamond: Yeah, David. So I'll take the first question on the 2-midnight rule and then hand it off to Jim for your second question. So yes, I think the impact that you referenced was what we anticipated going into the year relative to the 2-midnight rule. Obviously what we've seen, if the higher inpatient costs are in fact attributable to the 2-midnight rule, which again the information we have would seem to suggest that it generally is, then that would obviously have a higher impact than we had expected. All told, when you consider the positive prior year development as it respects claims and the unit cost and the observation stays, when you take all of that in total, we are able to mitigate a significant portion of that, but not all of it. And so intra year, the remaining offset is coming from that favorable MRA, which again we expect to continue, which is why we continue to feel good about the $16 for this year and $25 for next year. But we haven't sized the incremental impact for the 2-midnight rule, and I don't have that information sitting here today that I'd be prepared to do that on this call. James Rechtin: Yeah. Hey, I can jump in on the cost management question. First of all, it's good question. It's one of the questions that I was asking and staring at when I first came in here seven months ago. The short answer is, I don't see any evidence that we've done anything that has cut in the muscle today. And I think that's the most important thing. Anytime you go through a cost transformation like this, you've got some low hanging fruit upfront and then you have a lot of harder work that is tied to the things that we talked about earlier, automation, using technology to do process redesign, et cetera. The quick hits you get quickly and the rest of it takes real planning and investment over multiple years. The company has done a nice job of planting the seeds for that multiyear cost management and there's more to do. When you think about the nature of this business and what technology can do to take cost out over time, there is still more opportunity. That opportunity is just going to be phased in over multiple years. It's not going to be the big jump that we saw a year, year and a half ago. Operator: Our next question comes from A.J. Rice with UBS. A.J. Rice: Hi, everybody. Maybe just stepping back. I know, Jim, in your letter you talk about multiyear opportunity for margin recovery and some of the discussions we've had with the company earlier in the year. The thinking was, given the market competitive environment, given some of the restrictions on tweaking benefits, that we should think of it in terms of 100 to 150 basis points of margin recovery, MLR and then margin maybe each year for the next few years. I wonder if you have any updated thoughts on how fast we can see that margin recovery. I know you reiterated long-term, you think it could be 3% target. I think that's before investment income. Can you give us any updated thoughts on how the progression looks over the next two or three years? James Rechtin: Yeah. Let me hit a couple of things in there. So, first of all, I want to separate two concepts. We have talked about the multiyear margin recovery that is really driven by the regulatory environment, what you can do in any one year with TBC, et cetera. And we really don't have any change to the commentary that we have made on that previously. The second thing that I referenced is multiyear planning. And when you think about multiyear planning, I'm going to go back, actually in a way to the comment that I just made. If there's a place that we're going to have to be more disciplined over the coming years, it's really in how we're measuring and evaluating the return on the expenses, whether it's capital or whether it's operating expense that we have in any given year. So that we're optimizing those decisions and then making sure that we've got the processes, that we're not just operating with discipline in one year period of time, but we're driving the accountability over years two, three, four and five that go back to that investment you made in year one. That's the place where I think that there's more opportunity and the benefit of that is just getting to more consistent performance year-over-year-over-year-over-year. That is kind of really grounded in how do you optimize shareholder value over multiple years. So that's a different concept or a different thing that I am commenting on in the letter from the margin recovery that we need to make sure that we're building into our benefits and our pricing. Operator: Our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. Thanks. Maybe two quick questions, maybe just to wrap up that last point, Jim. Would you say that this is a change for Humana that you're bringing to this, that maybe this was a shortfall, multiyear planning with a shortfall relative to historical? Or are you just saying this is something you always have to do and you're just going to continue to do it? And then, I guess, second, on the provider business, can you comment a little bit more about the MLR trend there? Are you seeing the same inpatient pressures there, or is there anything else that you would spike out on that side of the business? Thanks. James Rechtin: Yeah, I hit the first one, and then I'll hand this over to Susan to comment on the second. It's not so much that it's a change as it is something that we can get more disciplined about and we can get better at. Nature of this business, Medicare Advantage in particular, is that it's an annual cycle business. You guys know that we talk about it all the time, annual repricing, annual rate notice, annual AEP and member growth. And in that environment, it can be challenging to really be disciplined about how you think about three, four, five-year investments. And again, that's not just capital investments, that's operating investments that you're making in any given year. And so it is something that the company thinks about. It's also something that the company can get better at. Susan Diamond: Yeah. And Kevin, on your second question, with our provider business, I would say the highest level similar results to the health plan, although on the claims side, I would say not quite as much inpatient pressure as we've seen. And we -- that's consistent, I think, with what we talked about earlier in the year where we weren't seeing as much pressure in the risk book from some of that inpatient activity when it started to emerge. They've also, as I've said before, consistently demonstrated a better impact to work with the hospital systems on those authorization requests and determining the appropriate level of care, which oftentimes results in not needing an inpatient stay. And again, just better than what we see on average within the health plan. They've also seen some favorable MRA in their '23 final payment. But then we also acknowledge that CenterWell, because they do have an agnostic platform, they don't get the same level of real time information as we do. And so we are taking a little bit of a cautious approach as we think about their performance. It's harder to estimate the impact of change that's still running through the system. So I would say generally not inconsistent with the health plan, but not quite at the same level. Operator: Our next question comes from the line of Joshua Raskin with Nephron Research. Josh Raskin: Hi. Maybe just shifting gears, can you speak about your expectations for the PDP segment in 2025, including expectations for membership and then profit and margin. And then maybe based on that benchmark data that we saw this week, what should we take away from the industry bids? And maybe lastly, any commentary on expectations of participation in that demonstration project? Susan Diamond: So, hey, Josh. So yeah, there's a lot going on, obviously in the Part D side, particularly PDP. As we said, it is hard to really understand how everyone might have approached their bids for 2025, particularly in the standalone Part D space. As we said before, selection in terms of your underlying membership is really important, and we each have a little bit of a different product strategy, which may have caused us to approach the bids differently. I would say broadly, I think the industry was focused on mitigating some of the increased exposure and liability risk that we all have in the way that the program will be constructed for '25. With the information that was released this week on the benchmarks, as we've all seen, it does suggest that the direct subsidy maybe is going to be higher than what certainly analysts had expected. It's impossible to know what each company might have anticipated, but what is nice to say that it is more reflective of some of those higher costs that we've been saying the industry is going to have to deal with in 2025. As far as the demo, honestly, there's still a lot of questions about how the demo will work that we're all awaiting additional guidance from CMS on that, and so too early to say whether we're going to be able to participate or nothing. And as far as the direct impact of the direct subsidies and the benchmarks, again is always the case, we aren't going to comment on that specifically, recognizing new bids are still open and people will be making changes in light of that. So certainly, we'll talk more as we get past the bid submission timeline, but right now, for competitive reasons, we just -- we won't be commenting specifically. Operator: Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Ben Hendrix: Thank you very much. Switching over to Medicaid, it seems like a lot of your peers saw some utilization and acuity headwinds in those books, but you noticed some favorability in Florida and seems like you might have been a little bit better forecasted there. Could you talk about kind of what you're seeing specifically in that key market? And then maybe what you're noticing in some of your newer Medicaid markets in terms of utilization? Thank you. Susan Diamond: Yeah. Ben, so as you pointed out, we do think our results are probably a little bit different than some others have reported. And that is because I think we've always said we tried to take a conservative approach to how we thought about the impact of redetermination. Assuming that ultimately we would only retain 20% of the members who gained access through the PHE, and made the assumption that the acuity of those members that were retained would look like more like the historical Medicaid performance versus the lower acuity we saw through the PHE. I would say that has all largely proven to be true. So -- and we called out Florida specifically because it's the best representation of that. We're obviously the largest membership and would be impacted most significantly from redeterminations. And Florida is performing slightly better than our expectations. So that is positive. We did call out in our remarks we are seeing in our newer states, discrete pressure. It's a little bit different in each one. Oklahoma, as an example, is pharmacy related. We understand everybody's seeing that there are risk corridors in place that mitigate the exposure on that, which is good. In Kentucky, it's behavioral related, which, again, I think others have called out as well. The team's working hard and has mitigation opportunities across each of those states that they're working on. And then ultimately, we do feel good about our discussions with our state partners, and that ultimately that they will adjust the rates to be reflective of those trends. So all things being considered, we still feel good about the Medicaid performance in '24 relative to our expectations, and then also on a go forward basis, given all the items I just mentioned. Operator: Our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: Hi. Thanks. Just a quick clarification first and then an actual question. Susan, I think in an earlier response, you said you feel good about the $16 of EPS this year, and then feel good about 2025. I think some misheard the comment on 2025 is a specific value you are offering as an EPS expectation. Can you just confirm first if you were offering any kind of comment on 2025? And then my actual question is, as we think about the MLRs and the incremental margins on the few hundred thousand members in plan and county exits, any sense you can give us on that? Just trying to wonder if that's actually an EPS driver for you year-on-year, or is this something that incrementally could be -- something you just have to manage through in context of everything else you're trying to achieve with bids and profitability next year. Thanks. Susan Diamond: Yeah. So, yes, definitely want to clarify here's what's interesting. So yes, we feel good about the $16, and yes, we feel good about our 2025 assumptions. I did not mean to suggest that we're sharing an EPS target for 2025. Obviously, we've been clear. We haven't given any forward guidance for '25 and would expect to do that on our normal timeline. So I was just making the point that based on everything we know, we continue to feel good about the 2024 results and what we're planning for '25. As far as exit specifically, so as we've been saying, given the TBC limitations and the trend in IRA and v28 that we're having to price for in '25, that a lot of that would fully sort of be offset by the benefit changes you could make and not leave much incremental room for margin recovery in the aggregate. The plan exits, though, do provide an opportunity to actually get margin expansion in terms of percent and absolute earnings because we do have planes that are running at a loss. And so, as we said before, we studied the performance of our plans in each market very closely, and if they were performing at a loss and did not have a reasonable path to getting to at least breakeven performance in a reasonable period of time, we did consider an exit as a better solution there. So there are cases where we'll do that and that will be incrementally positive to our earnings progression. But ultimately, as we said, the absolute level of earnings growth is very dependent on our ultimate membership change for next year. And in this environment, we've acknowledged there's a wider range, potential outcomes. And so we'll need to see the landscape before we can comment further on member growth and then certainly EPS expectations for next year. Operator: Our next question comes from the line of Scott Fidel with Stephens. Scott Fidel: Hi, thanks. Good morning. Was hoping you could maybe just sort of catalog or walk us through the different inputs into the $3 billion raise to the revenue guidance. Obviously, saw the updates to the MA and PDP membership changes, but in isolation, those wouldn't sort of amount to for anything really close to $3 billion. So know there's probably some other drivers there, whether it's Medicaid or CenterWell. Just to be helpful, Susan, if you just walked us through those different pieces. Thanks. Susan Diamond: Yeah. Hey, Scott. So, yes, the change to the revenue guidance is the largest driver, is by far the membership. When you consider the magnitude of the increase in expected membership for the year, that'll drive both revenue and claims. Right? And we've said before, new members on average, you can think of as having little contribution, particularly, added membership in the back half of the year where the commission costs run higher for that first year. So the main driver is membership. But as we said, we did see some favorable outperformance on our '23 final year MRA and some intra year positivity on our revenue risk or estimates as well. That's included, but I would say the majority by far is membership related. Operator: Our next question comes the line of Lance Wilkes with Bernstein. Lance Wilkes: Yes. Jim, could you describe a little bit of how you're morphing the management process of a company and any sort of Oregon talent changes you're making there and any sort of timing related to a strategic review? And then maybe as part of that, what are your top priorities for taking operating expenses out, both in light of the member reductions and then just obviously as part of trying to recover your margin? Thanks. James Rechtin: Okay. So there's a lot in there. Let me see if I can capture this. Management process, strategic review, cost management. Did I miss anything? Susan Diamond: Margin recovery. James Rechtin: Margin recovery, yeah. So I'll try to hit each of those succinctly here. Management process. I think the biggest thing that we're doing around management process is actually what I referred to earlier, is trying to take up to the next level our discipline of looking out multiple years, how we're measuring performance over multiple years against the investments and the expenses and the things we're doing in any given year, and then how do we make sure that we're driving accountability over those multiple years? I mean, that is the single biggest change that obviously then dovetails into strategic review. We're in the midst of that. We're going a little deeper than I think we would in normal year, largely because I'm new to the team. And we're really trying to use that process to implement those management processes that I just described. So we're in the middle of that process. We will have more to say about the exact timing and the exact outcomes of that sometime early to mid-next year. The cost management, there are two different things in there. One is how do we manage variable cost? And so the team actually has good processes around that. Of course, we're tightening them up given the range of membership outcomes that we could have this year. But that is a pretty standard process that you're simply honing, taking variable cost out with membership. And then we are diving deeper and deeper into how do you actually drive real process redesign with automation technology. I point back to the partnership we've got with Google around AI. What we're thinking about, even in things like distribution costs by being able to drive more efficient digital distribution. All of those things are about driving long-term cost management, which hits both fixed and improves variable over time. And then -- did I hit everything? Susan Diamond: Margin recovery James Rechtin: Margin recovery. I'm going to go back to the same place that we've been on margin recovery. It's going to take -- we expect to be at least 3% in our Medicare Advantage business. It's going to take multiple years to get there. That is largely driven by the regulatory environment, TBC, et cetera. And that is based on some basic assumptions, kind of reasonable assumptions, about how rate and trend is going to develop over that period of time. We think we'll be back to normal in 2027, back to a normalized margin. And that's what we've communicated in the past, been pretty deep into those numbers, and I feel good about the direction that the team has given. Operator: Our next question comes from the line of Michael Ha with Baird. Michael Ha: Thank you. Just a quick clarification on Op Ex, first, and my real question. I know your press release mentioned some of your lower than planned admin expenses were considered timing in nature, but wasn't that also mentioned in 1Q? So are those timing items expected to flip back into third quarter and fourth quarter? And then my real question coming back to Justin's question on bids, apologies, I may have missed part of the answer. But sounds like this elevated inpatient utilization was not embedded in '25 bids. So if it were to persist through to '25, and presumably if it is an industry wide dynamic, then I imagine your relative competitive positioning would in theory be unchanged. But I imagine this would also then impact your own expected MA margin recovery for next year. So all-in-all, if it were to persist, wondering if you could discuss how this could incrementally impact your MA margin progression next year versus your prior expectations. Thank you. Susan Diamond: Yeah. Michael, so on the OpEx, yes, we did mention both in the first quarter and then second, that some of the favorability we've seen in administrative cost is timing in nature. And that's just a difference in when we projected, we would have certain spend and when it's now expected to be incurred. Some of the areas where it's natural that you might say is marketing and just the timing and the opportunity they see in the AEP versus OEP versus ROY and then going into next year. IT is also one that can be difficult to predict the exact progression of when projects will be completed. So there are a number of things where while it's favorable in the quarter, we would expect that it's still going to be spent for the full year, and so then we'll flip out in the third or fourth quarter. On the bids, what we want to try to convey is, we did not anticipate this higher utilization in our bids given when it developed relative to the deadlines for filing those bids. So that will be incremental pressure relative to our discrete medical cost assumptions and bids. However, we also did not incorporate the lower unit costs, the lower observation stays, nor the higher risk scores that we've seen develop in the first half of the year either. And because those have largely offset, those are also expected to be durable into '25. All considered, we still feel good about the MLR expectations that we have within the collective assumptions in our 2025 bids. So we are at this point, much like we're assuming it'll continue in the back half of the year. We've looked at our '25 assumptions and if that continues through the big duration of '25 with those other offsets, again, we should be back to a similar position as it respects the MLR that we had planned for within our '25 bids. Operator: Our next question comes from a line of Jessica Tassan with Piper Sandler. Jessica Tassan: Hi, thanks very much for taking my question. So I wanted to follow up on that. How are the higher than anticipated risk scores that you referred to in the prepared remarks impacting your view of the v28 headwinds in '24 and '25? And is the favorability related to any kind of specific efforts like IHEs and any reason why it wouldn't compound or effectively double year-over-year in 2025? Thanks. Susan Diamond: Yeah. Jessica, so the favorability we saw on the 23 file is primarily related to new members in 2023 and that's where, based on their data enrollment, we just don't have the full claims history in order to know specifically what their subsequent year risk score will be, because we just don't have the benefit of the claims. So that typically, if we do see favorability is the source of it. And so that's what we've seen. It's largely within -- the membership growth was largely concentrated in those LPPO [ph] claims, so that's where we've largely seen it. It would have -- I would say the v28 impact is sort of unchanged in terms of our thinking. It's not now on higher membership, but I would say the outperformance on the '23 final MRA doesn't have a literal impact in terms of our v28 thinking, but proportionately because we have more members, it'll just be accounted for within that. In terms of the outperformance we did see, like I said, because it was related to the new members where we didn't have the full visibility and that was not contemplated in our '25 bids. With the visibility we now have, we would expect to see that recur into 2025 and be another mitigate to offset higher inpatient utilization if it also happens to maintain throughout '25. Operator: Our next question comes from the line of John Ransom with Raymond James. John Ransom: Hey, good morning. Two kind of super high level questions. It looks to me like the industry is losing the argument in Washington. You've seen a couple of things that suggest taxpayers are spending 13% or so percent more on Medicare Advantage than they would be on straight Medicare fee for service. So I wonder if you think your advocacy efforts are sufficient. And what is the kind of elevator pitch to a senator when he or she asks, is MA a good deal for the taxpayers? Apples-to-apples, because it seems like there's a split question. The second high level question is, if you just look at your G&A long-term opportunity, incorporating all the tools of AI and everything you know today, what is the kind of floor on how far -- how low you think you could drive G&A over, say, the next five years? Thank you. James Rechtin: Yeah. So DC policy advocacy, how do we make the elevator pitch and then comment on G&A? Let me just hit the G&A one real quick. That one's a little bit easier. We are working through that question, among others right now, through the strategic review that we're doing, et cetera. We'll have more to say about that next year, early to mid-next year. And so I'm going to defer on that question for the moment. On the DC policy, so we've had a lot of conversation about that internally. And what I would keep going back to is, number one, we know that we deliver value to our members and our patients. That is very well documented. We get better outcomes. We deliver better health security by lowering the cost to members for the care that they receive and giving them access to more benefits. We also know, and it's pretty well documented, that we deliver like for like benefits at a lower cost than what original Medicare does. Those two things mean that there's a value proposition for members and for taxpayers. What we can do a better job of, and part of what I think the entire industry needs to be focused on is building the case for the second of those two things even more tightly and then better explaining and understanding what of that value does accrue back today to taxpayers. What doesn't and how do we actually collaborate with CMS to make sure that the regulatory environment allows that value to accrue back or some of that value to accrue back? None of that should be harmful to the MA sector. In fact, I would argue that it helps the MA sector, are getting tighter and better and understanding the impact on taxpayers, how the regulatory environment shapes that, what we can do to create a long-term value proposition for taxpayers that creates real stability for the Medicare and Medicaid program over time. That's good for everybody. It's good for the MA sector, it's good for the member, it's good for taxpayers, and that's what we've got to focus on getting back to. Operator: Our next question comes from the line of George Hill with Deutsche Bank. George Hill: Yeah. Good morning, guys. Thanks for taking the question. I guess the question, as it relates to the 2025 bid strategy, I guess, first of all, is there a way to characterize the approach to, like, how much -- for how many beneficiaries did you guys kind of want to remove the plan or exit a plan as a way to preserve margin or pursue margin, and to what degree? I guess on the other side, are you guys just looking to restructure plan benefits? And I think even at a higher level, the question I want to ask is, like, are you guys willing to quantify, like, how many individual MA members you provide plans for now that will not have that plan offered in 2025? James Rechtin: Yeah. Let me jump in on this one. So the question -- well, some of this is going to be a repeat of things that we've said in the past. So we've got a set of plans that are not profitable, that we don't see a path to making them profitable. We have exited those. That impacts a number of our members. In most cases, and the vast majority of cases, those members will have access to another Humana plan. So there's very few actual geographies will fully exit. We have another set of plans that is either marginally profitable or marginally unprofitable, but we see a path to recovering the profitability of those plans, and we are working on that through reducing benefits and changing our pricing. And then we have a set of plans that are actually quite attractive, how they perform today, and we are protecting those plans. That is how we have approached this. Today, for competitive reasons, we're not prepared to give specific numbers of members that fall into each of those categories. Susan Diamond: Yeah. And I think, George, just to add to what Jim said, we've given you the overall expectation that we'll reduce membership a few hundred thousand members, primarily related to plan exit. So you can assume, right, it's not a small number, within that there is an assumption that obviously we will retain some of those members because as Jim said, in almost -- virtually all of the counties where we're having plan changes, there is another plan option available to our beneficiaries. So there's an inherent assumption. As Jim said, we don't want to give details right now because again, there are still changes being made to bid submissions through the normal process. As we get later into the quarter, there may be an opportunity at another public forum once bids are filed where we can provide some more detail. Operator: Our next question comes from the line of Erin Wright with Morgan Stanley. Erin Wright: Great. Thanks for taking my question. In light of the disciplined approach that you're talking about in the ongoing strategic review, how are you thinking now about capital deployment from here, whether it's prioritizing the alignment with the Medicaid book and ability to service duals, or is it more on the care delivery assets, and what is your level of focus or thinking even on the organic opportunities, I guess, generally speaking at this point. Thanks. James Rechtin: Yeah. So let me start by characterizing where we believe growth opportunity is over and above what's in the Medicare book. And again, this is largely consistent with what the company has done in the past. We believe that there's growth opportunity at CenterWell. We believe there's growth opportunity in Medicaid. And to your point, there is significant kind of synergy or interrelated benefits between the Medicaid growth and the Medicare book because of duals and between CenterWell and the Medicare book because of the ability to impact quality and total cost of care. So we actually think that combination works and we continue to lean into it. When we think about capital deployment, the simple rubric that we're kind of staring at is strategically does it align with driving lower total cost of care and/or quality? Does it offer an attractive return on capital? And when you look at the array of opportunities to invest, what drives the best return over time? Right? What drives shareholder value over time? Those are the things that we're looking at, and we're looking at the same spaces that we've been looking at it in the past. Operator: Our last question will come from the line of Ryan Langston with TD Cowen. Ryan Langston: Hi. Good morning. On the inpatient activity, just in the prepared remarks, you said performing higher levels of appropriateness checks and potential mitigation activities. I guess, is there a potential maybe down the road for maybe a larger than normal amount of revisions on these claims for medical necessity or the like, or a disadvantage to those kind of claims in mass, look largely to be adjudicated as they are. And then I think you said that you were negotiating with providers for closer alignment. Can you elaborate on exactly what that means? Thanks. Susan Diamond: Hey, Ryan. Yeah. I'll take the first part of that and then hand it over to Jim for the second. On the inpatient, I think as you guys are, we do within our utilization management programs, have what we call a frontend review process. So we are reviewing those authorizations in real time as they come in for things like medical necessity and site of service effectively. And as I said, those -- we did have some changes to our expectations and how those programs would impact under the new 2-midnight rule. So that is operating as intended and as we said, largely having the results we expected. There is also activity that we do after the claim comes in, which we call a postpay review, where there are some incremental opportunities to just review, again the more specificity on that claim to make sure it's appropriate and we get value from both sides of that. But I would say we have really good information and tracking of the impact those programs are having. And I would not expect a material change to happen relative to our current expectations as a result of some of those longstanding programs. James Rechtin: Yeah. And then on the contracting, if you think about the way that contracting works at a high level, you're essentially aligning on a rate and you're aligning on a set of initiatives or incentives around how to manage appropriate utilization. And we have contracts that align those incentives very well. And we have contracts where there's an opportunity to improve that alignment around utilization and appropriate care. And so we are really looking at the contracts that perform best, and we're trying to figure out how you begin to move more of the network in that direction. End of Q&A: James Rechtin: Hey, so with that being our last question, let me just say a couple quick things. I'm going to come back to. We do feel good about where we're at mid-year. We feel good about the performance that we've seen and where that's at relative to the beginning of the year. I am going to reinforce that. We are seeing inpatient pressure. We have seen that in particular in the back half of the second quarter and now obviously a little bit into July. We're taking a cautious approach in reaffirming our $16 guidance. And we continue to feel good that we're going to have margin expansion, EPS growth heading into 2025. And so that is where we're at. We feel good. I do want to just thank our teams. They put a lot of work into getting us where we're at here at mid-year. And I continue to look forward to working with all of you on this phone call and our teams here at Humana. So thank you. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to the Humana First Quarter 2024 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. I hope everyone had a chance to review our press release and prepared remarks, both of which are available on our website. We will begin this morning with brief remarks from Bruce Broussard, Humana's Chief Executive Officer; and Jim Rechtin, Humana's President and Chief Operating Officer. Followed by a Q&A session, where Bruce and Jim will be joined by Susan Diamond, Humana's Chief Financial Officer. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our first quarter 2024 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa, and good morning, everyone, and thank you for joining us. I hope you had the opportunity to review our prepared remarks, which we posted this morning along with our earnings release. We'll spend the majority of our time today on Q&A, but I'd first like to highlight a few key messages that we want you to take away from our discussion. First, we had a solid start to 2024 and we're pleased to reaffirm our full year adjusted EPS guidance of approximately $16 while increasing our individual MA membership growth outlook by 50,000 to 150,000 net growth. Early medical cost trend indicators in our individual MA business are largely in line to positive relative to expectations, and we have seen strong year-to-date patient growth in our primary care business with 20% growth in our de novo centers and 7% growth in our more mature wholly owned centers. In addition, we are incredibly proud of our continued organic success expanding our Medicaid platform with recent contract wins in Florida, Texas and Virginia. We are pleased that 2024 is trending in line with expectations. As we look ahead, we acknowledge that the industry is experiencing a dynamic and challenging time we must navigate. And while the current environment will create disruption for the industry in the near term, we continue to believe in the strong core fundamentals and growth outlook of the MA industry and our ability to effectively compete in MA market remains intact. Specific to 2025, we expect benefit levels, planned stability and choice for seniors to be negatively impacted by the final MA rate notice, which is not sufficient to address their current medical cost trend environment and regulatory changes. Considering the significant difference between the final rate notice and our previous funding assumption, combined with the inherent pricing limitations imposed by the TBC change thresholds, we no longer believe $6 to $10 of adjusted EPS growth is the appropriate target range for 2025. Importantly, we believe that the industry will adjust to the current funding regulatory over time, continuing to deliver strong top line growth and normalizing at an appropriate margin of at least 3%. In that context, we remain committed to margin recovery and profitable growth through a multiyear pricing actions, creating value for our shareholders over the long term. Our 2025 adjusted EPS growth outlook will be impacted by several variables to which we will not have clear visibility until later this year, including finalization of our MA bid pricing decisions, the continued evolution of the industry cost trends, and the level of competitor pricing actions in 2025, which will impact our net membership growth. In addition, we continue to evaluate opportunities to drive growth and further productivity across all lines of business to support 2025 adjusted EPS growth. We appreciate your desire for more detail regarding our outlook for 2025, and we will, therefore, provide an update on our bid strategy post bid finalization, with further update in the fall once we have visibility into our competitor plans and expected membership implications. Before turning it to Jim for a few remarks, I'd further emphasize that we continue to believe there is strong bipartisan support for the MA program and that the strong core fundamentals and growth outlook for MA and value-based care remain intact. In addition, Humana's platform, unique focus on MA, and expanding CenterWell capabilities will allow us to compete effectively and deliver compelling shareholder value over the long term. With that, turn it over to Jim. James Rechtin: Thanks, Bruce. I just want to echo your comments that the outlook for Humana specifically and for the MA industry more broadly remains strong. The industry is navigating a challenging time, but it's important to recall that this is not the first time that we've had to navigate challenging times and that we've seen difficult periods in the past. Humana has navigated this period successfully adjusting as needed and continuing to grow. While we anticipate disruption in the near term, the sector fundamentals are sound. This includes favorable demographics, a compelling value proposition relative to traditional Medicare. We believe the industry will continue to grow, and Humana will be well positioned to remain a leader in the market. I also want to reiterate that we are committed to pricing discipline and margin recovery in this bid cycle. We are actively evaluating plan level pricing decisions and the expected impact to membership. We are evaluating opportunities to drive productivity, we are focused on the levers to support adjusted EPS growth in 2025 and beyond. And as we have incremental data on 2025, we will share it. We appreciate everyone's ongoing support and look forward to providing additional updates, our performance and outlook throughout the year. With that, we will open the line for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: [Operator Instructions] Our first question will come from the line of Ann Hynes with Mizuho. Ann Hynes: I just want to focus on cost trends. Did you see any change in cost trends versus 4Q? Also in your prepared remarks, it sounds like the company believes they took a conservative approach to reserving just given the change healthcare situation. Can you suggest that early indicators suggest trends were in line or better. Can you just elaborate on that comment, that would be great. Susan Diamond: Yes. This is Susan. So as we evaluate the first quarter cost trends, as you guys understand, we do have good visibility to inpatient utilization from their more real-time authorization data. On unit cost and non inpatient, we are more dependent on claims. And so typically, in the first quarter, have limited visibility and given the change healthcare disruption even more so this quarter. . But as you might remember from our fourth quarter commentary, one of the things we did experience was an unexpected uptick in inpatient utilization, which we did believe was in some way related to the expected 2-midnight rule changes that went into effect in January. As we said in our fourth quarter, we anticipated that those higher utilization levels would continue into the first quarter and then be further impacted by the changes we had always anticipated in response to the changes to utilization management programs. So as we evaluated the first quarter inpatient utilization, I had provided some commentary a couple of weeks ago at a conference and acknowledged it. For January and February, we did see slightly higher inpatient utilization, where the ultimate impact of some of those program changes was a little bit different than we had expected, but we had commented that the results were improving week to week. We continue to see that, such that, while we were exiting February, we would say that the last week of February results were much more in line and we saw that continue into March and even some slight positive favorability such that for the full first quarter, as we said in our posted commentary, inpatient utilization overall is in line with expectations. So that's positive. We'll have to see how the non-inpatient trends and inpatient unit costs develop as we get more visibility into the claim maturation. The other early indicator is how prior year development matures. In the first quarter, we feel like we have better visibility for incurred claims through the third quarter of 2023. We think that the change healthcare disruption was more impactful to incurred periods of the fourth quarter and more recent. So we felt comfortable relying on what we saw through the third quarter. And as we said in our commentary, we did see positive favorable -- positive prior year development, particularly for the third quarter across both inpatient and non-inpatient. So we view that as positive. As the claims further mature, our hope is that we'll see some further [ progress ] into the fourth quarter. But for purposes, our quarter-end reserving, we did not contemplate that just because we recognized we have limited visibility. As you said, as we did our analysis for the first quarter, we made an explicit adjustment for what claims we believe were missing due to the changed health care disruption. And just based on those results, we would have seen some net positivity in the quarter all in. Because we did recognize that we didn't have full visibility, we did go ahead and book additional claim reserves that ultimately reported our MLRs in line with expectations. So our hope is that we will see that, that proves to have some conservatism. We will see how that continues to develop as all of those claims are received and processed, and we'll keep you guys updated on any intra-year development. But otherwise, hopefully, that's helpful in understanding what's reflected in the first quarter. Operator: Our next question will come from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: I wanted to just maybe focus on the commentary around the 3% plus margin, which seem to be orienting towards kind of the lower end of the 3% to 5% margin than many of your peers are talking about and maybe a little bit lower than what you were talking about before. Is that -- if that's true, then why would that be the case for you guys? And then I guess over the last couple of years, you've been trying to reorient this towards an enterprise margin. I would love to just kind of hear how you think a 3% MA margin translate into what the implied enterprise margin might look like. Susan Diamond: Kevin, yes. So yes, we continue to be oriented to enterprise margin and maximizing that across the health plan and CenterWell capabilities. And so don't intend on a recurring basis to speak specifically to the health plan. But given the magnitude of the impact we're anticipating for 2023 and 2024 and our acknowledgment that the margins currently are sitting closer to breakeven, we felt it was important to reiterate our view of what the long-term margin potential should be minimally for individual MA, not only for Humana, but the sector more broadly. And we do believe that 3% plus is a reasonable margin longer term. Now to the degree the industry ultimately normalizes to something higher than that, we're not trying to suggest we would intentionally suppress it. We would expect to have a margin on par with the industry and competitive, and we think that would be minimally 3%. I would say, as we think about the CenterWell opportunity, as we've said before, there's literal incremental opportunity from just further penetrating our CenterWell capabilities by health plan members, which we continue to focus on. And then in addition to that, we do believe over time, if we can create differentiated experiences for our members who use those services, then we can increase claim satisfaction, and patient satisfaction, increase engagement, which should ultimately lead to better service results, improved loyalty and retention and overall improved total cost of care health outcomes, which can be driving further incremental margin and also reinvest it back in the business to support further growth. So we remain as optimistic as ever about the long-term potential and do just acknowledge in light of the final rate notice our progression back to that minimum 3% health plan margin will take a little bit longer than we had initially expected. Operator: Our next question will come from the line of Gary Taylor with TD Cowen. Gary Taylor: Two quick things I just want to make sure I understand. Back on the first quarter call, we asked about TBC and you felt it wasn't a constraint to margin recovery for '25. And I think what's changed is that might have been true with the 0% funding assumption, but at a negative [ 1 6 ] you're just more underwater, so to speak, from an underwriting perspective. And so now TBC is more relevant to '25. So I just want to confirm that. And then secondly, that $6 to $10 bridge, in our view, the final notice, on paper, wipes out most of that bridge. But at our conference in March, you had suggested you had still expected to see some earnings growth for '25. So I just wanted to see if you could affirm that expectation today? Susan Diamond: Yes. Gary, and you are correct. With where the final rate notice came in, it will require larger benefit reductions to achieve stable margins and approach the TBC thresholds in some cases. And so that's where, as we said all along, we will be evaluating plan and county exits where the TBC limits impede our ability to price products at a reasonable margin. And then also look for opportunities within the bids to optimize benefit changes, to support further margin improvement. Given the competitive bidding process, we're going to avoid sharing any specific details today on what that might look like. But certainly, as Jim suggested, post bid, we'll be able to share a little bit more detail on how we approach the strategy for '25 plan designs. We do recognize that in light of the final rate notice sort of net membership will be more impactful to what we can ultimately deliver for '25 earnings than it might have been in the previous thinking. And so that's where we just feel like we need to have more visibility into competitor reactions to the final rate notice before we can really evaluate that. The final thing I'll say is, technically, as we sit here today, we do not have the TBC threshold for 2025. And so to the degree that moves even a couple of dollars positively or negatively, can impact ultimately what we think we can deliver for margin progression given where we are. So for all of those reasons, we're just going to need some additional time. But as we said, as we know more, we will make sure to update you and provide you with information as we become more confident in the information that we have access to. Operator: Our next question will come from the line of Justin Lake with Wolfe Research. Justin Lake: Hello, can you hear me? Susan Diamond: Yes. Justin Lake: So one, I wanted to follow up on Kevin's question and then I got one of my own. The 3% margin, the 3% plus target, my recollection is when I did the math for 2025, when you originally had the $37, I was getting to about a 3.5% individual MA margin within that $37. Is that the right ballpark that you'd previously assumed just so we can compare or contrast? And then can you confirm that this doesn't include investment income, which I think makes them a little less comparable? And then my question is on 2025. At this point, rates are known and the key -- I know TBC is still got to come. You've got to make some decisions. But the key swing factor appears to be Medicare Advantage membership. Get that there's less visibility here, but maybe you can walk us through. I know I get a lot of questions on the P&L impact from lost membership, right? I'm thinking specifically beyond the loss margin, deleveraging on SG&A, whether you can offset that with efficiencies. And then any kind of downstream impacts from CenterWell. So maybe you could give us a framework to think about like every 1% decline in membership, the negative impact through the P&L ex the loss margin might be ex something. Susan Diamond: Okay. Yes. So I think that was 6 questions in 1, but I will do my best to hit them all. To your first comment about the $37, you are correct. And here in that initial modeling, you can think of it between 3% and 3.5% over that period. And we had always said that our belief was that any margin progression and improvement would largely come from productivity and efficiency, not MLR gains and then any sort of revenue and claim trend vendors would sort of support the product to remain competitive and continue to grow. . But, yes, you were correct in terms of where we would have been thinking in the previous guidance. And you are correct, the 3% plus that we referenced does not include investment income. And so that can sometimes vary in terms of how peers report their margin targets. But for us, that would exclude investment income. In terms of '25, as you said, TBC is going to be a huge factor, just given where we think we are in terms of expected benefit changes and the net membership growth, as you said. The other thing I'll mention before coming back to membership is just trend. Depending on how the trend develops in, well, frankly, how '23 ultimately restates, how '24 develops, that could be impactful to '25 as well. We are not pricing for any favorability to emerge in 2024. And so to the degree it does, that would be incrementally positive going into next year as well. When you think about the membership, I would say the absolute membership is certainly important. And in light of the final rate notice and the expected changes that we expect, we think our ultimate result will be more sensitive to the net membership than it might otherwise have been. And then in addition to that, I would say, plan mix underneath. There are varying margin profiles across a deal versus non, certain geographies and other factors. And so that mix ultimately will be important and how our plans are ultimately positioned relative to others. I would say right now, as we've said all along, we are anticipating that membership declined for 2025, largely because we do intend to exit certain plans in counties whether that is incrementally larger or smaller based on the other plans will be very dependent on what we see across the competitive landscape. And as we know more, we'll certainly keep you apprised of our thinking. Depending on the level of membership change, we certainly will be mindful of driving the appropriate admin cost adjustments in light of that. We are currently, as I said, planning for membership losses, so we would be proactively anticipating that. The variable is certainly much easier to address than normal course. We would just have to be very mindful of the targets we set across some of the nonvariable items, but certainly are anticipating that and we'll have strategies in place, should you see differences in the membership that we're currently thinking. And then finally, I would say, generally speaking, the largest CenterWell business that's impacted by any net members to change is the pharmacy just given the penetration within the Humana pharmacy. That also is fairly sensitive to mix, less sensitive to dual changes who use mail order at a lower rate and be more highly sensitive to consumers who were shopping on value in terms of those co-pays. So that's something we'll continue to monitor. But I would say mostly, we would be looking at the impact of pharmacy. But impact will be much smaller across primary care and home and primary care, in particular, because they continue to have work on contracts with other providers such that even if we see a member just on a health plan side, hopefully, they're positioned to retain them on the clinic side through their other payer contracts. Operator: Our next question will come from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: Just to clarify the TBC commentary, our understanding is there are a lot of benefits that are not governed by TBC like flex cards. And it seems like you're suggesting that you're not comfortable making up the incremental rate headwind by cutting benefits that are outside of TBC. I was hoping you could elaborate a little bit on this dynamic and how you're thinking about the sensitivity of benefits that are outside of TBC thresholds. Susan Diamond: Yes. Sure, Stephen. So I would say on the non-D-SNP side, as we talk about the [ benefits ], most of the benefits are [ submitted ] to TBC. So even things that are technically supplemental things like dental, Part B givebacks and for those are for purposes of TBC accounting tools. There are some items that fall outside of TBC, some things like transportation, OTC, fitness and a few other things, but are relatively small versus those things [ due to product ] TBC. We will be considering changes across both categories. Certainly, and in some cases, we will be going above TBC. In other cases, not. And that will be -- as we evaluate just the current financial performance of the plan. Even post some of these impacts and whether we believe it's situated in a way that can drive profitable growth in a sustainable way. For those plans, as we said, that are not, we will go to the maximum that we can in order to ensure that the products are properly positioned. On the D-SNP side, technically, they don't apply TBC to the D-SNPs and most of those benefits are going to be the supplements, right? You've got the healthy options card because it covers food, OTC, transportation. So technically, there is no limitation on that side. And so that is more thinking through how are those plans financially performing, what's the opportunity for further growth in those markets. Those are all things we will be considering. We do expect benefit changes on the D-SNP side. And the dual plans will see more impact from the IRA as well. So those are all things we'll consider, but technically don't have the same literal TBC limitation. Operator: Our next question will come from the line of Ben Hendrix with RBC Capital Markets. Benjamin Hendrix: I was wondering if you could provide a little bit more information on a previous utilization question. You mentioned earlier some measures you took to address the higher mix of short-stay inpatient volume versus observation stays. You saw earlier in the year, and I believe you've noted some training and other measures to bring those inpatient avoidance rates back in line. But just curious to what degree those measures impacted your APT performance for the quarter. And if there could be, that could be a source of some outperformance through the balance of the year versus your 90% [ MER ] guidance. Susan Diamond: Yes, Ben. So you are correct. So as we said on our fourth quarter call, we were anticipating in light of the 2-midnight rule changes that we would see an increase in short stays and things that under the old rules were built as an observation, they would now flip to an inpatient's stay. And we saw that in the fourth quarter start to emerge and did continue to see that in the [ first ] quarter incrementally. . As we said at the Cowen Conference, initially, we did see the avoidance rates fall short, a bit short of what we had expected. But as we said, as the providers and our staff were sort of trained and became accustomed to the new rules, we did see those rates improve week over week, such that by the time we exited February, they were much more in line with what we expected. So as I said earlier, we did see some unfavourability in APT's January to lesser degree in February, but then March, as we saw those rates come in line, we're actually slightly positive such that for the full first quarter, largely in line on a utilization basis. One thing we want to continue to evaluate is what the resulting unit cost is on those higher incremental APTs. In theory, they should be lower. That could provide a tailwind for the year. But as we said before, we're relying on the claims coming in and being paid to fully assess that. So we did not take that into our first quarter results and something that we'll continue to evaluate over the second quarter. But I do think potentially could be a tailwind relative to our expectations. The only thing I'll say is that, if you think about the 90%, if you remember earlier this year, we did acknowledge that the changes to the physician payments that were implemented in February did present a headwind to our internal plan. And that was worth about $150 million for the year. We did not change our MLR guidance this morning. And so you can assume that, here now we're assuming that we will cover the impact of that physician fee schedule change. And so some of this positivity would certainly help do that. But if for some reason, we didn't see that emerge, obviously, with the admin cost favorability that we delivered in the first quarter, we certainly have confidence that in any event, we'd be able to cover it through admin savings. But as we said in the commentary, cautiously optimistic about what we're seeing on the individual MA side. We'll just need to be able to further evaluate paid claims from both the unit cost perspective and the non-inpatient trends. Operator: Our next question will come from the line of A.J. Rice with UBS. Albert Rice: Can you hear me? Susan Diamond: Yes, A.J. Albert Rice: Sorry, just went dark there for a second, so I wasn't 100% sure. Just two things real quick, you had talked about, I think, with the fourth quarter and even some of the year-end commentary that the road to recovery on the margin was about, you thought the market could absorb 100 to 150 basis points of annual improvement over the next few years. Calling beyond that might be disruptive from a competitive standpoint or for seniors and you thought you could get that. I guess I'm trying to understand, is that -- is this sense about your ability to realize that from year-to-year over the next few years changed? Are you just saying that the '25 starting point might be lower, but you still kind of get that kind of gradual recovery to margin over time? Any perspective on that? And you haven't been asked, but in the press release, you said something about operating expenses having some timing impact in this quarter that might have been favorable. Can you comment on that and how that affects the rest of the year outlook? Susan Diamond: Yes, A.J., certainly. So in terms of our thinking on the trajectory to the 3% longer-term expectation, we would say that we do acknowledge this is going to be a multiyear process to recover margins. And the exact timing of that will be dependent on the funding environment, regulatory environment and then certainly the competitive environment. . I would say relative to what we would have thought and prior to the final rate notice coming out, we would have anticipated, as our previous guidance suggested that we would have more margin recovery in '25 then we think is reasonable currently in light of the TBC threshold combined with the final rate notice. Also keep in mind for '25, we're dealing with not only 1/3 phase-in for V28, but also significant Part D changes from the IRA and then the higher-than-anticipated medical cost trend that largely developed post the filing of the '24 bids. So that is going to limit to some degree the amount of margin recovery we can get in '25. When we think about '26, while we still have one more -- the final 1/3 of the V28 phase-in, we won't arguably have the Part D changes, we won't have the trend impact. So those headwinds will lessen, which then should give us more room to take additional pricing action for the purposes of margin recovery. And then certainly, post '26 once V28 is fully phased in and assuming a reasonable rate environment, then we should have further incremental opportunity, which is why we've suggested that it's likely going to take a bit longer than the 2 years we had hoped previously. The other thing I would just remind you is that to the degree the trend develops different than what CMS assumed in their '25 rate notice, which if you remember, anticipated the trends would actually moderate from the current levels. Then that ultimately should make it into the CMS rates as well and could potentially provide a slight tailwind as you think about the go-forward rate environment. So a lot for us to continue to monitor and assess, but do believe that '26 and beyond provide incremental opportunity for margin recovery relative to '25 for all the reasons I just mentioned. And then on OpEx, as you said, we did see meaningful favorability for the quarter. As we evaluate that favorability, some of it, we believe, will continue and largely for the year. A portion of that, we would say, is onetime in nature where it's good news, but it's not going to repeat. And then there is a portion that is more timing where just it developed different than we had assumed in the budget. And so things like marketing are often an example of that where it may come in differently, the pacing of hiring may be different. And so there's a variety of things that we would say are more timing in nature that won't, in fact, not only will not recur, but they'll actually reverse out in the balance of the year. But all in, still positive, we expect favorability for the year. For OpEx, it just wouldn't be appropriate to fully run rate the first quarter. Operator: Our next question will come from the line of Scott Fidel with Stephens. Scott Fidel: Can you hear me? Lisa Stoner: Yes, Scott. Scott Fidel: I was interested if you can maybe talk about how you would think about the value prop for seniors, potentially comparing between MA and traditional Medicare in 2025. Obviously, we're all very focused on the headwinds to the MA value prop as it relates to the challenging reimbursement outlook. But it also feels like seniors in traditional Medicare are going to be facing some meaningful headwinds as well when we think about the IRA impacts on Part D. And then also just in terms of, curious what you've been seeing on utilization in the [MedSup booking] whether that may be leading to higher rate increases in Medicare Supplement. And also just thinking about the fact that CMS talked about not seeing utilization rising in Medicare fee-for-service, which clearly seems to contrast with everything we've seen out in the marketplace. But ultimately, I'm just trying to think about, is there a potential that MA enrollment growth relative to traditional Medicare may not necessarily moderate as much as feared because of some of these headwinds, introductional Medicare or are the headwinds in MA just so significant that it is likely that we'll see that moderation? Bruce Broussard: Scott, thanks. I'm sure Susan is saying thank you, too, to give her the break of all the questions that have been asked relative to the financial side. Relative to the value proposition for Medicare Advantage to MA, we continue to believe we will have a significant value proposition. And really for a number of reasons. First, just the economics itself, I mean, today, we see about $2,400 a year. You see that stepping back a little bit for 2025 as a result of the benefit changes, but not material to make it something that we feel shopping to the Medicare fee-for-service side will increase. . The second thing is that all the benefits that they receive as a result of care coordination, things like transportation, other things like dental that they wouldn't get in a Medicare fee-for-service product. And so we just see not only the dollar value from an actuarial point of view, but also the inherent additional benefits that they receive as a result of being a Medicare Advantage beneficiary. So we see that continuing to be the case. We've done a significant amount of analysis around where the value proposition is today, where it was 3, 4 years ago. And what we see is that the value proposition still will be greater than it was 3 or 4 years ago, a little lesser than today, but we feel confident that we'll see the growth there. With that, do you want to -- Susan, do you want to take the Medicare supplement question? Susan Diamond: Yes. On MedSup, interestingly enough, the change health care disruption was particularly disruptive to our MedSup business. And so I don't know if that's a function of just CMS not working with providers for redirection versus the MA plans, I'm not sure, but we did see a disproportionate impact to MedSup. And so I would say that our current visibility is a little bit less than it would typically be. . Otherwise, I would say the IRA impacts for 2025 will impact Part D, as you said. And we will see varying degrees of impact across the plan -- the stand-alone Part D plans, just recognizing the underlying mix is different for each of those plans. And so to your point, those who are in MedSup are also having to purchase a stand-alone Part D plan. And so that's certainly should give them a different perspective in terms of as they evaluate the value proposition of MA, and we'll act as a bit of a mitigant in terms of what we see the impact to the MA plan offerings themselves. Bruce Broussard: And Scott, I think your other question was just relative to the growth of Medicare Advantage and just how that looks. And we continue to see and believe over the coming years that it will be a mid-single-digit growth, and that will be a combination of demographic growth, maybe slowing a little bit in the latter years of this decade, but we continue to see that along with the penetration of more beneficiaries using Medicare Advantage. Kaiser put out an estimate over the next few years that there will be about a 60% penetration with MA and we continue to believe that's very achievable going forward. So we feel the value proposition is going to continue to be strong as a result of not only the actuarial value, but also the additional benefits. We continue to believe that that's going to drive more penetration of Medicare Advantage for Medicare beneficiaries overall. And so we look at continuing to maintain mid- to single-digit growth. Operator: Our next question will come from the line of Joshua Raskin with Nephron Research. Joshua Raskin: Just getting back to the 3%, I guess, how did you come to this long-term industry margin of 3% plus? What does that mean for Humana relative to the industry? And what do you think that translates into in some form of like return on invested capital? And then just a follow-up on the exits. I'm just curious what percentage of your membership is in areas that are even being considered for market exits. I'm not looking for a specific estimate of how many members you'll lose, but just a sense of how many markets are even in that bucket of consideration? Susan Diamond: Josh, so as we think about the 3%, and as Justin had asked earlier, that even historically had been -- how the business has been performing and expectation that we would be able to continue to maintain that level of performance and believe that the industry will minimally require that level of margin, just recognizing the inherent sort of risk in the insurance business the regulatory capital that has to be established. But that just feels like an appropriate margin on a sustainable basis and certainly reasonable and still be able to provide a very strong value proposition to consumers. . Also, as you look at the long-term targets that most of the national peers have talked to, it is in the 3% to 5% range. And as we said earlier, there are some differences in what's included in those numbers across the peer set. But certainly, everything that we have seen and believe and others, I think, have reiterated is, I believe that the long-term margin is down. We just have some environment to navigate in the near midterm to get back to that and have all of the health plans reflect not only the funding environment, but then the more -- the higher more recent trends that we've experienced. In terms -- and then I would say, in terms of return on invested capital, because that, again, is similar to what we've historically or more recently performed, I would say no material things that how we would think about the expected returns for the business. In terms of market exits, again, just given the sensitivity on -- we haven't commented specifically on either number of plans, as you said or percentage of eligible covered and we'd feel more comfortable sharing more information on that post bid filing. And certainly, we're happy to do that as we have in the past and we have executed larger-scale plan exits. Just don't feel comfortable doing that in advance of the bids being submitted for competitive reasons. Bruce Broussard: And just on the return on capital, Josh, as you look at the math, we put about 10% statutory capital in the business, and this is a 3% margin kind of activity, which creates a significant amount of incremental return on capital for us. And since all this is organic growth and not any kind of acquisition growth. I mean it's highly accretive to the overall cost of capital to the company. Operator: Our next question will come from the line of Nathan Rich with Goldman Sachs. Nathan Rich: I have a few follow-ups. I guess, first on utilization, there's some thought that some of the March trend could be related to calendar dynamics around Easter versus more sustained change in the trend. I guess, could you maybe just give us your view here? And then also be curious if you're seeing any changes in the level of acuity of patients that are showing up for care. And then Susan, could you maybe talk about what's driving the EPS seasonality this year? I think you've guided for over 80% of earnings in the first half of the year. Is it mainly the result of that expense timing that you mentioned in response to A.J.'s question? Or is there any other dynamic that we should consider? Susan Diamond: Yes, Nathan, in terms of the first quarter and utilization seasonality, I would say, common, this is leap year. So all of things being equal, you would have had a higher trend in February because of leap year. But then there was other workday seasonality over the quarter such that we would say, in total, there's really not a seasonality impact and relatively consistent with the prior year. And those are all things we would have anticipated in our initial plan and then the guidance we gave for the first quarter. . In terms of acuity, I would say aside from just again, the impact of the utilization management changes, where we always anticipated that effectively lower severity short-stay events would end up moving into the inpatient cost category versus the previous observation, which we reported ER. So that, we certainly are seeing, as I said, we need some additional time to see how the unit cost ultimately develops. Some of the early indicators do suggest those are on average lower unit cost, which makes sense, but we need, again, because of the change disruption, just some more time to fully evaluate that. But aside from that, I would say, again, limited visibility because of some of the disruption to the more recent periods in terms of claims submissions. But with what we do have, I'd say nothing that has caused us any concern from an acuity standpoint. In terms of EPS seasonality, I would say the biggest driver of the differences you see every year and the disproportionate first half proportion is going to be just, in general, the lower proportionate contribution of the MA insurance business to the total than prior years. And so you're going to have PPD, which is disproportionately first half of the year, obviously impacting the first quarter, investment income and all those other things that are developing as they would in normal course, are just going to result in more earnings in the first half of the year just because MA proportionally is much lower, obviously, given the overall EPS and earnings expectation for the year. Admin certainly has some seasonality to it, but I would say nothing unusual as we think about the year. The only thing that we did see because of the lower enrollment this year, you do see some positive impact in commissions. That is partly what we're seeing in the first quarter. And so that, based on the level of growth we would expect could develop a little bit differently. Again, those are things we will plan for. But aside from that, I see nothing in particular to call out in terms of admin seasonality relative to typical. Operator: Our next question will come from the line of Andrew Mok with Barclays. Andrew Mok: You revised your individual MA membership growth target up 50,000 versus your initial expectations of growth for 100,000. Hoping you could elaborate on the drivers of that. Was that just conservatism on your end? Or did you see any unexpected changes in the distribution channel during the open enrollment period that resulted in higher membership. Bruce Broussard: I would say the main difference is just how we performed in OEP. And I think that's a combination of a few things. I think it's some of our competitors having challenges in servicing their growth has been a benefit to us, and we've seen some recovery from that. And the second thing is the actual performance that we've had in the nonduals area and the ability for us to continue to grow in markets that we have -- that are both competitive. The third thing I would say is that what we've seen even in times that we are less competitive in the marketplace that our brand stands out and the stability of our brand, both from our service point of view and from our quality point of view, overcomes a lot of the benefit differences that we have in the marketplace. And I think in the OEP side, we saw that. Susan Diamond: Yes. And just to add to what Bruce said, the increase was largely attributable to non-D-SNP sales, retention in total was largely in line. We saw in the OEP higher volume than we had expected, both in agents and switchers from other MA. And so as we think about the rest of the year, some of that agent favorability drove the increase. The switcher is obviously less so once the OEP ends. . And then as we've said, the progression from current to the year-end is also impacted by the redeterminations that will continue throughout the rest of the year. There's a little bit of less visibility into that because of the changed healthcare issue where we rely on them for dual eligible status verification. So we'll continue to see how that develops. But that's why you can see the full OEP, not fully run rating through the end of your estimate. Operator: Our next question will come from the line of Lance Wilkes with Bernstein. Lance Wilkes: Could you talk a little bit with the CEO transition as to Jim, what your impressions of the opportunities are? Are there any value creation opportunities that maybe are more structural or larger in scale, like outsourcing PBM or things like that? And have you guys made any sorts of operational changes in leadership or structure, again, contemplating both the market dynamics and the CEO transition? James Rechtin: Thanks for the question. This is Jim. No, there are not any changes to the team. So let me hit that one real quick. Second, are there opportunities? We're still in the process of evaluating opportunities. We certainly believe that there will be a continued need to drive efficiency. That's both on the operating side as well as continuing to get stronger in how we do medical cost management over time. We're still evaluating those opportunities. And the expectation is that by the end of the year, we would have more to say about where exactly the opportunities are and how we intend to go after them over time. Operator: Our next question will come from the line of Lisa Gill with JPMorgan. Lisa Gill: Susan, I want to go back to your comments around the PDP and the IRA for 2025. Can you talk about what you've seen for conversion over to MA in '24? And then how are you thinking about stand-alone PDP in 2025? Will that become unprofitable on a stand-alone basis? And then just secondly, I just want to understand, when you talk about the update for the bid strategy, will it be a separate press release? Or are we waiting for Q2 to get that update? Susan Diamond: Yes. So in terms of the IRA impacts and our thinking on stand-alone Part D, your first question around PDP conversions, I would say we continue to see a disproportionate opportunity to capture movement from Humana PDP members to Humana MA. For those members that choose to convert to MA, and we have visibility, right, in terms of any MA offering they choose. We tend to get a higher market share of those individuals that are making that decision than we do in just the overall individual MA space. So that continues to be very positive. The absolute volume is somewhat lower just because of the overall lower membership growth that we're seeing this year, but that sort of advantage continues to hold as we've seen in the past. As we think about our stand-alone Part D strategy for '25, I would say we're very oriented to risk mitigation, just given the magnitude of the changes and the sensitivity that you will have in terms of the profitability of underlying membership based on sort of the level of utilization and specialty utilizers in particular. Given how our plans are positioned today and the limitation of only having 3 plans, which we have in market today, our goal will be to minimize sort of any risk inherent in our offerings and take probably a more cautious approach to see how the industry ultimately responds to the IRA changes, how the business, the health plan performs in light of those changes and then reassess frankly, for 2026. As we suggested, it is -- we will see some larger premium increases for sure on some Part D plans, while others may have less so depending on their mix. And so that could drive some opportunity, as we said, for MA, and that's something we'll continue to evaluate. So that's how we're thinking about 2025, just given the level of changes and I'd say a lot for the industry to learn as we navigate through it. And I can't remember if there was one final question at the end that I didn't address. Did I cover everything? Lisa Gill: Just, will it be a separate press release around your bid strategy? Or is that something that you'll update on Q2? Susan Diamond: Yes. I would imagine we will likely do that on the second quarter call. I don't know if we're scheduled at any conferences in between. My guess is, no. But my guess is it would be the second quarter call. Bruce Broussard: Well, thank you for your time and interest today. In closing, I would reiterate that Humana had a solid start to 2024. And while we acknowledge that the entire MA industry is navigating a difficult near-term environment, we continue to believe the strong fundamentals and growth outlook of MA and value-based care remain intact and the strength and scale of our platform and differentiated capabilities will allow us to effectively manage through the uncertainty, compete effectively and deliver compelling shareholder returns over the long term. We appreciate your continued support and look forward to providing updates on our performance and outlook throughout the year. Have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to Humana's Fourth Quarter 2023 Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your host today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you and good morning. I hope everyone had a chance to review our press release and prepared remarks this morning, both of which are available on our website. We will begin today with brief remarks from Bruce Broussard, Humana's President and Chief Executive Officer; and Jim Rechtin, Humana's President and Chief Operating Officer. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our fourth quarter 2023 earnings press release as they relate to forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's financial press release. Any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. Finally, this call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa and good morning everyone and thank you for joining us. We are going to dedicate the majority of our time today to Q&A, but I wanted to first highlight a few key messages that we hope you'll take away from our discussion today. As shared in our prepared remarks which we posted this morning along with our earnings release, I'd like to start by stating the obvious. We are disappointed in the update provided today. The Medicare Advantage sector is navigating a complex and dynamic period of change as we are all working through significant regulatory changes, while also absorbing unprecedented increases in medical cost trends. The increase in utilization that emerged late in the fourth quarter was a significant deviation from an already elevated level impacting the industry. We take our commitments seriously and are disappointed with where we are, unable to fully offset these higher cost trends despite our best efforts to identify mitigation opportunities throughout the year. While the near-term impacts of the higher utilization are disappointing, our confidence in the long-term attractiveness of this sector and our position within has not changed. We provided you with our initial outlook for 2024 of approximately $16 in adjusted EPS. Given the recency and magnitude of the uptick in the utilization trend, we have prudently assumed that the higher costs seen in the fourth quarter persists throughout 2024. As based on our review of our initial claims data, we believe that the seasonal factors are not driving the increase. We are committed to updating you on our progress in understanding and addressing this change throughout the year. Importantly, the MA program was designed to be dynamic and respond to changes in medical trends. Looking to 2025, we are evaluating MA pricing actions and expect earnings growth in other lines of business, as well as our ongoing productivity and trend mitigation initiatives to quickly restore our margins and resume a path of compelling earnings growth. Our current expectation is to deliver $6 to $10 of adjusted EPS growth in 2025. Notably, any outperformance we achieve in 2024 will be additive to this initial outlook. Before turning to Q&A, I'd like to provide Jim Rechtin, our president and COO, an opportunity to provide a few comments on our update this morning. Jim? James Rechtin: Thanks Bruce. I am stepping into this role here at Humana at a time that is clearly challenging both for Humana and for the industry. Despite those challenges, it's been a very positive first few weeks. I've had the opportunity to work with a team that's quite focused, that has clarity of thought and objectives and no shortage of effort trying to address these challenges. Despite the pressures we're facing right now, I remain as optimistic about this opportunity today as I was three months ago when I agreed to step into this role. It's early in my tenure, but I do want to share just a few thoughts with the investment community. I have been impressed by the leadership demonstrated by this team. There's a clear sense of urgency in responding to the utilization trends impacting the industry. The entire management team has been working tirelessly to understand the underlying issues that we've discussed today, and I'm confident in the approach that the team has taken with respect to assumptions around the utilization pressures we are facing. I also share the conviction of the rest of the management team regarding the need to prioritize margin recovery in 2025 and the significant multiyear opportunity that is in front of us. We operate in one of the fastest growing sectors in healthcare. Humana is uniquely positioned to bring significant value to our members, and I'm confident in our ability to drive long-term value for the healthcare system and for our shareholders. I look forward to meeting many of the participants on this call over the coming months, as well as many of our talented employees and associates across the organization. Thanks. Lisa Stoner: Thank you, Jim. We will now turn to our question-and-answer session where Bruce will be joined by Susan Diamond, our Chief Financial Officer. In fairness to those waiting in the queue, we do ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Our first question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: All right, great, thanks. I guess I wanted to understand the thought process around the 2025 EPS improvement. It sounds like from Jim's comments that you're going to be prioritizing margin that year. Do you think that this is an industry problem and therefore the industry will be prioritizing margin similarly, so that you will actually be growing in 2025 or is this a view that you're going to be growing below average in 2025 to get to that? And because you're talking about feeling confident about the business, should we be thinking about similar growth in 2026 and 2027 until you get to that $37 EPS number, maybe on a two-year lag? Is that the right way of thinking about it or is there a reason to believe that that margin target you had for $37 is no longer the right margin target in the medium term? Thanks. Bruce Broussard: Kevin, why don't I take the industry side and then I'll turn to Susan on the margin question you had. I looked at next year as a year that I think the whole industry will possibly reprice. I don't know how the industry can take this kind of increase in utilization along with regulatory changes that will continue to persist in 2025 and 2026. And therefore, I look to the industry to have disciplined pricing as a result of this. Obviously, for us as an organization, over the last few years, we have tried to maintain that discipline. You can see that in just our rankings and pricing. We've usually been in the third to fourth ranking, and so we've tried to maintain that. But I do believe the industry will need to price appropriately. Susan Diamond: Yes, and Kevin, as we thought about the commitment for 2025, certainly there are inherent dependencies within that. One is the rate notice, which we obviously don't have visibility to and so that will be one significant input, which is why we felt the need to give a wider range at this stage. The other big dependency is going to be, just as you said, the level of competitor action and need to take pricing as well. And so that we will continue to watch peer commentary in terms of their results and signals that they send, but that is something that we will have to consider based on the pricing action we ultimately take of what impact might that have to near-term membership growth. As we've said a couple of times over the course of the year, we do intend to be very targeted in some of our pricing action. There are some plans and geographies that are seeing more underperformance than others and so you may see disproportionate impact in those areas to both the recovery, but then also the membership, which we feel are no regret moves to make sure that the financial performance is as we would expect. So 2025 may be a repositioning year, where we may see lower than industry average growth depending on the level of competitor pricing actions, but we would feel that we would be repositioning for sustainable growth on a go forward basis in terms of membership at a more sustainable margin over the long-term. As it reflects 2026 and 2027, obviously we can't comment on that at this point. We wanted to be clear, given the significance of the impact of 2024, what you can expect for 2025. We've committed to coming out later this year once you have the benefit of going through all of our pricing work and providing you with an update on that, as well as certainly we'll keep you informed of the emerging trends, but we'll certainly need to navigate through that. And as we learn more over the course of the year, we'll certainly begin thinking about the longer term and we'll keep you informed for sure. Operator: Our next question comes from the line of Justin Lake with Wolfe Research. Justin Lake: Thanks. Good morning. So, to Kevin's point and kind of your answer, it's clear whatever you do from a membership perspective is going to be kind of dependent on what your peers do. I'm more interested in trying to understand, I mean, by my estimation, give or take, you're probably slightly better than breakeven. They call it 0% to 1% margins in Medicare Advantage is implied in your guidance for 2024. Correct me if I'm wrong, but from there it looks like that $6 to $10 would be an additional 1%, maybe 1.5%, which then comes down to cutting benefits about $10 to $15. Again, correct me if my math is wrong here. I guess the question is, how do we arrive at that number? I look back over the last six or seven years when things were good and senior soar benefits increased by $20 a year, it looks like. And then when we see what feels like 100-year storm, why is $13 to $15 the most we can put through? Why not try to get back to a target margin or closer to a target margin and assume your -- if it's not company specific, assume that the industry is going to follow, and if they don't, so be it? Susan Diamond: Hey Justin, yes and those are all fair questions. And I would say directionally numbers, mathematically you're right. So 2024, what you're estimating for the margin is, is certainly directionally correct. As for the $6 to $10, one thing that's important to keep in mind, that is what we're committing to in terms of earnings and EPS improvement next year. That would be on top of whatever rating action might need to be taken for the rate book itself. And right now we are assuming that the 2025 rate notice will look similar to 2024 in that it will be negative given we have another one third of the v28 model implementation. So our assumption in all of this is that we will have some further pricing action to take to address just the 2025 rates and the fact that they will be insufficient to cover normal course trend, so that would be additive. To the degree the rate notice is different and positive, then that could change our ability to extract more. But as we said, we need the benefit of the rate notice to fully assess that and are making what we think are reasonable assumptions at this stage. The other thing to keep in mind is with a third of our book risk provider supported, while we will certainly take benefit actions across that book as well, it leads to minimal impact to our earnings. And so the $6 to $10 you can think of is really having to be realized over roughly two thirds of the book. So it does translate into a higher benefit reduction than your math would suggest. And then I do think it's important to just remind everyone about our commentary this morning that to the degree 2024 does in fact get better, we would expect that to be additive to that $6 to $10 going into next year, because we do intend to price assuming this trend persists. And so if we see positive development over the course of the year, that would be additive and you would see further appreciation. And just given again, as Bruce said, the recency of these trends, we just are going to need some more time to fully assess that and the likelihood that they will persist for that period of time. But our intention is to be very diligent about restoring margin, and this is our best estimate at this time based on what we know with what we think are reasonable assumptions. Bruce Broussard: And just on that, Justin, what we are trying to do is be thoughtful around the profitability of the company, and we are committed to getting to restoring our margin, I want to say that. How? If we do, we do that in one year or do we do that in multiple years, is something that we're really addressing. As we've looked at the price elasticity of our members, we're really also trying to figure out where does it just fall off the cliff as opposed to losing some members or not growing as much. So we are committed to pushing, ensuring that we are going to move the margin, and at the same time, we just don't want to fall off the cliff and lose hundreds of thousands of members as a result of that. So it is just a question of timing as opposed to a question of trajectory. Justin Lake: Thanks. Operator: Our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: Yes, hi. Thank you. So, just another quick one on the magnitude of improvement in 2025 and I think when we looked at what your earnings trajectory was, maybe stepping back a couple of months ago, we would have already thought that you were going to improve earnings around $6 in 2025. So it's a little hard to feel like the incremental actions you're taking related to pricing, honestly are really all that material. So we'd love to just get a little bit more color on that? And then just also, your approach to operating expenses in 2024 and 2025, it does look like you have SG&A up $700 million in 2024. I guess I thought there might have been maybe more actions you could take to try to protect earnings in the short-term as you work to reprice. I'd love to just understand that a little better. Thank you. Susan Diamond: Hi Steve, sure. So I'll take the operating question. I might need you to clarify your first question on pricing, but on the operating expense, yes. As you saw, and as we've been describing all year, as we saw the initially higher outpatient trends starting in the second quarter, we were able to successfully mitigate that pressure that we stepped up to through the third quarter through multiple levers, including administrative cost reductions. And you saw that in the operating cost ratio we reported for 2023, which was certainly favorable relative to the commitment we've made for 20 basis points of annual improvement. We certainly continue to work very hard to identify additional opportunities, and our 2024 guide reflects about 30 basis points improvement versus the 20 commitment. So demonstrating, again, continuing to use that as a way to mitigate some of these trends. We do think there is additional opportunity, particularly leveraging technology, AI, and some other tools. But we recognize they probably have longer timelines to get the full value realization, and so we will continue to build the pipeline. And you should expect us, I think, to see better than the 20 basis point commitment over the next number of years and we'll certainly work hard over the course of the year to see what potential we have through 2024 and 2025. On the pricing question, would you mind restating that just to make sure I understand what you're comparing to? Stephen Baxter: Yes, like I would have thought you would have two or three months ago been going from $31 of earnings to $37 of earnings, so already kind of delivering $6 of incremental earnings. So comparing that trajectory to the trajectory now, you're talking about kind of an incremental 0 to 4. That perspective is kind of what I'm trying to get at is why couldn't you do more quickly to kind of accelerate the trajectory? Susan Diamond: Yes, so I think obviously what we're dealing with is this higher trend, which is significant. And so when you think about over the course of 2023 since the time of pricing, it's about $3 billion of additional trend that's emerged that we're having to absorb in 2024. And again, our assumption right now is that will continue and will have to be absorbed in our 2025 pricing. And so that is where we will certainly take as much pricing action as we can. We will have to see the right environment, but there is a limit to what you can do in one year. And with that level of trend, which was never contemplated in the $31, there's only so much margin expansion you can get once you actually cover the trend. Now, over the long-term, as Bruce alluded to, there are inherent mechanisms where it will work its way into the rates. It takes a little bit longer for the benchmarks to reflect the higher rates. So that is certainly something we'll see in the future. And to the degree any of this is attributable to higher acuity or condition development, et cetera, we should see that in risk adjustment over time as well. Those are all things that will take more time to assess and we'll certainly consider. But for right now, with our assumptions for 2025 and the timeline, we'll have to cover the trend and then again do as much as we can on the margin expansion as we committed to today. Operator: Our next question comes from the line of Ann Hynes with Mizuho. Ann Hynes: Yep. Good morning. Just thinking about the competitive environment, obviously it appears very challenging and Humana seems to focus on profitability versus growth. But in the scenario that I think you mentioned in your prepared remarks Bruce that you hope that your peers would also price for 2025 given the challenging utilization environment. But if they don't and the environment stays like this, how do you view growth versus margin over the long-term? And would you mean to prioritize profit and be willing to grow below market or do you think you can eventually grow within the market again if the competitive environment doesn't change? Bruce Broussard: Yes, well, I think it's a big assumption that competitive environment doesn't change and I'll answer your question specifically. But I do want to just reemphasize that what we have seen over the years, and we saw it in 2022, we saw it this year, that there is one, or usually one, maybe two that gets really aggressive and then they fall away the following year. And we've that over a long period of time. And as you look at our growth over an extended period of time, you will see these volatilities year-to-year. But that's really not a result of our pricing. It's more a result of the industry pricing. We usually have been fairly considerate in our pricing in the industry and have not been as aggressive as competitors and there will be one or another one that comes there. We don't think that is sustainable. We just don't. We see the business as being much tougher as a result of regulatory environment. We see that things like what we saw this year relative to utilization, getting back to above COVID levels, we just see it not being as easy to price to membership growth. I will say that from our vantage point is that as similar to what we did in Part D, is that we'll continue to focus on what is the sustainable, profitable and the appropriate profitability within the industry and we will price towards that. And use our brand and our relationships with our value based providers, our quality scores and other mechanisms to compete. But we do not feel that pricing is how you compete. You price to be economically solid and you price to provide value to your customer, but at the end of the day, we don't look at that as a competitive advantage. We look at our capabilities as a competitive advantage and we'll continue to focus on the capability and the differentiation in our capabilities. Ann Hynes: Thanks. Bruce Broussard: Welcome. Operator: Our next question comes from the line of AJ Rice with UBS. AJ Rice: Hi everyone. Just trying to get at two things here. Your comment about inpatient utilization, I think up to this point in the commentary you attributed a lot of the higher inpatient utilization you were seeing to that cohort, the growth cohort of 2023. It sounds like maybe that's broadened on what are you just seeing late in the fourth quarter? What are you seeing seasonally that makes you think that continues? And by the way, did you keep a lot of those 2023 cohorts, or is that where we're seeing some of the growth, at least in one of the competitors, that those people transitioned away from you? And if I could just ask, in a normal environment where an MA carrier has priced below trends, the natural result has tended to be that you get very strong enrollment. We're not seeing it this time, and I wonder conceptually how you put that in context, the fact that you're saying you're underpriced for the 2024 trend you're dealing with, whereas that usually results in big enrollment growth, your enrollment expectations for 2024 are quite modest. How do we put that in perspective? Susan Diamond: Hey AJ, sure, I can answer that. So on the first related inpatient, you are correct. When we cited some of the inpatient pressure that we were seeing earlier in the year, we attributed that to the fact that we had a lot of new enrollment growth and have limited information from which to predict the level of medical cost utilization. So risk scores is one example. And we were seeing that relative to our expectations, the medical costs were slightly higher than we would have expected based on what the [indiscernible] indicated. So you are correct about that. I would say what we saw in the fourth quarter is completely unrelated and different than that, and very much more widespread, and particularly for the months of November and December. And what we've seen so far is an increase in short stay inpatient authorizations in particular. They are being upheld through our utilization management processes at a higher rate than you would typically expect as well. And given that the positive seasonality you would typically see in the months of November and December, it was that much more surprising. The absolute level of authorizations was up relative to what you would have expected for all those dynamics. Coincidentally, and while the data is still very early, as you know, on non-inpatient we're reliant on the paid claims to get some visibility. We are seeing indications that starting in November, we are also seeing a decline in observation stays. So that's something we will continue to analyze and understand better. But quite frankly, we are going to need more time, more claim development to fully understand the underlying sort of admission, diagnosis codes and other things to fully assess the nature of the uptick in inpatients and corresponding decline in observations and understand if they're in any way related, and then how we think about that again on a go forward basis. In terms of retention mix, I would say a little bit too early for us to fully assess that and look at, we've looked at the AEP enrollment data, I would say from what the team has looked at so far, nothing of concern in terms of the retention mix versus those members who disenrolled. But generally I would say given the benefit reductions we did make in 2024, I would certainly expect individuals who have an intent to highly utilize those benefits were probably ones that were looking at what other options might be available. And to the degree another plan maintained a richer level of benefit, certainly would expect that that was someplace we would see higher disenrollment. To your question about 2024, so I would say it a little bit differently. While certainly this trend was not fully contemplated in our pricing, I think the entire industry would agree with that statement. All of us saw unexpected trend after we filed our bids. We, in spite of that though, did make more benefit adjustments than the industry. And so if you remember, we talked earlier in the year that when you look at the changes made, we did make a higher level of benefit adjustments than others and in some cases we were very surprised to see actual net incremental investment in 2024 despite the stars and v28 and other headwinds that they were dealing with. So we don't feel like this is an issue in terms of underpricing, it's just the occurrence of higher than expected trend late in the year, unfortunately, after benefits were filed, and again, a lot to learn in terms of the persistency of that not only through 2024, but 2025 that we will continue to evaluate as we do all of our 2025 pricing. But based on everything we know now, our intent would be to assume those trends persist and make sure it's covered in our 2025 pricing. AJ Rice: Okay, thanks. Operator: Our next question comes from the line of Ben Hendrix with RBC Capital Markets. Ben Hendrix: Hey, thank you very much. I just want to get back to one more question on the $6 to $10 for 2025. I appreciate your comments on the overly competitive environment and difficulty in forecasting how actors scale that down in the future. But if you could comment on, is there a level or a range of kind of headwind attrition that you are assuming in that $6 to $10? And if so, what are you expecting kind of margin versus attrition to kind of offset by attrition to kind of get you to that range? Susan Diamond: Yes, Ben. So we won't comment specifically, obviously on expected membership growth at this stage, but just direction can tell you that in the range of scenarios the team has reviewed and one of the reasons why it's a larger range as well, as I said earlier is, there's got to be an assumption around membership impact based on our changes as well as those of others across the industry. And so you can think of that range accommodates less optimistic and more optimistic range with the less optimistic, assuming we do lose not a small number of members, so hundreds of thousands of members would be contemplating that low end of the range. Some of that is going to depend on, as I said earlier, as we look at certain counties and plans, whether or not we think there is a path to the profitability levels we would expect, and there may be some cases where at this time we feel that's not true, where we might see disproportionate impact. You might remember years ago we used to actually disclose sort of plan exits and how much impact there was to our membership growth. It's going to be akin to that where if we do ultimately determine we need to exit counties or plans, we will probably disclose that discreetly in terms of the impact. And I said you can consider that sort of no regret moves as a way to restore margins. But our hope would be that we can find solutions to that and may need to moderate benefits and still provide a compelling value proposition. But recognize some areas will have disproportionate cuts which will have disproportionate impact to membership. And certainly as we go through the bid process and share updates with you later this year, can give you an updated perspective on where in that range we might be, depending on what we continue to learn. Ben Hendrix: Thank you. Operator: Our next question will come from the line of Nathan Rich with Goldman Sachs. Nathan Rich: Hi, good morning. Can you hear me okay? Bruce Broussard: Yes, I can. Nathan Rich: Oh, great. Thanks for the questions. I think following up on AJ's question, Susan you kind of talked about still evaluating some of the drivers of utilization as it relates to 2024. Just maybe could you talk about what you're looking at specifically? I guess, do you expect those dynamics you mentioned around the nature of hospital stays to continue? And are there any early data points on January that would suggest the higher trend that you saw kind of emerge late in for Q isn't seasonal? And then just as a clarification, you talked about restoring margins longer term, I guess is your view of long-term margins for the individual MA business changed just given the backdrop that the industry faces? Thank you. Susan Diamond: Hey Nathan, sure. So in terms of the utilization drivers, as I said earlier, they are definitely shorter stay events. We have looked very closely at the respiratory data, and as we said in our commentary, based on all the information we have, it is not respiratory-driven. As you guys might remember, we called out COVID in our third quarter call that we saw it. And if you remember at that time, we hadn't anticipated in the third quarter in our original thinking, but had it in the fourth quarter. And if you recall, what we said is despite the fact that it peaked in the third quarter and may come down, we left it in our fourth quarter forecast. And so as we look at the fourth quarter results, while you certainly see an uptick, third quarter to fourth quarter in respiratory, that was something we had anticipated and was actually slightly favorable to what we had expected. We had planned for sort of a five-year average on respiratory and it came in slightly lower. So for us it was not a cause of the variance and the additional utilization is non-respiratory related. For that reason, because we don't have any clear indicators that it is something that you can reasonably assume is seasonal or transitory, we're making the assumption that it will persist throughout 2024. Looking at January data, which is very early, so we only have really some look into the first two weeks. We would say it is continuing to stay at the elevated levels that we saw in the fourth quarter. And again, I wouldn't have expected anything this quickly to change that pattern materially, but it does reinforce that, at least for the near-term, that we can likely expect to see it. Again we will continue to evaluate the more mature claims data to try to get more information about the drivers. One thing we're certainly looking at is if you remember, there are regulatory changes being implemented January 1 related to utilization management referred to the two-midnight rule. We know there was a lot of activity both on health plans and provider side preparing for that and so that is one thing we’ll be looking at to see if potentially that has any underlying cause related to some of what we're seeing based on what we had expected for 2024 In terms of the long-term margin outlook, I would say, we had -- if you remember at Investor Day, we had really moved away from setting a specific target for individual MA, recognizing that we will work very hard to maximize the margin contribution across the enterprise, which becomes increasingly important as we continue to expand and scale the CenterWell capabilities and so we remain very focused on that. We will certainly expect, as we said, to restore margin to a reasonable level within the health plan over a relatively short period of time, but you will hear us continue to emphasize the opportunity to expand enterprise margin over just discreetly focusing on the health [indiscernible] growth consistently going forward. Operator: Our next question will come from the line of David Windley with Jefferies. David Windley: Hi, thanks for taking my questions. Continuing on the last one regarding utilization, I guess in your scenario analysis, Susan, to what extent are you taking into account the possibility that utilization could go higher again from here or what kind of boundaries or historical norms could you frame for us to judge the likelihood or unlikelihood of that? I'm also wondering, in your pricing model for 2024, to what extent did Humana reduce benefits to offset the risk model change in pricing versus, how much of that did you -- were you willing to absorb in MLR for 2024? And then finally, was there a difference in this utilization between regular community MA and duals? Thanks. Susan Diamond: Hey David, yes, I’ll take that. So on the utilization, as we thought about 2024, as we said, we have assumed that these higher costs will continue throughout 2024. So think of it as your new baseline. We have then applied what you consider normal course trend on top of that in our estimates. And so this late in the year, we obviously have visibility to CMS rate changes on unit cost and a variety of other specific inputs that are specifically accounted for. You have things like leap year. So all of those things are accounted for, and then embedded in what we consider that normalized trend is an assumption that we will see incremental utilization trend in 2024 on top of this higher baseline. I would say internally that has been the biggest source of debate. And to what degree you will see continued utilization trend on an outlier level of utilization trend in 2023. But again, we wanted to be as prudent as possible in terms of the assumptions we made and the guidance we provided today. And so that has been included in our estimates and something we will continue to watch, but I would say it’s probably the biggest source of variability. I can’t sit here today and say there’s no way it can be higher, right? I’ll just jinx us if we do so. We’ll just continue to watch it. But I will say, given the level of utilization we’ve planned for, it would be, I think, surprising to see something of that magnitude on top of what we saw in 2023. But we’ll have to continue to watch it. As respect to our 2024 pricing, we did obviously have the knowledge about the v28 changes. There’s certainly some estimation you have to make as part of that, because you’re having to predict sort of the progression of diagnosis codes into the future. But that was all baked into our 2024 pricing assumptions. And one of the reasons you saw us make actual benefit reductions in 2024, because with that adjustment, the reimbursement was going to be insufficient to cover the annual trend. And so that is one of the reasons you saw that. In terms of duals versus non duals, with the pressure we’ve seen this year, I would say the more recent pressure – earlier in the year, I would say less on the duals D-SNPs than non. But I would say some of this inpatient pressure we are seeing more broadly and maybe even a little bit more on the D-SNPs versus non- D-SNPs. But again, there’s a lot more run-out we’ll need to see, particularly on the non-inpatient side, to ultimately do some of those both plan level and member level cohorts to understand exactly how the plans and cohorts are being impacted. David Windley: Thank you. Operator: Our next question will come from the line of Scott Fidel with Stephens. Scott Fidel: Hi, thanks. Actually, first part just might be helpful to tack on to Dave’s question. Can you actually share with us what you’ve -- what you’re estimating, Medicare or MA, a sort of underlying medical cost trend was in 2023 and then what you’re predicting it to be for 2024? And then sort of the other sort of question I want to ask you is just back on the competition discussion. Hopefully you can be a little transparent here and how you see how extensive this competition is right now in the market. I think there’s a lot of focus on one large competitor who’s sort of taking all the market share in the industry and 2024, wondering sort of when you think about that intense competition, how much of it is that one large competitor? Or how much more broad based is this beyond just that one competitor? Thank you. Bruce Broussard: Scott, I’ll take the competitor side and then let Susan take your other question. Obviously, this year it’s one large competitor. As you look at our sales and where we are compared to all the competitors, we’ve finished second behind the larger competitor, but a very distant second. And as I mentioned before, Scott, and you’ve seen it over the years, we do see this behavior that there’s one that sort of stands out and takes share for the inappropriate reasons around price. There are smaller players in the marketplace that maybe impact us in one market or another. But I wouldn’t get overly upset about those. We see those come and go. We just see one this year. And we suspect that for all the reasons that we’ve discussed this morning, that player will readjust in 2025. Susan Diamond: And then, Scott, with respect to your trend question, so we have not historically shared absolutely trend percentages. The one thing I will comment on, just because we have provided a commentary throughout the year. We said earlier in the year, as we were watching the non-inpatient and the outpatient in particular, we mentioned that we were seeing high single-digit trends throughout the year. I will say once we got to the final full year numbers, we are slightly above in the double-digit range, unfortunately. So that continued, as we said, to be high and sequentially uptick. And so that I can be a little bit more specific in the commentary. I would say in the aggregate, though, what I would say is, I would think about it. By looking at our MLR, you can assume that the majority of our MLR variance is obviously attributed to the higher trend. And so you saw obviously in the fourth quarter, 190 basis point missed in the quarter and the translation of that to the full year. And then as you saw in our guide this morning, you can see the 200 basis point year-over-year increase in MLR, which you can use to sort of get a rough estimate of how much the trend increased as that’s the main driver of that change. Scott Fidel: Okay, thank you. Operator: Our next question comes from the line of George Hill with Deutsche Bank. George Hill: Yes, good morning. Can you guys hear me okay? Bruce Broussard: We can. George Hill: Okay. I guess, Bruce, I kind of want to step back and ask you a couple of questions around margin. And I guess I don’t know if you guys are able to comment to the margin profile that you guys expect to price to for 2025. And then I would also ask kind of from here going forward, what do you think is the weight margin profile for the MA plan business? And how is this impacted by whether or not your competitors, you think, want to subsidize the other parts of their business where they monetize beneficiaries either in care delivery or in pharmacy versus monetizing the members at the plan level? Just to kind of be very interested in kind of how you’re thinking about plan margin versus what I would call the total value of the beneficiaries? Bruce Broussard: Yes, just on the margin side, I don’t want to get into a specific number, maybe a little more of philosophy, but we do want to restore margins where they are profitable and contributing to our business in the proper fashion. And I would say historically that you can pick the years that you’ve seen that. But we do continue to reemphasize the enterprise earnings as an organization. And we look at the value that we provide across the organization not only to our shareholders, but also to the individuals we serve. And we do find that the growth and the scalability and the integration of CenterWell offers us that opportunity to continue to expand not only our services that we find are much more effective in clinical outcomes and satisfaction, but also the ability to continue to drive better and better value for the enterprise overall. How those get repriced into the actual product itself, we’ll look at, but we really make two separate decisions there. One decision around is this the right, both competitive and profit profile that we look into the plan? And then in addition, we also look at is this the right value that we provide on the CenterWell side and look at that. For our competitors and their pricing and getting subsidized, I’m not seeing probably – right now I’m not seeing a significant change there. I’m seeing much more, because there’s some in-sourcing that’s going on. But I would say that the material orientation is more around market share gain and membership growth, and really using the plan for that. So, we don’t see a disadvantage in the markets that we’re competing in, that are pricing as a result of something that’s happening as a result of subsidization. We really view the ability to continue to drive the membership growth in the total value of what we offer, and that’s around our brand, our quality and in addition the relationships that we have with value-based providers and feel that that will carry the day for the foreseeable future. George Hill: Bruce, maybe just a real quick… Bruce Broussard: Go ahead. George Hill: Susan, just maybe then the really quick follow up would be just, how do you guys think about enterprise margin? And how should investors think about enterprise margin versus plan level margin? Susan Diamond: Yes, and so just real quick on your specific question on the 2024, Justin, made the comment earlier about the implied margin in 2024, which you said is directionally correct. So, you can assume that the majority of the EPS improvement we’ve committed to next year is going to be driven by individual MA. And so you can sort of do that math and get a sense for where we’ll end up after 2024. The other things I would say too is, with the targets, that growth targets across the industry, I would argue that in order to achieve those in the size and scale of these books, you’re going to have to expect both progression on the health plan and the services side of the business versus completely bringing down the health plan for the sake of all of the other ancillary benefits. So, I think that you’ll see progression on both. The other thing I would point out is, as we think about 2025 and the benefit adjustments we’re going to have to make, we are being very intentional around, which markets do have further integration opportunity and where we have CenterWell assets, particularly primary care. And I think you will see us prioritize those markets to ensure that we can drive disproportionate growth in those markets to a greater degree going forward and support that enterprise integration and margin expansion that we’ve been talking about. We don’t intend to set a specific target in terms of enterprise margin, but rather commit to the long-term sort of EPS growth rate and certainly we’ll provide more clarity on that going forward, recognizing we’re approaching 2025, after which we’ll have to give you some updated commentary on what you can expect going forward, which we would expect to do later this year. George Hill: Thank you. Operator: Our next question comes from the line of Joshua Raskin with Nephron Research. Joshua Raskin: Hi, thanks. Good morning. I just want to get back to the 2025 range of $22 to $26 per share, and if you view that as a reasonable baseline for what Humana can earn on the current book of business with your current assets, or are you suggesting that there are additional years of growth in EPS above your long-term target behind that? And then I guess more importantly, if that is the baseline that you guys are working on, has the management team and the board thought more about the benefits of even larger scale, of being part of a larger, more diversified entity, and maybe you could talk about what you think the benefits of that would be? James Rechtin: Josh, I would say that we don’t look at the baseline for -- we don’t look at 2025 to be the baseline. We look at that there needs to be continued more improvement in that as a result of what we believe as a profitable -- the appropriate profitability for the organization. And as Susan mentioned, we do want to get back to the earnings growth that the organization deserves as a result of the industry we’re in and in addition, as a result of the total addressable market and the expansion of that. In regards to size and scale, we constantly are asking questions like that strategically. And today, and we feel continuously that our ability to be best-in-class in the industry that we compete in is really where we drive towards. And I think you’ve seen that in multiple different levels. As mentioned, quality to our relationships with our providers, to just the ability to have an integrated model that serves one population, and we feel that that's a large advantage. We also feel, especially through our productivity efforts that we've had over the last number of years, that our cost structure continues to prove itself out relative to the ability to improve our cost structure through a sustainable model. But I do want to reemphasize the board and the management team constantly has looked at what is in the best interest of the shareholders, and we will continuously do that. And if at some point in time that question becomes a question that we need to take action on, we'll definitely take it, or if it ever comes and is presented to us. But we do believe today being a specialty player in the fastest growing part of the industry is the best value for the shareholders. Operator: Our next question comes from the line of Lance Wilkes with Bernstein. Lance Wilkes: Yes. Can you talk a little bit about two aspects of the forward looking pricing adjustment? One would be for the pricing assumptions for 2024 and the 200 basis points of increase in MLR. Is that also a 50/50 inpatient driven variance to your prior expectations and half of it not related to that, or is there something different there? And then from the inpatient experience you saw in November, December, can you talk a little bit about for those short stays, are there particular types of members that you're seeing that disproportionately on, and a little bit of why you weren't able to identify this a bit earlier? Is this something that wouldn't naturally have some sort of upfront insights from prior auths or things like that? Thanks. Susan Diamond: Hi. Yes, sure. So in terms of the MLR increase in 2024, I would say given the recency and the magnitude of the inpatient trends, which were really – more unexpected in the fourth quarter, if you think about the revision to our forward outlook, I would say it's probably disproportionately inpatient driven, and Lisa and I can certainly follow up and if we will go verify that and then get back to you if there's anything different. But I would say probably more disproportionately inpatient driven, given it was really the last two months of the year, and then have to carry that forward through the entirety, versus the non-inpatient, which we were seeing upticks over the course of the year anyway. And anyway so that's my thinking there. On the November and December, I would say on the inpatient side, again, seeing it more broadly, as we said in the commentary, we are seeing less of that, though, in our Florida HMO market in particular, and we are seeing some differences in the results of our utilization management against this higher trend in different geographies. So that's something we are certainly looking at to see what we can learn from and if there's any additional opportunity more broadly, based on the outcomes we're seeing in the Florida market. In terms of your question of why maybe could we have predicted it, I would say on the inpatient side, as Bruce said earlier, these are really unprecedented levels of trend increase, and I would say the pace at which they changed as well. We do leverage authorization data on the inpatient side. We are actually using that to actually book reserves. Each month we get authorization data for over 99% of the inpatient events that occur. So it is very accurate in predicting and we do receive it in more real time. The non-inpatient is where we are relying on claims and generally relying on at least a 60 day lag to view those claims as credible. So with the December paid claims, much greater visibility to October and prior dates of service. And based on that, I have to make some estimation for November and December, which again, we've assumed those higher trends that we've seen will continue for the duration of the fourth quarter. But we do leverage all the information you can get in real time. It is something we continue to look at, and we've been asked about over the course of the year, whether there's more we -- patient, say surgical as an example. And we do continue to take ground to improve the level of authorization data we get for some of those things as well. It's just not sufficiently high to be credible for purposes of booking claims and estimating that at this time. But I think certainly in light of what we've experienced this year, we're doing a lot of work to assess where there might be opportunities to improve analytic and forecasting models, whether we can leverage interoperability to get some greater visibility into provider utilization, and a number of other things that we will continue to prioritize to make sure that we can continue to improve all of our forecasting work, recognizing it's inherently difficult given the nature of the program. Operator: Our next question comes from the line of Whit Mayo with Leerink Partners. Whit Mayo: Hey, can you hear me? Susan Diamond: Yes, Hi Whit. Whit Mayo: Yes sorry, it went blank for a second. Thanks for the time, Bruce. I'm just curious, looking at your partnerships with the various capitated medical groups that I think you said cover a third of your book know. Obviously we're seeing a lot of challenges in that market. They're feeling this utilization pain. What are the conversations like that you're having there? Any desire that they have in trying to carve out some of the risks they're taking on certain benefits. OTC, Flex cards. Is there any risk that you see that maybe you bring more of that back on your P&L at some point? That could be a headwind. And my other question is I'm just wondering, now that you've shut down the commercial business, is it possible that that's having any impact on your network or rates that could impact your unit costs going forward? Thanks. Bruce Broussard: Yes, the latter question I'll answer the majority of our rates are predicated on Medicare rates and therefore it's not that much of a negotiation. There might be a market here or there, that we negotiate rates on in some way, but I would say that Medicare rate really determines our payment mechanism there in the commercial book of business and we were very thoughtful on analyzing that and understanding that and it had no impact relative to our relationships with our providers. And our providers that are taking risk. We do see a number of them having challenges as a result of this. And to be honest with you, we're going to probably see more. We have seen these challenges over the years. We don't feel that's a headwind for us because we'll adjust the benefits and that will flow to them in a positive fashion. And we are seeing a number of our better performing providers really taking v28 and we're assisting them in what they can do to manage through v28 and taking our learnings through the center well and offering that. But I wouldn't consider that to be a headwind for us going forward. But I do feel as we look forward that there will be some challenging times for the less sophisticated ones and that could be an opportunity for us as we think about center well. Susan Diamond: And what I would say as well, and I had been saying this early in the year and more so now. I do think that as risk providers fully absorb the impact of v28 as well as this higher trend, I imagine that there will be increased discussions and pressure for the industry to appropriately reflect those trends in the benefits. As we said, we cut benefits more than anyone. So I think there may be some other payers having discussions with providers around some frustration over the level of benefit investment. Our primary care organization is having some of those very same conversations and I do think there'll be a push from the provider community as well for discipline and balance given that we have further implementation yet to go with respect to v28. And so I think that will be a positive and hopefully bring the pricing discipline that we're all looking for. Bruce Broussard: And I think, just building on Susan's comment there, what we do see is in some of the higher risk areas, like Florida for example, we see the value that is offered to be much greater to the member than it is in other areas. And therefore we feel that the adjustment for the particular benefits in those marketplace has much more room than say in the middle part of the country. And so we do see benefit adjustments needed in that marketplace and there is opportunity as we look at the value proposition from a member's point of view. Whit Mayo: Okay, thanks. Operator: Our next question comes from the line of Gary Taylor with Cowen. Gary Taylor: Hi, good morning. I wanted to go back to 2025 just for a moment, to make sure I'm understanding, it looks like the earnings pickup is implying insurance segment margins would improve 100 basis points, maybe a little bit more. And I know the street simplistically assumes you can always just cut benefits to hit your target margin, but the CMS, TBC change thresholds do handcuff you to some degree. So is the right way to think about 2025 is right now you're assuming a negative rate update. I'm sure you're probably assuming some positive cost trend growth in 2025. You'll need to use a portion of your TBC threshold just to solve for that math. And then the 100 basis points implied margin improvement, earnings improvement is really what's left to be recovered after that math. Is that a good way to think about, with due respect for your capitated arrangements as well, is that a right way to think about kind of how much you're delivering to shareholders in terms of margin EPS for 2025? Susan Diamond: Yes, Gary, so you're thinking about the math, right? And as I said earlier, we are anticipating that the rate notice in 2025 will look similar in terms of impact to 2024 as an initial assumption. If you remember, we cut about on average something close to $13 on average PMPM [ph] in that environment. And so that you can think of as your baseline in terms of just from the rate notice, then what we've committed to from the earnings appreciation. If all of that really came from individual MA, then you can do the math in terms of what the average benefit cut is, which would be incremental to that rate notice. Once you account for risk, Mace, you are really bumping up against that upper bound of what's possible. And that's why it's also important to remember that range also contemplates some level of membership impact as a result of those cuts and that is a huge input as well that we'll continue to refine once you have a better understanding. So I just want to make sure we're leaving everyone with the impression we are taking significant pricing action in order to deliver these results. We will continue to evaluate the trends and to the degree they get better, that provides some more opportunity. We will work hard to optimize within the bids and themselves to make smart decisions such that we maximize the impact and maintain a really compelling value proposition still for consumers on a go forward basis. But we think with a reasonable set of assumptions and the dynamics in play, the six to 10 is really bumping up against what you can do in the absence of something changing between now and when we would submit pricing that we could incorporate. Bruce Broussard: And Gary, I just want to reemphasize something here that we also are very active in looking at a trend offset and we have a lot of activity going in the organization around that and we are oriented to how can we set a number of these things through both clinical actions and then also just the proper insurance that people are using the healthcare system most efficiently. Susan Diamond: And Gary, I think that's why, as Josh asked Bruce earlier, we do think it's probably a couple years of recovery to get back to the margin profile just because of the inherent limitations and expectation that the rate environment won't fully cover trend and that has to be addressed as well. Gary Taylor: Got it, makes sense. Thank you. Operator: Our next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah James: Thank you. I was hoping you could give us more color on your claims clarity. So you made some comments earlier about waiting for more November claims clarity, and that sounds a little bit slower than I typically think of the industry getting 60% of the 30 day claims and 80% of the 60 day claims. So how much clarity do you guys have on November and December? Was there any kind of slowdown this year? And as you think about that going forward, there's some regulatory changes coming around, having to do prior authorization in 72-hours or make decisions in 72-hours. Is there a potential that that could have an impact on your claims clarity when that goes into effect in 2026? Susan Diamond: Hi Sarah. Sure, I'll try to answer those. So, in terms of claims, as we've always said, we had more visibility real time to inpatient utilization from the authorization data that we receive in more real time. We're dependent on claims data to understand the unit cost of those inpatient events and get more details on some of the underlying admitting condition data and other things to understand the acuity and the level of treatment and intervention. On the non-inpatient side while we do receive authorization data for some of our service categories like outpatient surgical, it is not sufficiently high to be credible, and we've made improvement over the years, but I think it's in the order magnitude, approaching 60% of those events. But we have demonstrated through analysis that is not sufficiently credible to base your claim estimate off of. So we will certainly look at it as an input. But for those categories, we are very much relying on completion factor models based on paid claim progression. I will say we certainly while we don't rely on the most recent 60 day paid claim data, we certainly do look at it. And in fact, for the month of December, we did see very high levels of paid claims for dates of service for December, which would be atypical in light of what we saw. We did step up to an assumption that some of that will result in higher costs. That was primarily in the physician cost category. So we've accounted that for that in our year end estimates, and that's where we'll just have to see, as those claims do more fully mature, how that develops, but did our best to make sure that we were using all of the readily available information to base our year end reserves. On utilization management as you said, there are changes anticipated for 2024. We knew that at the time of pricing. We did have an expectation as a result of those changes that we will see a larger number of inpatient authorizations approved where in the old model they may have been downgraded, say to an ER or observation event, or denied for medical necessity. So we do anticipate a meaningful impact to inpatient utilization trends as a result of that. And that was accounted for in our initial pricing and our initial thinking and targets for 2024. We will have pretty good visibility in near real time to how those utilization management outcomes from the initial assessment are holding up versus our expectations. The piece I will say will take a little bit longer to assess is do we see any subsequent change in provider appeals or ultimate uphold rates? Those will take a little bit more time. Again, we've used our best judgment and data to make some assumptions about that, but that I will say will take probably throughout the first half of the year to understand if there are any unanticipated changes to those appeal and ultimate uphold rates. And we'll certainly keep you guys informed if we see any variances. Sarah James: Thank you. Operator: I'm showing no further questions. Bruce Broussard: Okay, well, I'll close out the call here. And as I started the call, we are disappointed in the update provided today. And as I said many times, we take our commitment serious and -- will continue to work hard on behalf of our investors. I do want to first just continue to reemphasize that although the near term impacts of the higher utilization are disappointing, our confidence in the long-term attractiveness of this sector and our position with it has not changed one bit. I do want to say thank you for both your time today and our 65,000 employees for their dedication and support for our business and individuals we serve. So thank you and have a wonderful day. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Humana Third Quarter 2023 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our third quarter 2023 results and our financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, Humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our third quarter 2023 earnings press release as they relate to the forward-looking statements, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa. Good morning, everyone. Today, Humana reported financial results for the third quarter of 2023 with adjusted earnings per share of $7.78, slightly above our expectations. Results for the quarter include outperformance in our Medicaid and primary care businesses. and a continued focus on driving sustainable operating efficiencies, offset by the impact of a modest higher-than-anticipated utilization in our Medicare Advantage business. We reaffirmed our full year 2023 adjusted EPS guidance of $28.25 reflecting a 12% increase over 2022. In addition, we are pleased to raise our guidance for full year individual MA membership growth by an additional 35,000 members to $860,000 driven by continued higher-than-expected new sales. Our full year membership growth estimate now reflects a 19% growth rate significantly outpacing the industry. As we've shared previously, our ability to deliver on our targeted earnings growth rate in 2023, while also achieving this impressive membership growth is supported by the strength and scale of our organization. underpinned by a continued focus on disciplined investments, driving sustainable productivity improvements and delivering consistent fundamentals, including industry-leading Stars results and higher customer satisfaction as reflected in our net promote receivers. Further, our strong membership growth creates significant momentum as we advance towards our 2025 adjusted EPS target of $37. Susan will provide additional details on our third quarter performance and our full year expectations in a moment. I'll now provide an update on our operations and outlook, including a view of the 2024 Medicare advantage landscape and exciting growth we've seen in our primary care business before turning to an update on our ongoing productivity initiatives. Beginning with Medicare Advantage, we took a thoughtful approach to 2024 bids, recognizing the need to balance the rate environment with our commitment to achieve industry average or better membership growth. Our 2024 strategy was informed by extensive consumer and broker research and in-depth analytics regarding Medicare and eligible consumers prefer. We preserved or enhanced key benefits across our portfolio that were identified as the most important consumers and continue to differentiating offerings that focus on improving health outcomes and member experience. More specifically, we continue to prioritize zero premium offerings, low cost share for highly utilized services, including primary care and Part D [ph] and maintain highly valued supplemental methods like dental and Part B [ph] givebacks. From a dual-eligible special needs plan or SNET perspective, all plans include zero co-pays uncovered Part D [ph] prescriptions and offer healthy option allowance with a rollover feature, a key differentiator in the marketplace. Our product enhancements are coupled with Humana's leading position in quality and experience. Mana continues to deliver exceptional quality to our members as levered by our CMS star ratings. For 6 consecutive years, Humana has maintained the highest percentage of members in 4 stars or higher-rated contracts among national health lines. In 2024, 94% of our members will be enrolled and plant rated 4 stars or higher and 61% from plans rated 4.5 stars or higher. For [indiscernible] contracts covering approximately 790,000 members nationwide received a perfect 5-star rated, more than doubling our 5-star membership from 2023, enabling year-round enrollment in these plans. In addition, for the third year in a row, Humana has been ranked number one among health insurance for customer quality and Forrester's proprietary 2023 U.S. customer experience benchmark serving. Humana also ranked number one in customer satisfaction with [indiscernible] in Florida based on a comprehensive 2023 study by JD Bauer. And we're proud that Humana once again has been named the best overall Medicare Advantage insurance company by U.S. News and World Report which created an honor based on CMS' newly released star ratings for MA plans. Additionally, Humana ranked as the best company for member experience and was declared the best company for low premium plant availability. Collectively, these results are a testament to our commitment to putting the health and wellness of our customers first. From a distribution and sales perspective, we are building upon our omnichannel strategy in 2023, where we've seen a 50% increase in our internal sales year-to-date which is our highest lifetime value channel. Our goal is to deliver best-in-class agent and customer experience and have made investments in AI power tools and tallied infrastructure to reduce consumer hold times and transfers. Finally, we are excited about the strong growth of our internal payer agnostic channel which is expected to double its sales production year-over-year this AAAP [ph]. All in, we expect our balanced approach to our 2024 product strategy positions us well and we anticipate 2024 individual MA membership growth to be at or above the overall industry growth rate. We look forward to sharing more in the coming months. Within our center well segment, our primary care platform experienced significant growth in the quarter now operating 296 centers, serving nearly 285,000 patients, representing a year-over-year growth of 33% and 17%, respectively. This includes the impact of the 24 centers recently acquired from Kanav Health, approximately 12 of which are expected to be consolidated into existing centers are closed as we integrate the business by year-end. As a result of the 2023 De Novo Bills and M&A activity, we expect to end the year with net growth of 60 to 65 above our previously communicated annual center growth target of 30 to 50. Susan will provide additional detail on our center primary care performance in a moment. Turning to our ongoing productivity efforts which span the organization. Our focus on productivity continues to drive sustainable value for the enterprise, while creating more streamlined processes better experiences for our members, patients and provider partners and driving best-in-class quality and customer service results. Let me share a few examples of this important work. Our primary care organization is executing on a multipronged plan to mitigate the ultimate impact of the risk model changes that will be phased in over the next 3 years. including numerous operational efficiencies such as centralizing and streamlining administrative functions, standardizing the clinic operating model and improving clinician productivity. As an example, we are enhancing our use of prospective risk stratification of our patient base, offering new and enhanced clinical programs and care team interventions to our highest risk patients. which we expect to further reduce avoidable hospitalizations and readmissions, while we optimize our preventative touch points with lower risk patients to increase connection capacity. In the home, as a complement to developing value-based home health payments, we've launched a comprehensive initiative to reimagine our scale on health operations. These efforts will be deployed across our more than 350 branches that will include automation, consolidation and implementation technology and AI solutions. This will minimize administrative cash while improving clinician productivity, including optimizing their schedule. We believe these initiatives, some of which require incremental investment will ultimately streamline our operations and lead to increased clinical -- clinician productivity and satisfaction. As an example, CenterWell Home Health has introduced an innovative AI-enabled digital wound management solution which allows our clinicians to effectively capture vital details with a simple picture. We are pleased to report a notable 18% improvement in visit efficiency, thus enhancing the experience, both clinicians and patients. This has been instrumental in clinical decision-making contributing to an accelerated wound healing time by 35%. Finally, within CenterWell Pharmacy, we've been focused on investments in digital channels and have seen greater than 800 basis point [indiscernible] scripts received through our digital channels year-to-date, now representing approximately 38% of our total scripts. Increased use of digital channels provides an efficient and user-friendly experience for patients. Allowing for real-time pulmonary and function of the ability to offer cost-saving alternatives in real time. In addition to our ongoing productivity initiatives, we remain committed to identifying additional sources of value for the enterprise through cost savings and value acceleration from previous investments. Alien drivers include areas such as streamlining our real estate portfolio as we continue to refine new ways of working post COVID. We've also identified operations to rationalize our IT portfolio as we focus and building and leveraging enterprise capabilities, providing the opportunity to move away from and/or consolidate certain stand-alone business specific systems and applications that will meet the business needs of the future. In addition, there were certain initiatives kicked off as a part of our ongoing hard value creation plan in 2022 required implementation of technology to improve processes and drive efficiencies and would therefore take time to realize the full benefit. As we've continued to focus on and advance these initiatives, we've identified additional value to be extracted [ph]. We anticipate activities related to the additional value creation initiatives to continue throughout 2024. Result in certain onetime charges that will be adjusted for non-GAAP purposes. Collectively, our ongoing productivity and value creation initiatives are driving sustainable value for the enterprise. We expect this work will create now beyond the 20 basis points of annual operating leverage business mix adjusted basis that we committed to at our 2022 Investor Day. Aiding in our efforts to offset the near-term utilization and reimbursement headwinds currently impacting the industry. Before turning it over to Susan, I'd like to touch on our recently announced leadership transition plan. We are pleased to announce that the health care industry veteran, Jim Richon [ph], was joined Humana as a President and Chief Operating Officer on January 8, 2024, as part of a long-planned CEO transition. Jim will report to me until the latter half of 2024, at which time, after leading Humana for over a decade, I'll step down and Jim will assume the CEO role. As we work to make this seamless transition in the coming months, I look forward to partnering with Jim brings a collaborative, thoughtful and innovative leadership style to our organization. making him a natural fit for the culture of today and the future. Jim brings a strong combination of operational industry and CEO expertise. His first-hand experience leading true challenge is an opportunity to change in health care services continue while helping them accelerate our integrated care strategy. We look forward to introducing Jim to our stakeholders when he joins the team in early 2024. With that, I'll turn the call over to Susan. Susan Diamond: Thank you, Bruce and good morning, everyone. Today we recorded adjusted EPS of $7.78 for the third quarter. Results in the quarter were slightly positive -- slightly above initial expectations driven by outperformance in our Medicaid and primary care businesses and continued focus on driving sustainable productivity gains, offset by modestly higher-than-anticipated utilization in our Medicare Advantage business. I will provide additional detail on recent utilization trends in a moment. Our performance to date continues to reflect the strength and agility of the enterprise, demonstrating our ability to successfully navigate the higher-than-anticipated utilization while delivering on our earnings commitment and driving individual Medicare Advantage membership growth that significantly outpaces the industry. We now expect to add approximately 850,000 members in 2023 and reflecting a 19% growth rate. Further, for the full year, we have reaffirmed our adjusted EPS guidance of at least $28.25 which reflects a 12% increase over 2022. We I will now provide additional details on our third quarter performance and full year outlook by segment, beginning with insurance. This morning, we reported that our insurance segment benefit ratio exceeded expectations by 40 basis points due to higher medical costs in our Medicare Advantage business. We continue to experience an increase in COVID admissions in the third quarter, whereas our forecast previously assumed that this would occur in the fourth quarter. To date, we have not seen an offset in non-COVID utilization which diverges from the consistent patterns seen previously. As it respects non-inpatient trends, we previously communicated that we expected the higher PMPMs [ph] reported in the second quarter to continue throughout the back half of the year, reflecting a moderating year-over-year trend percentage. The most recent paid claims data suggested a modest uptick in TTMs [ph] for the third quarter versus the stable levels we anticipate. Considering the most recent trends, we are planning for the higher level of utilization seen in the third quarter to continue for the remainder of the year. As a result, we are increasing our full year insurance segment benefit ratio guidance to approximately 87.5% which implies a fourth quarter ratio of 89.5%. This guidance also reflects the increased individual MA membership growth which continues to include a higher-than-expected proportion of agents. As we have previously discussed, agents initially run a higher benefit expense ratio than the average new member which negatively impacts the current year benefit ratio but result in a larger margin expansion opportunity on these members over time. We anticipate that the higher 2023 insurance segment benefit ratio will be offset by additional administrative expense reductions, driven in part by the sustainable productivity initiatives group discussed, improved net investment income and other business outperformance. Turning to Medicaid; the business exceeded expectations in the quarter, primarily driven by favorable membership due to redetermination timing which continue to track slightly favorable to our expectations, combined with disciplined medical cost management initiatives and lower-than-expected utilization. Moving now to CenterWell; the segment continued its solid performance seen throughout the year, outperforming expectations in the quarter. Our primary care organization results exceeded expectations, driven by better-than-expected patient volume and revenue combined with lower-than-anticipated utilization, resulting in improved medical margin in our fully own centers. We continue to see better-than-expected patient growth, adding over 17,000 patients or nearly 89% growth in our de novo centers since December 31, plus 15,000 patients in our wholly owned centers, representing 9% growth year-to-date. We now anticipate full year patient annual growth of approximately 34,000 to 36,000 as compared to our original estimate of 20,000 to 25,000 patients more than doubling the patient growth achieved in 2022. Our primary care organization also continues to improve the operating information performance of our wholly owned centers. We continue to positively impact patient outcomes with hospitalization levels trending down year-over-year. In addition, due to our continued efforts to engage our patients Retention has now improved 270 basis points year-over-year, up from a 220 basis point improvement as of the second quarter. Patient satisfaction scores continue to reflect the quality of care delivered with Net Promoter Scores averaging 82 nationally. And we are proud of our quality scores which are tracking ahead of last year's trajectory with a 4.5 star performance year-to-date on provider influence measures for engaged patients. We now expect to increase the number of centers that are contribution margin positive from 110 at the end of 2022 and to approximately 130 at year-end 2023, an increase from our previous expectation of 125 and representing an 18% increase year-over-year. In addition, we expect to increase the number of centers that have reached our $3 million contribution margin target from 31 in 2022 to approximately 44 at the end of 2023, an increase from our previous expectation of 40 -- and representing a compelling 42% increase year-over-year. The better-than-expected primary care earnings in the quarter in our consolidated benefit expense ratio being 100 basis points lower than our insurance segment benefit expense ratio as compared to our previous expectation of a 40 to 50 basis point reduction. As a reminder, on a consolidated basis, we report from the perspective of the health plan and as such, intercompany earnings from these services are eliminated against benefit expense. At this time, we do not anticipate that the primary care outperformance will run rate into the fourth quarter. Therefore, we continue to point you to a 40 to 50 basis point reduction between our insurance and consolidated benefit expense ratios for the fourth quarter with a reduction of approximately 60 basis points for the full year. Turning to the home. In our core fee-for-service business, year-to-date episodic admissions are up 8.6%, while total admissions are up 5.1% and tracking in line with our full year expectations of a mid-single-digit year-over-year increase. As Bruce discussed, we are working diligently to identify clinical and operating efficiencies to offset industry headwinds, including rate reductions, declining original Medicare admissions due to increasing MA penetration and ongoing labor pressures. From a capital deployment perspective, we have completed approximately $1 billion in repurchases to date and continue to anticipate share repurchases of approximately $1.5 billion in 2023. Before commenting on 2024, I would like to take a moment to highlight the significant progress we have made towards the midterm targets we shared at our Investor Day 1 year ago. As a reminder, our 2025 adjusted EPS target of $37 represents a 40% CAGR from 2022 and is expected to be comprised of 10% enterprise earnings growth largely driven by the contribution from our Medicare membership, 20 basis points of improved operating leverage and a 2% contribution from capital deployment on an annual basis. While allowing for continued growth and investment in our Medicaid and CenterWell businesses as these high-quality assets are expected to meaningfully contribute to our long-term earnings growth as it continues to scale and mature. Over the last year, we have outperformed virtually all of the goals, including above-industry average membership growth in our Medicare managed business, significant outperformance of our productivity goals and increased share buybacks as we saw stock price dislocation earlier this year. We continue to invest in and grow our Medicaid and CenterWell businesses, performing top line growth goals across these businesses as well. At the same time, we've experienced higher-than-expected medical cost trend within our Medicare managed business and have worked hard to mitigate the impact of these trends in order to deliver on our enterprise earnings and EPS commitments. All in, we are proud of the significant progress we have made and remain committed to the targets we shared last year, including our 2025 adjusted EPS target of $37 I'll now take a few moments to provide additional color on our early outlook for 2024, starting with membership. As Bruce shared, while it's still early in '18 [ph], we expect that our balanced approach to our 2024 bids positions us to grow individual Medicare Advantage membership at or above the overall industry growth rate while planning for a modestly higher attrition rate, given the benefit design changes we implemented in response to the rate environment. As we always caution this time of year, it is early in the AEP selling season, the atlas we provide today could change depending on how sales and voluntary disenrollment ultimately come in. Broadly speaking, 2024 competitor plan design reflect less benefit degradation than anticipated which will likely lead to fewer consumers shopping and therefore, less opportunity for Humana to meaningfully outpace the industry growth rate. Specifically Humana's performance relative to the market, initial feedback from brokers is positive, supporting our expectation of at or above industry average growth. Finally, recall that we have limited visibility into member disenrollment data this early in the AEP season as those results take longer to complete and we look forward to providing further commentary on our fourth quarter call. In our Group Medicare Advantage business, we expect membership growth of approximately 45,000 in 2024, driven by small and midsized account wins and remain committed to disciplined pricing and a competitive group Medicare Advantage market. With respect to seeing along PDP, the overall PDP market continues to decline as Medicare beneficiaries select Medicare Advantage over original Medicare and PDP -- in addition, we remain disciplined in the pricing of our PDP products as cost trends continue to rise. As a result, our Walmart Value plan will not be as competitively priced as it has been historically and our basic plan will exceed the low income benchmark in 16 regions in 2024. We currently expect a net decline of approximately 750,000 TEP members in 2024, including a loss of approximately 220,000 members as a result of exceeding the low income benchmark. As we look beyond 2024, we will evaluate the impact of the various proposed regulatory changes which are likely to result in higher PDP claim premiums broadly and could lead to further industry-wide movement from stand-alone Part D claims to Medicare Advantage plans given the strong Medicare Advantage value proposition. Our focus remains on creating enterprise value from our PDP plan by driving increased mail order penetration and conversions to make your advantage. Finally, in our Medicaid business, Humana continues to demonstrate the ability to deliver unique value to communities by building on a strong operating model that integrates physical and behavioral health and develop meaningful partnerships and innovations to address health and equities and social deterrence to health. After successfully implementing the Ohio and releasing our contract in early '23, we look forward to beginning to serve members in both Indiana and Oklahoma in 2024 and continue to expect to bring our total Medicaid footprint to United States and approximately 1.5 million members by year-end 2024. Turning now to our expected 2024 financial performance. I reiterate expected to grow 2024 adjusted EPS within our targeted long-term range of 11% to 15%. We Recognizing the increased utilization we have now seen in 2023 and prudently assuming this level of utilization continues into 2024, we currently anticipate growth at the low end of this range. We look forward to providing a more specific 2024 guidance on our fourth quarter earnings call in February. Looking ahead to 2025, as previously mentioned, we remain admitted to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025. It is important to note that our 2025 adjusted earnings growth will benefit from the maturation of our robust individual MA membership growth expected in 2023 and 2024. Advancement of the mitigation activities, our primary care and home organizations are implementing to offset the impact of their revenue headwind. Capital deployment activity as well as the sustainable productivity and value creation initiatives discussed today. In addition, we anticipate certain discrete pricing actions to be taken across our individual and group Medicare books in response to the higher utilization and trends experienced. In closing, I want to say thank you to our over 65,000 teammates. Our success is enabled by a dedication to putting our members and patients at the center of everything we do. I would also like to thank our shareholders for their continued support. Finally, I'll reiterate that Humana fundamentals are strong and we remain well positioned to drive compelling earnings growth in the mid and longer term. With that, we will open the line for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Our first question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. I guess maybe my question would be on the outperformance in the physician business which is just a little bit counter to, I guess, what some of your competitors have done in a higher MA trend environment. It's surprising that the physicians are seeing better medical performance. So can you talk a little bit about why there's that disconnect there wise not flowing more through that side of the equation. And I guess the fact that you keep growing membership faster on the clinics, why isn't that the same kind of MLR pressure there that you see in the MA business when that grows faster than expected? Susan Diamond: Sure. Kevin. So yes, you are correct. We did see outperformance in the primary care business. The first thing I would point out is we've been consistently saying all year that some of the higher trends we are seeing on health plan side has been disproportionately impacting our non-risk plans versus risk providers. And some of that is a reflection of from the product mix. We're seeing more pressure in our LTPO offerings versus our HMO. And our CenterWell primary care business, particularly the whole center are going to disproportionately indexed to HMO plans and then geographically, obviously, in Florida in some of our higher performing markets as well. With respect to the specific outperformance we're seeing in Primary Care this year, there's a variety of factors contributing to that. They've been positive prior year development. As well as positive current year development in the quarter and both seeing outperformance across revenue and medical costs. So really a variety of factors. The last thing I would say is some of the information that they rely on comes from the agnostic provider. And then you get some of that information on a bit of a lag. So you tend to see a little bit more later in the year sort of PPD and CPD as they receive updated information I would say, from the agnostic book, it's mostly, I would say, revenue related where they've seen some positive pickups in risk towards an MRA reimbursement relative to our internal expectations. Operator: Our next question will come from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: Yes. So in terms of the higher insurance company guidance, the 20 basis points higher than the high end of the range you previously pointed to. Is any of that increase related to COVID? Or is COVID is indeed purely a timing shift from Q4 into Q3? And then just in terms of the modest step-up in non-COVID cost PMPM [ph] that you talked about in Q2, Q3. Can you just spike that out a little bit in terms of what categories are driving that and many categories moving in the other direction as well, that would be helpful to know. Susan Diamond: Sure. Steve, yes, so as to rates we called out the momentary and we disclosed this in some of our public commentary during the quarter. We have seen an uptick in COVID within the quarter. As we mentioned, our internal forecast for the year initially anticipated an uptick in the fourth quarter versus third. So initially, we said, well, that sold be just the timing of a pull-forward of that. We have started to see COVID start to decline is coming down. But as we mentioned, we have to date not seen an offset. And so it resulted in just net incremental utilization within the quarter versus what we might have otherwise expected based on historical trends. As we thought about the year, what we decided to do and an attempt to just be somewhat conservative to assume that the cover that we anticipate in the fourth quarter from an addition standpoint would remain. So we did not take that out of the forecast. And may eventually show up as non-COVID ultimately. But we did keep that in the forecast such that our ATT expectations are consistent with what we would have expected previously and didn't take that out. On the non-inpatient side, I would say the drivers of that are consistent with what we've been saying since the term developed on our second quarter call in the discretionary sort of orthopedic and surgical procedures some of the ER and observations that we've seen those have continued. And I would say the drivers remain consistent. There wasn't any new that came up that's driving that sequential increase. Operator: Our next question comes from the line of Scott Fidel with Stephens. Scott Fidel: Would be interested if you could give us some of your initial observations on the 2024 AEP as it relates to your marketing and distribution strategies and where you feel that things may be resonating the most definitely seeing the Humana guide, for example, on plenty of ads recently. But more broadly, just in your distribution strategies, what you think seems to be working the best in. And then any areas where you may even be making some adjustments to the strategy here sort of inside of the AEP as you continue to look to drive new sales. Bruce Broussard: Yes, a few things there. One is we are getting is that positive feedback to just where our positioning is in the channels in the various broker channels, so both the call center and in addition to the field. So I would just say, in general, people seem to be very content with how we're positioned, both from a benefit point of view but also just from our quality scores that we obviously received both in stars but also our customer service side. The second thing is that we do have -- continue to have a balanced approach in how we are going to market with our distribution from continuing to support and build our relationships with our call centers, our external call centers and in addition, our field representatives that are external field representatives. So we do continue to see good engagement with them. We continue to see working with them not only from a sales point of view but also from our attention point there which is consistent from last year as we continue to make proper investments with our partners there. We do see good results coming out of our field, external field channel. We continue to see really strong results there and probably they're overachieving from our budget. And in addition, we continue to see good results from our agnostic channel. As I mentioned, we're predicting to almost -- to double our sales there. We're not making much adjustment today. I mean we continue we're only 2.5 weeks into AEP and we feel like we're consistent with what our expectations are. And so we're going to continue to execute. But maybe in a few weeks, we might adjust accordingly. But today, I think it's what we've set out to do last year. Operator: Our next question will come from the line of A.J. Rice with UBS. A.J. Rice: Maybe just following up on some of the MLR related questions. I think last quarter, you said with what you were seeing on the utilization front, you were comfortable that you had sort of incorporated that in your expectations around '24 pricing. Given the incremental commentary today, are you still comfortable? Or do you need to have some level of offsetting efficiencies to mitigate a sequential uptick in utilization that you're assuming will continue next year. And I guess just part of that as well is obviously part of what's impacting your medical loss ratio this year. Is all the enrollment growth you've got. So you've got utilization being a little higher but you've also got the drag of all these new members. Can you -- is there any way to parse out how much of the variance that you're seeing is utilization versus the drag of the new members and give us some flavor on that, assuming that the one might start to ease next year? Susan Diamond: Yes, let's take great questions in there. I'll try to get all of them. I would say, in terms of this incremental trend that we are announcing in the third quarter and then stepping up to for the full year. Obviously, this would not have been done at the time of pricing, it'll be incremental negation that we need to do to offset that in '24. If you recall, on the second quarter call, we did reaffirm that we intended to be within our long-term historical range, 11% to 15% and we reaffirm that today, although knowledge is a result of this higher trend that we would expect to be in the low end of that is our initial thinking. I would say, as we saw the trend develop, we certainly recognize that we would need to identify some additional mitigation. I would say our ongoing efforts around productivity have continued since the work we kicked off in '22. And as we've said before, have continued to identify more opportunities than we might have initially anticipated which is built unlike pipeline of opportunity that will certainly mitigate the end this year and we'll continue to do so next year. To your point, the higher enrollment growth, particularly the Asian component of that which we have seen a nice uptick in market share there. does put some pressure on MLRs. And in going to get this pretax because as we said, they run about 100% MLR typically in the first 2 years before flipping to full diagnostic space is adjustment typically more so in the third year. We've said before, you can think about with the level of enrollment higher for agents this year, you can think about it on a full year basis that, that would impact the MLRs about 20 basis points. And so that is contemplated in our '24 thinking. Obviously, one of the things we'll still have to assess as we refine the thinking for '24 will be this year's membership growth and the composition of that, the new name versus retention and those are all things we'll continue to assess and comment on further when we provide our updated guidance on '24 -- or fourth quarter call. Operator: Our next question will come from the line of Justin Lake with Wolfe Research. Justin Lake: I wanted to ask about Center well. Just given the PDP losses, some of the pressures that we're hearing about both in the home health and the physician business. Can you talk about the trajectory from '23 to '24 and then '24 to '25 versus kind of what you had previously laid out at the Investor Day in terms of those improvements that were before some of these headwinds set in. Susan Diamond: Yes. Justin. So yes, you're correct. The CenterWell pharmacy is going to be impacted by the MA growth as well as the decline in PDP growth. We shared previously that the middleware penetration rates for those populations and the PDP does run significantly lower than the M&A book. And part of that is the disproportionate percentage of duals in the PDP book which tends to use mail order at a significantly lower rate. So some of the losses in '24 will be disproportionately low income because of exceeding the benchmark. So that will have less impact than average, certainly. But those are certainly things we're contemplating in our thinking for '24. I would say, in addition to that, we've just got a lot of movement between Healthland and the pharmacy, both in '24 and then certainly in '25 too as we continue to see the pharmacy changes implemented. So for '24, you're going to have things like the DIR changes going to fly sale. So that will have an impact between the two. There are going to be more changes in '25 that frankly, we're still working through. We would anticipate relooking at formularies which might impact drug mix in the pharmacy. How you think about pricing between health and in the pharmacy will also have to be considered in light of some of the shifting liability in the change of plan for '25. So we'll certainly plan to provide more commentary as we work through some of those in our more detailed guidance. But there are a lot of changes to your point but we are contemplating that membership shift which we've seen over the last number of years. Operator: Our next question will come from the line of Joshua Raskin with Nephron Research. Joshua Raskin: First question is just are the new members coming in at higher-than-expected MLRs even for first year members? Or is it just a mix because they're mostly agents. And then if you could just refresh the MLR trends for members that are in fully capitated arrangements versus those that are in sort of fee-for-service providers. And has that delta changed much in the last year? Susan Diamond: Josh, for your first question, we are seeing that new members are running higher MLRs than you would expected that we would say that is attributable to the overall trend that we're seeing. We have looked at new members versus concurrent members to see what variation we're seeing at various types, plan level, geographic. And what we say is relatively consistent. So we continue to believe that the impact that we're seeing are broadly industry-related trends versus Humana specific. With the exception of some of the things you pointed out previously which we continue to see like some of the down investments we've made, we are seeing some higher utilization. But beyond that, I would say that the other impacts are relatively consistent across the new and concurrent but obviously driving higher and more than we would have expected across the board. In terms of the progression of members in the risk rides, we can follow up on any specific question. But I would say, in general, I would say the trends haven't changed significantly over the last few years, at least nothing that we've seen or called out. Joshua Raskin: Okay. And I'd be remiss without congratulating Bruce, on the pending change and welcoming Jim as well. Bruce Broussard: Thanks, Josh. Operator: Our next question will come from the line of Gary Taylor with Cowen. Gary Taylor: Just a couple -- maybe one question, one clarification. I know last year, at this time, you gave very precise enrollment growth guidance and perhaps that was because of the shortfall in the '22 enrollment. But I guess, maybe in absence of that, are you still generally anticipating when you say you would grow at industry or better that the industry would grow high single digit. Is that still your general expectation? And then just a slight clarification, I guess, to the back half of Josh's question. You do talk about benefit design change as impacting MLR and certainly, some of that was intentional and we knew that coming into the year or benefit investments. made. CVS this morning was talking about more OTC benefits, etcetera. I just wondered if year-to-date, given the pretty substantial investment you made in OTC and Flex and that sort of thing. If you're learning anything about how members are using those benefits over the course of the year? Is the monthly utilization of those allowances accelerating as the year has gone by, etcetera? Bruce Broussard: I'll take the first question just on the growth guidance and I'll let Susan take the second question. On the growth guidance, we continue, as we mentioned, we believe that will grow at or equal to the industry. I think there's ranges of what the industry estimate will be, rent is from 6% to the 8% or so but we feel really comfortable with that. And that comfort, [indiscernible] is coming from our continued feedback from our brokers, not just where we are positioning in the marketplace. We continue to see both the brand and the benefits continuing to be competitive and never the cheapest but to be competitive in the marketplace. So we're getting really good feedback there. So I would just say we just feel that today, we will follow the growth of the industry. We do feel we're not as competitive as we were last year and the way we've positioned our product and therefore, that's why we've backed a little bit off from being disproportional to being right at the industry or greater growth. Susan Diamond: And as respect to your same question, so as you think about the benefit of investments we made, there was obviously living contemplated in our pricing in our initial guidance and one toward our initial MLR guidance. As we've seen the higher utilization, particularly in sort of benefits you mentioned like that are more relatives like we've done in the flex as we spoke to. I would say we are seeing a higher utilization on some of those benefit investments than we would have expected. But again, we're seeing it across the existing membership base as well as in the new members. So it's, again, not a selection issue where we're just attracting people that or attracting that we're seeing existing members who now have access to those riches also utilizing them in the higher rate as well. Particularly on the dental side, I would say with optimization, we're seeing [indiscernible] just more dollars being utilized versus more utilizes overall. So sort of the cost per visit, as you can see about it going up where I'm sure the with Dennis in the optometric and when they got a patient in there, they're trying to maximize that sort of revenue per patient. So we're seeing some higher cost procedures or services like dentures and some other things routinely within that utilization. With the way some of those benefits are designed continue to flex, we do have less opportunities intra year to try to mitigate some of that and it does require adjustments to the benefit of that. And so some of that, particularly in the Flex benefits early in the year, we did make some adjustments in our '24 plan designs to account for that and implement some additional restrictions and benefit reductions. So that is one thing you'll see. So we'll continue to monitor, as I would say, broader utilization just relative to what we had expected off of that benefit investment that we implemented in a few of those specific categories. Operator: Our next question will come from the line of George Hill with Deutsche Bank. George Hill: Was that George Hill? If so, I'll talk. Susan Diamond: Yes. [Indiscernible]. George Hill: Sorry, Susan. And the end of the operator cut off of mind. I just want to make sure I heard you right. When you said were you seeing higher MLR pressure PPO [ph] versus HMO plans? And I guess my question, I want to make sure I heard that right and then my question would be, is there a meaningful MLR difference typically between the HMO and the PPO plans. And kind of how should we think about that going forward as you're kind of seeing broader demand for the PPO plans and kind of that share is expected to increase in mix going forward? Susan Diamond: Yes, you did hear me correctly that we are seeing more pressure in our PPOs versus our HMO. Some of that's a reflection of a lot of the newer plan designs we've implemented over the last years having more PPO and you saw the introduction across the industry of the $0 PPO [ph], an example. Since you tend to have a lower margin profile than our legacy HMO products. Some of that's also a reflection of this geographic mix differences. Obviously, we have strong penetration in HMO products and some of our [indiscernible] and highly risk-insured markets. Today historically [indiscernible] although we're seeing more and more of a more sophisticated with providers to take risk on [indiscernible] and difference in the months to see better financial results, including lower MLRs and higher contribution to MTN. Operator: Our next question comes from the line of Sarah James with Cantor Fitzgerald. Sarah James: So the hospitals this quarter have pretty consistently been talking about pressure on the claims review process for physician fees, especially in the ED and the difference between inpatient versus monitoring. And I'm wondering if you're seeing any savings on those -- on your claims review process for those in '23 or what you expect in '24? And if there are some areas that you're looking to improve or enhance your teams or process on in '24. Susan Diamond: Take on post memory. Would you mind repeating that question? We didn't get I'm sorry. Sarah James: Sure. So the hospitals have pretty consistently been talking about some pushback on the claims review process for physicians, physician fees, physicians in ED as well as the inpatient versus monitoring classification. I'm wondering if that's an area that you're seeing any savings in, in '23 or expect two in '24. If not those areas, If there are some areas that you're focused on for claims review as you approach '24 and managing. Susan Diamond: Thank you, Sarah. So yes, I think you're referring to some of the utilization management practices and those are typically done on the front end. We do that wherever possible where we will have the opportunity to review for medical necessity and appropriate setting. So whether that's a full inpatient admission or an observation stay. We've had those programs in place for many, many years. There are some changes coming in 2024 based on some new CMS regulations. And those do change the way some of those programs will work. Those don't take effect until January 24. So I would say no meaningful changes experienced in '23 but we are anticipating those changes in '24. Those did represent a headwind to us, recognizing that we won't be able to have as much impact as we have historically from those efforts and we did account for that in the bid. But that is one of those things we'll certainly want to watch next year. How that develops relative to our expectations, recognizing there may be some behavior change that we see within the provider community, they adapt to those changes. So that's something we'll continue to watch but it's something we anticipated and included in our '24 pricing. Operator: Our next question will come from the line of Lance Wilkes with Bernstein. Lance Wilkes: Yes. hopefully, you're going to hear me here, operator, cut out on me too. Just a quick question. You made a comment about modestly higher attrition you're expecting in '24. I was wondering if you could maybe just give a little more color on the drivers of that, if it has to do with distribution channels or maybe the greater proportion of nonduals or something like that? And then also, if you could just remind us for the $37 target in '25, what's the kind of implicit a rate increase that you're expecting that we ought to be starting to see in February that's kind of baked into that? Bruce Broussard: Okay. I'll take the first one and Susan can second one. On the modestly higher attrition really is just coming from what we -- our history of when there are changes, significant changes in benefits, what we do see is people shopping more. And in result, when they're shopping more, though, we've seen increased attrition. So it's really more the environment we're in as opposed to dramatic changes in our distribution channel or our benefits. Susan Diamond: Yes. And Lisa, as respect to the $37, I would say, in general, as we've commented, we have been anticipating that the rate environment would not continue to be as favorable as we've seen in the last number of years. obviously, for 2024, the industry is absorbing the more negative rate environment. And with the phase-in of the risk adjustment model changes, we anticipate that, that will be implemented over the next -- the remaining over the next two years. That will certainly have an impact to our primary care business which we've talked about. While the business has a mitigation plan and they believe they can fully mitigate the impact, they do think it will take time. So we are anticipating a headwind in '24. That will be somewhat lessened in '25 as they continue to mature and scale some of their mitigation plan initiatives and then fully offset by '26. Within the health plan, I would say, we obviously know what the impact of the risk adjustment model change phasing will be but we'll have to obviously see what the core adjustment looks like in light of some of these higher trend, in theory, you would see some positive restatement embedded in there. So we'll have to see what that looks like and whether it's sufficient to cover normal horse trend. The way we generally think about it though is that is we go to impact the industry broadly. And so in theory, we should be on par with everyone else and assuming everyone react rationally, then it wouldn't put you in an advantage or disadvantage. We are very pleased, though, again, have the really strong Stars results that were published recently. And that, again, is a durable advantage for us where we do know some others will have some challenges to deal with there while others may have some improvement. And so those are all things that we consider as we plan for '25. I just reiterate, we remain committed to delivering the $37 committing to continue to grow at or above the industry rate for MA membership growth. and wanted to highlight recognizing it requires an accelerated growth rate for earnings in '25. I wanted to make sure we highlighted some of those more unique tailwinds that we will benefit from in '25 that allow us to achieve that higher than typical rate in order to deliver to $37. And we'll certainly share more on our fourth quarter call. Operator: Our next question will come from the line of Nathan Rich with Goldman Sachs. Nathan Rich: Can you hear me? Susan Diamond: Yes. Nathan Rich: Great. Susan, maybe just building off of that last comment there on the 2025 target. How should we think about the margin progression for the Medicare Advantage business between '24 and '25. Seems like maybe a bit of a bigger step up than what you had anticipated previously. And you also made reference to some additional earnings levers like pricing actions. Could you just go into a little bit more detail on what you're considering there? Susan Diamond: Yes, absolutely. And so as I called out in my prepared remarks, there are some tailwinds that will benefit from in '25. As we said, the outsized membership growth and the progression you will typically see in the margin profile of those new member cohorts improves over time. The higher agents, in particular, as I mentioned, they typically don't see the real up in performance until year 3 when they fully convert to risk adjustment. So the member -- the new agents we've got in our 2023 book, we'll then see disproportionate improvement in 2025 that will help contribute to that higher earnings growth that would be required to get to the 37. We have continued to see favorable net investment income, as you've seen in our results. And so some of those things are improving relative to what we would have thought going into '24 and we'll continue to '25. And then certainly, our continued focus on productivity is something that has continued to prove to be a mitigant for the near-term pressure. And then we expect to continue to see more than the 20 basis points of operating leverage that we committed to. And then some of the capital deployment will benefit as well. So the way I think about it, when you try to isolate some of those things, sort of then what's left is what you say is more normal progression within our historical targeted range. We do acknowledge that given what we're seeing in the trends and also in some of the discrete utilization we've seen in some of the benefits we've discussed we do expect that we will take some discrete pricing action for '25, we'll certainly be targeted in the way we do that, so that we're addressing some of those spots that are driving less earnings progression than we would have expected at the time of pricing. And so while they might have some impact to membership, we would say we would plan to target in a way where that's okay but it's the appropriate thing to do to balance the membership and the earnings progression that we'd be looking for. And you still feel confident that more broadly, we should be well positioned such that we should be able to continue to generate membership growth at or above the industry rate. Operator: Last question will come from the line of Mayo with Leerink Partners. Benjamin Mayo: Did you say Whit Mayo? Susan Diamond: Yes. [Indiscernible]. Benjamin Mayo: That's a consistent theme today. Just one clarification just on that last topic of the agents. Can you quantify, Susan, the growth that you're seeing this year [indiscernible] the 19% growth and what you're thinking for next year? And then I'm just wondering where you are on sort of the evolution of the delegation of risk one home, how much of the medical spend you've transitioned in maybe how much of that is driving the growth on your Home Solutions assist. Susan Diamond: Okay. I got the first one. Would you mind repeating the second question? So the first question was about agents. What was the second question? Benjamin Mayo: Just one home and how much you've delegated the risk on that business today in terms of like the post-acute or the DME and how much of that is driving growth on your Home Solutions business? Susan Diamond: Sure. As far as the agents, I think with some of the information we shared about the increased penetration that we've seen. You can think of that as about $250,000 an additional sales for agents for the full year. And then we see the incremental benefit of the margin progression on that. Like I said, it's disproportionately weighted to year 3 by the time those members ultimately convert. In terms of one home, it's about 15% of MA membership. I think in answer to your question. Benjamin Mayo: Okay. But how much of like the -- if I take all of your post-acute spend, how much of that have you fully rolled out in terms of the full delegation of risk? Susan Diamond: Yes. Why don't we -- we can get back to you with a specific answer on that. Let us look at that. And when we talk late tomorrow, we can have that answer for you. Operator: That concludes our question-and-answer session. I'd like to turn the call back to Bruce Broussard for closing remarks. Bruce Broussard: Thank you, operator. In closing, I echo seasons, thanks to our 65,000 employees. We truly appreciate their hard work and dedication to bring each day to serve our members and patients. I'd also reiterate the thanks to our shareholders for their continued support. Managed fundamentals are strong and we remain committed to leveraging the strength and scale of our enterprise navigate near-term challenges while continuing to advance our strategy. And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% compounded annual growth rate from 2022 to 2025. I hope everyone has a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good morning and thank you for standing by. Welcome to the Second Quarter 2023 Humana Inc. Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you and good morning. In a moment, Bruce Broussard, Humana’s President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our second quarter 2023 results and our financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management’s prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana’s website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K and our other filings with the Securities and Exchange Commission, and our second quarter 2023 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today’s press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. All participants should note that today’s discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management’s explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release. Finally, any reference to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I’ll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa and good morning and thank you for joining us. Today, Humana reported financial results for the second quarter of 2023 with adjusted earnings per share of $8.94, in line with our expectations. Results for the quarter include the impact of the higher than anticipated Medicare Advantage utilization recently disclosed, which has stabilized and is tracking in line with our updated expectations, and were supported by in line to slightly positive results from all other lines of business. We reaffirmed our full year 2023 adjusted EPS guidance of at least $28.25, which was an increase by $0.25 with our first quarter earnings release and reflects a 12% increase over 2022. In addition, we are pleased to raise our guidance for full year individual MA membership growth by an additional 50,000 members. We now anticipate adding approximately 825,000 members in 2023, reflecting an impressive 18% growth rate. Our ability to deliver on our targeted earnings growth rate in 2023, while also achieving significant membership growth, is supported by our continued focus on making disciplined investments, driving productivity and delivering consistent quality, including Stars and Net Promoter Score. In a moment, Susan will provide additional details on our second quarter performance and full year expectations, including a deeper dive into utilization trends. But first, I'd like to take a few minutes to reinforce the strength of Humana, including our differentiated capabilities that enable our leading platform, while highlighting the continued advancement of our integrated care delivery strategy. I will start with the strength of our MA platform. The industry-leading individual MA growth we've achieved in 2023 creates significant momentum as we move into 2024 and advance towards our 2025 adjusted EPS target of $37. The growth we've seen in 2023 far exceeds initial expectations, and as previously shared, represents high-quality growth supported by better-than-expected retention and a greater proportion of our new sales coming from competitors than initially planned. We anticipate capturing 40% of the industry growth in 2023, increasing our overall market share by 170 basis points to just over 20% at year-end. As part of the growth, we've seen a substantial increase in agents as a percentage of total sales, while full year sales are anticipated to be 44% higher in 2023 than in 2022. Agent sales are expected to be 75% higher year-over-year, representing a significant contributor to our successful sales performance. The improvement in sales to agents further speaks to the quality of our growth, as retention for agent runs approximately 5% to 8% better as compared to our overall new membership base at their first reenrollment cycle. Further, agents initially run a higher benefit expense ratio than average new member as the MA program is structured such that a plan only receives demographic-related risk adjustment payments for these individuals for the initial 18 months, which does not align with their health status and related risk, resulting in a larger margin expansion opportunity on these members over time. Our leading membership growth achieved in 2023, strong fundamentals and best-in-class quality positions as well to sustainable growth at or above the industry rate. As we look ahead to 2024, we believe the MA industry will continue to see strong growth, fueled by MA's compelling value proposition compared to original Medicare, providing incremental benefits valued at approximately $2,400 annually. Throughout the 2024 MA bid preparation process, we were conscious of the disruption in shopping that's likely to occur in the market, due to the benefit reductions expected in the industry as a result of the negative rate environment and the Stars headwind for the certain competitors. As a result of this disruption, we believe Humana has an opportunity for another robust year of membership growth. Our 2024 product strategy was informed by extensive consumer and broker research and in-depth analytics regarding what Medicare-eligible consumers prefer. We focused on preserving benefits identified as most important, continuing to provide differentiated offerings that focus on improving health outcomes, and selectively enhancing our products with improvements such as increasing the number of members in 2024 that will be on a zero premium plan. We are also prioritizing maintaining product value for duals, those eligible for Medicare and Medicaid, given the unique health care and social needs of this vulnerable population. Input from our clinical analytics and health equity teams helped inform product design choices that will continue to support the needs of our diverse customer population. Importantly, we will enter the 2024 selling season in a position of strength, supported by momentum from our compelling 2023 growth and our continued industry-leading quality. The strength is bolstered by strong relationships with our broker partners as well as ongoing efforts to diversify our channel mix. This diversification includes the growth of our internal payer-agnostic channel, which was reinforced by our acquisition of IFG last August. We leveraged our best-in-class sales process and technology to quickly and efficiently integrate IFG, leading to a significant year-over-year channel growth with selling agents increasing by 26% and MA application volume more than doubling. We also take pride in the consistent recognition we received from organizations such as US News & World Report and Forrester for our excellent customer experience and member-centric approach. All-in, we are excited about the opportunity ahead. Turning to Medicaid, our track record of organic success in this space continues and we are pleased to recently announce that Humana has been recommended by the Oklahoma Healthcare Authority to deliver health care coverage to Medicaid beneficiaries across the states, which is anticipated to start in early to mid-2024. After successfully implementing the Ohio and Louisiana contracts in early 2023, we look forward to beginning to serve members in both Indiana and Oklahoma in 2024, bringing our total Medicaid footprint to nine states and approaching approximately 1.5 million members by year-end 2024. Now, moving to our CenterWell care delivery capabilities. We continue to expand our CenterWell Primary Care platform, now operating 250 centers serving 272,000 patients. Engaging and retaining patients is critical to driving improved health outcomes and advancing towards our $3 million contribution margin target in each center. We've seen improvement in both of these areas, with retention improving 220 basis points year-over-year, while the percent of patients that have been seen at least once as of June 30th increased from 78% in 2022 to 87% in 2023. Further, we remain on track to end the year at the high end of our previously-communicated annual center growth of 30 to 50 through a combination of de novo build and programmatic M&A. And I'm pleased with our progress our primary care organization is making to advance our clinical capabilities, driving operational efficiency, and implementing other actions that we believe will largely mitigate the ultimate impact of risk adjustment model changes that will be phased in over the next three years. In Home, we continue to accelerate our value-based strategy, now covering approximately 830,000 members of our MA members under a value-based payment model covering home health, DME and infusion services, and expect to expand this in 2024 and beyond as we are on track towards our goal of covering 40% of our MA members with a value-based model by 2025. We are seeing solid results from this model. In North Carolina, Virginia where the model was implemented in late 2022, CenterWell Home Health hospital admissions rates are approximately 210 basis points lower than other providers. In addition, our Home business also now manages DME spend under a value-based payment model for an additional 4.5 million Humana MA members, delivering incremental value to our insurance segment. We expect positive enterprise value creation from the value-based home health model in 2023, and remain on target to drive $110 million to $150 million of annual enterprise value creation by 2025. Within CenterWell Pharmacy, we continue to advance our clinical capabilities and are seeing a year-over-year increase in adherence measures. We've seen an increase in adherence to hypertension, hyperlipidemia, diabetes, medications ranging from 20 to 30 basis points year-over-year, which helps Stars and clinical outcome measures. Across these three categories, we continue to see that Humana members who utilize CenterWell pharmacy have fewer inpatient admits per 1,000 as compared to non-CenterWell pharmacy users. In addition our CenterWell Specialty Pharmacy demonstrates improved patients outcomes by driving longer therapy durations on higher adherence levels. As an example, patients in the oncology center of excellence have a 1.8 times longer duration and a 200 basis points better adherence than patients not engaged with the Center of Excellence. Expansion of our CenterWell assets complement the integration of our individual health service businesses in local markets, which will create further value for our shareholders and for our customers. Before turning it over to Susan, I'd like to give a brief update on the integration work we currently have underway. Our belief is we can deliver greater member and patient satisfaction, retention and clinical outcome for these members. This is based on our ability to further integrate clinical and operational workflows while delivering a more seamless experience for our common members and patients. As an example, we estimate drug costs, review planned benefits and screen for patient assistance programs for members in our wholly-owned centers. In addition, our CenterWell Home Health and Primary Care teams review high-risk patients and collaborate on a more comprehensive care plan, prioritizing health-related concerns that go beyond the original home health orders, greatly reducing risk of complications and unnecessary ER visits and avoidable admissions. The primary care physician, the social worker and home health nurse work in coordination with the health plan to take advantage of planned benefits to address health-related social needs like food, housing and security, transportation needs, and social isolation. We will continue to innovate and advance towards a more integrated clinical model that leverages our collective Humana and CenterWell capabilities to deliver improved experiences and health outcomes for our members. We are encouraged by the early results of our integration work, and are actively expanding our focused markets from two in 2022 to more than 20 by year-end. We look forward to sharing more on this important work going forward. In closing, I'd reiterate that Humana's fundamentals are strong, and we are confident in our ability to navigate through the near-term impacts of our higher-than-expected MA utilization while continuing to advance our strategy. And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025. Our confidence in our ability to deliver on this compelling earnings growth target is supported by our impressive 2023 membership growth, strong MA positioning in 2024, consistent quality scores and continued growth and integration in CenterWell, all of which is complemented by our continued focus on productivity and disciplined capital deployment. With that, I'll turn the call over to Susan. Susan Diamond: Thank you, Bruce and good morning everyone. Today, we reported second quarter 2023 adjusted earnings per share of $8.94, consistent with internal expectations. Results for the quarter are inclusive of the higher-than-anticipated utilization in our Medicare Advantage business we discussed last month, which as Bruce shared, has stabilized and is tracking in line with our updated estimates. I will provide additional detail on emerging trends in a moment. The higher-than-anticipated utilization in the quarter was offset by better-than-expected favorable prior year development, a more positive midyear Medicare risk adjustment payment and slightly favorable investment income, as well as other business outperformance, particularly in our Medicaid business. Our performance to date reflects the strength of the enterprise, highlights our ability to successfully navigate near-term uncertainty, and importantly, includes better-than-anticipated individual Medicare Advantage membership growth. We now expect to add approximately 825,000 members in 2023, reflecting an impressive 18% growth rate, fueling our ability to continue to deliver compelling earnings growth in the future. Further, for the full year, we have reaffirmed our adjusted EPS guidance of at least $28.25 which was increased by $0.25 with our first quarter earnings release and reflects a 12% increase over 2022, putting us on a solid path to our 2025 adjusted EPS target of $37. I will now provide additional details on our second quarter performance and full year outlook, beginning with our Insurance segment. As highlighted in our 8-K filing last month, beginning in early May, we noted the emergence of higher-than-anticipated non-inpatient utilization trends in our Medicare Advantage business. At the same time, we began seeing higher-than-anticipated inpatient utilization diverging from historical seasonality patterns. These trends continued in early June. Based off of this intra-quarter information when we filed the 8-K on June 16th, we made the assumption that we would continue to experience moderately higher-than-expected trend for the remainder of the year. We were pleased to see that our June paid claims data received in July reflected positive restatements for the first quarter, as well as stabilizing outpatient utilization levels in April and May. While July claims data is not yet complete, early views support our year-to-date booking levels. With respect to inpatient activity, the higher than initially anticipated utilization has continued, consistent with our June update. All in, we view the utilization data received in recent weeks is incrementally positive as compared to the assumptions utilized in our June update. That said, we continue to point you to the top end of our full year Insurance segment benefit ratio guidance range of 86.3% to 87.3%, and will continue to monitor emerging trends. This guidance also contemplates the individual Medicare Advantage membership growth post the annual election period, which has included a higher-than-expected proportion of agents. As Bruce discussed, agents initially run a higher benefit expense ratio than the average new member, which negatively impacts the current year benefit ratio but results in a larger margin expansion opportunity on these members over time. As previously noted, we anticipate that the higher than originally expected benefit ratio in 2023 will be offset by a variety of factors, including higher-than-expected favorable prior year development, additional administrative expense reductions, higher than previously anticipated investment income and other business outperformance. And while we would typically not comment on 2024 this early in the year, given the questions in the market regarding pricing resulting from the higher-than-expected utilization in 2023, I would reiterate that our Medicare Advantage pricing contemplated the rate environment, emerging utilization trends and related offsets, as well as the competitive landscape and resulting growth opportunity. As we sit here today, we remain confident that our 2024 pricing, combined with the strength, scale and agility of the organization, will allow us to deliver earnings growth that keeps us on a reasonable trajectory to our 2025 adjusted EPS target of $37. As a result, our intent is to target adjusted EPS growth within our historical long-term target range of 11% to 15% in 2024. We look forward to sharing more on 2024 later this year. Turning to Medicaid, the business continues to outperform with second quarter results exceeding expectations, driven by favorable membership results, combined with disciplined medical cost management initiatives and lower-than-expected utilization. Redeterminations, which began in the second quarter, are tracking slightly favorable to our initial expectations. In addition, the Louisiana and Ohio contracts, which were both implemented in the first quarter, are performing as anticipated. At this time, we continue to expect an increase of 25,000 to 100,000 Medicaid members for the full year as the membership gains in Louisiana and Ohio will be largely offset by membership losses resulting from redetermination. Membership in our stand-alone PDP business is tracking favorable to expectations, driven by better-than-anticipated retention. As a result, we've improved our full year guidance from down approximately 800, 000 to down approximately 700,000. Now turning to CenterWell. The segment has continued to build on a solid start to the year, performing modestly better than expected in the second quarter. Our Primary Care organization continues to report better-than-expected patient growth year-to-date, adding 10,000 patients or nearly 52% growth in our de novo centers and 12,000 patients in our more mature wholly-owned centers, representing 7% growth year-to-date. We now anticipate full year patient panel growth of approximately 27,000 to 30,000 as compared to our original estimate of 20,000 to 25,000 patients, more than doubling the patient growth achieved in 2022. In addition, our Primary Care organization continues to improve the operating performance in our wholly-owned centers, and we're pleased to report that we estimate we will increase the number of centers that are contribution margin positive from 110 at the end of 2022 to approximately 125 at year-end 2023, a 14% increase year-over-year. In addition, we expect to increase the number of centers that have reached our $3 million contribution margin target from 31 in 2022 to approximately 40 at the end of 2023, a compelling 30% increase year-over-year. While we do expect the risk model revision to have an impact on our center contribution margin performance in 2024, as Bruce shared, we are focused on advancing our clinical capabilities, driving operational efficiencies and implementing other actions that we believe will largely mitigate the ultimate impact of the risk adjustment model changes that will be phased in over the next three years. In the Home, total same-store new start of care admissions and our core fee-for-service home health business were up 5.8% year-over-year as of June 30th, in line with our expectations of mid-single-digit growth. In addition, in the quarter, we saw episodic admission growth of approximately 10% year-over-year, which is inclusive of the acquisition of Trilogy Health completed in April. While new start admission growth is strong, we continue to experience pressure on recertifications due to utilization management programs of Medicare Advantage payers. And as expected, our cost per visit continues to run approximately 2% higher year-over-year with continued nursing labor pressure. From a quality perspective, we have seen significant improvement in Star ratings for CenterWell Home Health over the last year, increasing the percent of our branches with a 4.5 star or above rating from 18% in January 2022 to 50% today. Further, as Bruce highlighted, we're seeing positive results as we continue expansion of our value-based home model, tracking towards our goal of covering 40% of our Medicare Advantage membership by 2025 while also expanding the stand-alone components in certain markets to accelerate value creation. Finally, our Pharmacy business performed well in the quarter, benefiting from higher-than-expected individual Medicare Advantage membership growth as well as favorable drug mix. As anticipated, year-to-date mail order penetration for our Medicare membership is 40 basis points lower than prior year as a result of retail pharmacy co-pays now largely being on par with mail order benefit. We continue to provide awareness and education of the benefits of mail order for a large block of new members to drive increased penetration throughout the year. Investment income slightly outperformed expectations in the quarter and we now anticipate that investment income will increase by approximately $500 million year-over-year, up from our original expectation of a $450 million year-over-year increase. From a capital deployment perspective, we initiated open market repurchases in March and have completed approximately $800 million in repurchases to-date, taking advantage of the recent dislocation in the stock price relative to our comments in the long-term earnings outlook of our business, underpinned by our strong Medicare Advantage platform and the continued build-out and integration of our CenterWell assets. We now expect share repurchases of approximately $1.5 billion in 2023, up from our original expectations of $1 billion. With our strong cash flows and decreasing debt-to-cap ratio, we've accelerated the share repurchase while maintaining sufficient capital for normal course M&A activity. Lastly, with respect to earnings seasonality, we expect the percentage of third quarter earnings to be approximately 25%. In addition, we expect the third quarter Insurance segment benefit expense ratio to be 87%, consistent with current consensus estimates, before increasing in the fourth quarter consistent with historical seasonality patterns. Before closing, I want to echo Bruce's sentiment that Humana's fundamentals are strong, and we are pleased with our ability to grow individual MA membership by 18% in 2023 while guiding to a robust 12% year-over-year in adjusted EPS. We are confident in our ability to leverage the strength and scale of the enterprise to navigate through the near-term impacts of the higher-than-expected Medicare Advantage utilization while continuing to advance our strategy. And importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: [Operator Instructions] Our first question comes from Stephen Baxter with Wells Fargo. Your line is open. Stephen Baxter: Yes. Hi, thanks. Appreciate all the color, a lot to digest there. So the commentary on 2024 bids was very helpful. It sounds like, at least to my hearing, that the higher trend that you see in MA persists for the balance of the year, you believe your bids would fully reflect that. Just making sure we have that point right. And then obviously in June, you did talk about some pretty significant operating cost offsets that you expected will allow you to deliver on EPS this year despite the higher MLR. I guess how do we think about these potential cost offsets into next year? Are those still largely an opportunity for you if you need them as an offset? Thanks. Susan Diamond: Sure. Hi, Stephen. So to your first question, in terms of 2024, we are assuming that the higher trend that we've seen in 2023 will continue into 2024. So that is contemplated in our current commentary. I would say that as we said in our June commentary, we did -- when we saw the emerging trends, we did not fully embed and make a change reflective of the higher trend we were estimating at that time in our bid. And there's a variety of reasons for that, as we said. If the emerging trend would continue to persist, there would be other assumptions that you would want to revisit in terms of whether there's risk adjustment offsets, did your view of claim trend incrementally in 2024 change in light of that higher trend. So for a variety of reasons, we were clear that we did not fully embed that into the 2024. Also recognizing that we do continue to believe there is a disproportionate growth opportunity in 2024, and wanted to make sure that we were positioned to take advantage of that for it to occur. As we've continued to evaluate trends relative to what we saw in June, as we said today, we are more confident in our estimates going into 2024 and able to evaluate our pricing actions now that we've seen stabilizing trends. So that's certainly a positive. We've also done a lot of work over the last number of weeks to assess and what is that impact on 2024, and how do we feel about other available levers and assumptions. And based on everything we know today, we wanted to affirm in our commentary that we do feel confident in our ability to deliver an EPS progression in 2024 that's consistent with our historical range, knowing that that was a question that was raised in June based on our intra-quarter commentary. So, we do feel comfortable with that. In terms of 2023, as we described, there are a number of offsets to the higher trend we're seeing this year. Some favorable prior year development, investment income, and certainly administrative expense reductions. Some of those things will certainly carry forward into next year. Admin, as an example, will be a continued positive relative to what we would have expected at the time of pricing as well as likely investment income. Some of the prior period development we would view as more onetime this year and so not necessarily carrying forward into next year. But based on everything we have visibility to right now, as we said, we feel comfortable that in 2024, we will be able to deliver that earnings progression and EPS progression consistent with our historical targeted range. Operator: Thank you. Our next question will come from A.J. Rice with Credit Suisse. Your line is open. A.J. Rice: Thanks, hi everybody. Thanks for the comments about the retention with the aging population. It seems like to me, a key factor in the next couple of years, hitting ultimately your 2025 target is the retention of all these members you've gotten this year and then whether the progression you normally see and profitability plays out. Can you just sort of remind us historically what the trend is, A, on retention? And B, on how the profits step-up over time? And do you think there's any reason on this population you've added this year when either of those metrics might be different than normal? Bruce Broussard: Good morning A.J. I'll take the first part, maybe Susan can take the profit trajectory. On the retention area, I think as we've talked on a number of calls over the last few years, we've spent a lot of effort in improving the retention and we really look at it in a few areas. First is just in the benefit design. It's an important area where people will focus on and as -- both this year is a demonstration of that. But I think, I'm pretty sure, it's where we've really been able to design our benefits for the segments that we want to continue to grow and retain. And that, I think, is an important area where we'll continue going forward. And as we've mentioned on a number of occasions, we feel very confident about our positioning for 2024. The second is in the area of our experience and our customer experience, both in the service area and then, obviously, in the claims management area that we have. And as you can see from our Net Promoter Score and the continued accolades we get from third-parties that we have -- are leading the industry in all those areas. And that we've seen also, referring back to the brokers where they feel confident in both recommending us as a result of our benefits, but also recommending us as a result of our service side. Because they have told us on a few occasions that their confidence is less in some of our competitors as a result of recommending a plan and then ultimately, not being able to service that plan. And so I would just end by saying our benefit design is really important and that's more segment-specific. And then secondarily, the service experience that we provide and the ability to continue to do that both in a positive way from the customer point of view, but also from an efficient way. Susan Diamond: Hi A.J. To add to what Bruce said on the retention, we have commented historically that we do see typically higher disenrollment rates in the earlier years of tenure, particularly year one and two. So, the longer we retain that book, as you said, should provide some incremental benefit. So, last -- the 2023 high growth and if we're able to see high growth again in 2024 as we continue to see that block mature, hopefully, in the outer years, you will start to see some of that incremental improvement as we retain that book longer. As Bruce commented in his comments about the agent, that is, I would say, incrementally positive because we do see that earlier tenure years, they do retain at a higher rate if we get them their initial eligibility versus subsequently. So that, I would say, is incrementally positive as well relative to our historical. On the profit progression, what we typically said is it takes about three years for either an agent or a -- other new member to reach mature contribution margin. Agents start much lower, obviously, because of the risk adjustment and reimbursement dynamics there, and so there's a larger opportunity for expansion over that three-year time frame. But we consider, in the aggregate, the new member cohort to take about three years. So, for the agent block, it's usually disproportionately in the second year of retention because they need about 18 months of Medicare claims activity before they convert to full diagnosis-based risk adjustment. So we should see a positive impact from that in 2025 for the higher agents we get in 2023, and then incrementally from there as well. A.J. Rice: Okay. Thanks a lot. Operator: Okay. Our next question will come from Justin Lake with Wolfe Research. Your line is open. Justin Lake: Thanks. Good morning. First, just, Bruce, I appreciate your commentary on 2024 in expecting a strong industry growth, and you outperform it. Can you give us a little more color there in terms of the -- maybe relative to the, let's say, 7% to 8% we think the industry is going to grow this year? How do you think it grows next year? And then any early commentary on 2025 Stars? I know you've gotten a bunch of data there. I know it's still not perfect, but any thoughts on how your 2025 Star performance is shaping up going into October? It would be helpful, too. Thanks. Bruce Broussard: And in regards to just the industry growth rate, Justin, I would say we still feel confident that it's going to be like historical years. We see the demographics continuing in the aging side. We see the value proposition continuing to maintain a fairly healthy difference between MA and Medicare fee-for-service. And then third, we do see segments like the duals as being underpenetrated. And we believe that as we progress into a higher penetration into the industry, we'll continue to see other segments being highly penetrated. You've seen this year in our results that agents are starting to become more and more part of that. And so we do see the growth continuing, and we are confident that we'll see that for the foreseeable future. Relative to Stars, it is an early -- it's -- we haven't got all our results, but we feel pretty good about where we stand as a result of what we see preliminarily. Obviously, we haven't seen the comparative measurements and how you stack up with the industry, but I would say that we feel pretty good about our existing analysis. Justin Lake: Thanks for the color. Operator: Thank you. Our next question will come from Nathan Rich with Goldman Sachs. Your line is open. Nathan Rich: Hi, good morning. Thanks a lot for the questions. I wanted to ask about how you believe your kind of benefits will compare to the market overall? Obviously, you're coming off of a year where you significantly increased benefits for 2023. What does that look like for 2024? And I know it's early, but it would be helpful if -- to get your sense of how you're thinking about margins for the insurance segment in 2024, given the moving pieces with utilization, the risk and risk model change of your redeterminations? Any kind of early view would be great. Thank you. Bruce Broussard: I'll take the benefit side, and I'll let Susan discuss the margin side. On the benefits, we -- as I mentioned, we have really been thoughtful around how do we adjust the benefits appropriately considering the funding that's in the marketplace and as a result of the reduction and -- from the latest rate notice. And so we've tried to really do a significant amount of research around where are the priorities for the Medicare beneficiaries and what do they value most by particular segments, whether that's in the military, whether that's duals, whether that's agents, et cetera. And we feel really good about that research and feel that we are going to come out with a value proposition that is going to meet the mark for each of those segments, considering the funding side. And as you can see in our commentary, we made a comment about that we did increase premium plans this year and coverage more. We felt that that was a really important benefit that people are looking for. And in addition, in our duals population, we continue to ensure that we are providing the ample amount of support for supplemental benefits, because we do find that lifestyle is an important part of them to continue to improve their health outcomes. Relative to our competitors, we've gotten an early view on it. It's always the most positive view, and we feel we're in a good position. And I just want to remind everyone, last year, we weren't the cheapest in every market. What we find with our brand, our relationships with our brokers, our quality scores, our experience, and our Star scores specifically, we find that we compete when we are within shouting distance between the various different plans. So, we don't have to lead the industry in every benefit. We have to be close. And what we see when we do that as a result of our stability of our platform that we are able to take a significant amount of the market share there. So, benefits are important, but I would just emphasize, we've never pride ourselves on being the cheapest. We want to be in the range where it's competitive and people are having to make a decision between a few plans, but we always went out a result of the quality and the ability to service our members. Susan Diamond: And one thing I would add to that too as you think about 2024, as Bruce mentioned, some of the competitors do have incremental pressure from Stars. And so what we've consistently heard is there will likely be some area of focus for certain competitors. Duals is a great example where a few have indicated that they will put their focus and potentially make some investment there. What's interesting about that is, as we commented in 2023, we, for a number of years, have lagged the industry in non-dual growth but outperformed on duals, which allowed us on the overall average to be in line or better than the industry. The non-dual population is the much larger population, and so the ground we made up in 2023 and our ability to outpace the market in non-dual growth, we were particularly excited about and want to make sure that we maintained into 2024. And I think based on what we're hearing and seeing, we feel very optimistic about how we're positioned. And we've also seen and heard positive feedback from the brokers, which we've previewed some of our 2024 changes with as well. So that -- all of that speaks to some optimism for 2024. On your question about 2024 margins, it's really too early to give that type of commentary. Typically, we will give you a little bit more commentary on our third quarter call. As I said in my comments, we did think it was important though, in light of the emerging experience and commentary this year, to give confidence over where we thought we would be from an overall perspective and our confidence that we will deliver against our historical range to make sure that that wasn't in question. But there are a number of things that we'll have to evaluate as we think about 2024. Detailed estimates, the level of membership growth certainly in 2024 is a big one. As we've said, we do think there is an opportunity for potential disproportionate growth, and so the composition of that between agents, switchers as well as retention will be an important consideration. And then obviously, as we continue to evaluate these emerging trends and whether they sustain or further moderate will be an important input as well. So, certainly look forward to sharing more, but wanted to reinforce our confidence in our ability to deliver progression in 2024 consistent with our historic targeted growth rate. Operator: Thank you. Our next question comes from Scott Fidel with Stephens. Your line is open. Scott Fidel: Hi, thanks. Good morning. Would be interested if you could give us an update on how you're approaching coverage of the Alzheimer's drugs and the emerging therapies, there for 2024? And then just some preliminary thoughts on sort of how you may be factoring that into your bids and into expected MA costs for 2024? Thanks. Susan Diamond: Sure. So we will certainly follow sort of CMS coverage determinations in terms of what and when and for what label use that we have to cover. As we went into our thinking for 2024, we did have a point of view that we would have some costs related to the continued launch of Alzheimer's treatment, so we do have pricing in our bids. I would say, based on the team's latest assessments, we feel comfortable with what we've priced for 2024. There's been a lot of questions about whether the drugs would trip the significant cost policy. Based on our estimates, you have to hit about $1 PMPM of sort of expense discipline level to be able to trip that. And right now, we don't think we will get to that level across the industry in spend, but certainly something to continue to watch. So I'd say we have contemplated in 2024 pricing, and based on what we're seeing so far, we feel comfortable that that's not a material headwind. Operator: Thank you. Our next question comes from Steve Valiquette with Barclays. Your line is open. Steve Valiquette: Great. Thanks. Good morning. So I guess just regarding the elevated Medicare cost trend for the second quarter and then thinking about some of the potential moderation in the back half of 2023, can you just remind us whether or not there's any major levers you can and have proactively pulled midyear to just better contain the elevated Medicare cost for the back half of the year, either on prior authorization policies or just other coverage factors? Or are the 2023 trends really more just serendipitous at this stage? You just have to wait essentially until 2024 to make any material changes to either better control costs or adjust pricing benefit design, et cetera? Thanks. Susan Diamond: Sure. Hi, Steve. I would say at this point, in terms of what we're thinking in the second half trends, we are assuming that those trends continue and do not moderate. There's some seasonality differences in just workday seasonality year-over-year that we certainly take into account, but from a normalized basis, we were anticipating that those trends continue and are not mitigated by any actions or levers we might take. I would say on the broader medical cost trend, I would say there's probably not a lot that, at least to date, that we would identify that we would be able to do in response that could mitigate that. On the dental side, which we have commented on, which is we think more Humana-specific, there are a few things we are looking at in terms of coverage to make sure that we've got the appropriate controls in place, but I would say that would not be a material factor, I'm thinking about how we're thinking about the trend for the year. The main lever that I would say that we're relying on internally to offset some of the elevated trend in the back half of the year is more administrative expense savings. We have asked the organization to find additional opportunities, and that's largely informed by some of the ongoing productivity work that we've been viewing that highlights that there are some additional opportunities. And I would say relative to what we considered in our original plan for the year, those extra admin savings will be disproportionately benefiting the back half of the year. Whereas the first half of the year, the elevated trend had the benefit of things like prior year development that we would say is going to disproportionately benefit the first half versus the back half. Operator: Thank you. Our next question comes from Michael Ha with Morgan Stanley. Your line is open. Michael Ha: Thank you. Appreciate all the commentary and talking from 2024 and 2025. Just quickly, first, did you mention you expect to maintain the same level of non-dual growth rate in 2024 as you saw in 2023? And then quickly on 2025, is it fair to say basically whatever happens in 2024 in costs from -- even if it does run slightly high, that as long as you're able to capture that in next June's bids, then $37 is still well on track for 2025? And I'd imagine maybe even stronger if you're able to capture more growth, market share in 2024 because you're carrying a larger base of that main line that will see that year one to year two profitability ramp? Bruce Broussard: Yes, I mean you're thinking is consistent with what we're thinking on a few things. I think first, as we look at how we've adjusted our benefits in 2024, we continue to orient the zero premium plan, and we've seen agents be oriented to that, so that is an area where we continue to see that agents, that percentage, and we're anticipating probably a good level of growth. Now, I won't get into the percentage between agents and non-agents there, but we do anticipate that. And as Susan articulated, we also see margin expansion happening in the book that's coming in 2023 to 2024 and continuing on to 2025. So, we do have this ability to have a step improvement in each of those areas. And then when you think about just the market in general and the growth of being able to do this, we're very optimistic about the growth, as I mentioned before, with Justin on the growth of it. Susan, do you have anything that you would like to add to that? Susan Diamond: Yes, I would say on the question about the non-dual growth, I do think the ground we made in 2023 that we will continue into 2024. And frankly, based on some of the preliminary information we are hearing from competitors and the focus on duals, maybe we'll be even a little bit better positioned if that wasn't as much of a focus for some others. So, I do think that's positive. On the pricing for 2025, as you said, we always -- if there's some residual trend where we are able to offset that in 2024 with something that's non-recurring, we would always have the pricing lever if we should need it. But our hope and plan would be to find durable offsets that would continue and prevent us from having to take further pricing action. But that is certainly always an option. In terms of the progression, and to your point, the higher growth certainly is positive in supporting our trajectory to 2025. I will say the one thing we'll have to continue to evaluate, though, is the impact of the risk model recalibration and then obviously, the rate book in 2025. And we know that we'll have those cuts phased in over three years, and so our goal would be to try to offset as much of that as we can and minimize further beneficiary impacts, although there's likely to be some. So, that's the one, I would say, caveat is we'll have to evaluate that as it comes out and then the overall puts and takes that we always have to consider in 2025 pricing and balancing continued strong membership growth, but also delivering the EPS progression that's needed to hit the $37 and then continue to perform at a strong durable rate beyond that. Operator: Thank you. And our next question comes from Gary Taylor from Cowen. Your line is open. Gary Taylor: Hi, good morning. Most of my big-picture questions answered, so I'll just dive into a couple of the details. One, I wondered if you could just talk about the source of the stronger PYD, if that's been outpatient ambulatory or perhaps just kind of final inpatient acuity? And then secondly, Susan, you mentioned the sweep revenue at 2Q being higher than it usually is. I just wondered if you could speak to the materiality of that? I don't think I've ever heard you talk about that much before. Thanks. Susan Diamond: Sure. Hi, Gary. On the PYD, I don't know that we've historically given a lot of detailed drivers. And I would say it's -- there's not a single sort of primary driver of that that I would call out, so more broad-based. I would say one item is that we do -- we talked about last year that we took a more conservative posture to year-end reserving, and so that certainly would unwind over the course of the first half of the year as that proves -- as those claims ultimately mature. I would say, as we looked at the experience, we have acknowledged and seen that just internally, our seasonality models we think overstated our sort of expectation of claims trend in the fourth quarter, particularly in the month of December, and then fully account for sort of work day differences or the impact of holiday differences in the day and the week they fall. So, I would say we've seen somewhat consistently that December 2022 was more conservative than we would have thought at year-end, and we saw some of that emerge and release through the first half of the year. In terms of Q2 revenue, as I said in my comments, part of the reason the MLR was a little bit more favorable relative to the commentary we gave intra-quarter was the fact that we did see some positive mid-year risk adjustment payment, which would have been booked in the second quarter. I think from an overall perspective, from an annual basis, you wouldn't consider it material. And in the absence of some of this higher trend probably wouldn't be something we have even called out, but given the previous commentary on MLR, wanted to provide some transparency to the fact that there were some puts and takes that offset the higher pressure. And we were pleased to see some slightly higher midyear payment, which again, is probably to some degree reflected the higher trend too as those additional -- that was probably emerging partly last year in that book as well. Operator: Thank you. We have a question from Joshua Raskin with Nephron Research. Your line is open. Joshua Raskin: Hi, thanks. Good morning. I guess I'm just trying to understand that build up to the 2024 EPS growth in line with your 11% to 15% long-term targets. I understand you're growing 18% membership this year, and that will mature a little bit next year. But I'd assume if your pricing for benefit changes to take market share when competitors are vulnerable, and I totally get the strategy plus the impact of the risk model changes that it would be hard to expand margins on the rest of the book. So what am I missing? What are the positive drivers to EPS for next year? Susan Diamond: Well, certainly, Josh, as we thought about 2024 intent all along, would have been to deliver against that needed progression to get to a reasonable trajectory to deliver on the $37.25. So that would have always been the intent. I think as we've seen some of the higher claims emerge this year, and we've further evaluated that as well as how the estimates are developing for next year, today, I thought it was important to convey confidence that we will -- we still continue to believe that we can deliver in that range. So, I would say that was the intent all along and as the enterprise book is performed and we thought about the membership growth opportunity. Because you were already advantaged coming into 2024 in terms of obviously how well we were positioned in 2023 and the lack of the Stars headwind for us going into next year, we always had a point of view that relative to others, we would have less benefaction to take and still be really well-positioned and also still deliver on the needed earnings and EPS progression. So, that's always been the plan, and we felt really good about that going into our planning. The higher outpatient and overall trend is the new development that we've spent a lot of time working through the last number of weeks to make sure that we continue to be confident that we're in a similar position and have the ability to navigate through that, which we do believe. Bruce Broussard: Hey Josh, maybe a few other things. If you remember at the Investor Day, we really broke down our earnings growth into a few areas where our core business was going to grow. And then in addition, where we were going to grow from productivity and from capital deployment there. And capital deployment and productivity were close to 4% of our growth with the growth of the core business, making up the 10% or so. What we see this year is we're going to -- or next year, we anticipate growing probably a little more on the productivity side as a result of just some of the initiatives that we see that are really showing some good results, and us continuing to scrutinize where we feel that we're not spending that appropriately there. And then on top of that, you mentioned a little bit about the rate notice. We price for the rate notice. I mean we incorporated that in the price, so as we look at the benefits, they will not be as rich as they've been in the past as a result of us having to reflect the impact of the rate notice and that is the third. And we -- as Susan was articulating in the previous question, we have two more years that we'll have to incorporate it in there. So, I would say that, to answer your question specifically, you see the benefit of our growth this year showing up in 2024, and we anticipate that same benefit growing -- showing up in 2025 as a result of both 2023 growth and 2024. Our focus on productivity gain greater than 2% and our capital deployment being there. And then our other businesses are showing good results, too. Operator: Thank you. We have a question from David Windley with Jefferies. Your line is open. David Windley: Hi thanks. Good morning. Thanks for squeezing me in. I wanted to ask a question on trend on a couple of different axes. One is kind of the geographic breadth of the higher trend that you've seen. Does it have any regionality to it? And then secondly, is it concentrated mostly in the non-dual population? Or is this also present or apparent in the duals population? I'm kind of thinking about as you're -- as you set up for growth in 2024, do you have preferences about where that growth might come from either by type of member or by region of the country? Thanks. Susan Diamond: Hey David. Start with your first question on the medical cost trend, I would say it is not concentrated, it's pretty broad-based. The one thing we have commented on though, which again, we think is more Humana-specific, the dental -- higher dental trends, those are a bit more concentrated, and that's more reflective of just where the product offerings, we call it the allowance plans where there's just an overall dollar of funding that the beneficiaries can use towards those dental benefits. That tended to be more of an offering inside the Florida markets, and so you do see some concentration on just that one dental element. But the broader medical cost trend, I would say we haven't seen any real concentrations. On the more population-based dual, non-dual, I would take in generally broad-based. Although I would say in general, the deals are performing better relative to non-duals. They're still seeing some pressure, but the risk adjustment and the revenue dynamics offset some of that. And so I'd say, the non-duals are performing a little bit worse than the duals. I would say, consistent to what we've said before, we continue to see, though, is the broader medical cost pressure is more non-risk-based concentrated versus risk providers. The risk providers are not seeing as much of it, which -- and our minds makes a bit more sense because in general, they do a better job managing some of that outpatient spend just by definition. And so we are seeing on the broader medical cost more in the non-risk space. The dental, again, because of where it's located, that actually is disproportionately risk based, and so we do get some offset there because of DIR fees that we're typically offering that coverage. Operator: Thank you. And our last question comes from Kevin Fischbeck with Bank of America. Your line is open. Kevin Fischbeck: Great, thanks. Just wanted to kind of clarify. I mean, I guess when you guys provided that initial $37 number for 2025, you were thinking you're going to grow below average this year. And given just how strong you're growing this year and I guess it looks like another year of above-average growth for next year, are you going to be at your membership -- your initial membership thoughts for 2025 next year so that you don't really need to grow membership in 2025 at all to kind of puts you on track for that $37 number? And then I guess, to think about there's been a lot of concern about trend and whether you need to reprice and what that could mean for growth in a given year. It sounds to me like what you're saying, and based upon I guess we've seen over two-thirds of the industry report and talk about higher trend too, it doesn't sound like you think anything you're seeing here is company-specific. That if there is a need to reprice to elevated trend at the industry need, not a Humana-specific need that would impact your competitive positioning at all? I just want to make sure I understand that dynamic as you think about how you might need to reprice or think about repricing over the next couple of years to higher trend. Thanks. Susan Diamond: Hi, Kevin, yes. So on the membership, we are certainly outpacing what we would have anticipated underlying the $37 target. As you said, we were anticipating lower than -- slightly lower than industry growth in 2023, anticipating it would take us two years to get back to the industry growth rate. So, that really strong growth this year is certainly positive, and our hope is that we can have a repeat performance in 2024. So that would all be positive, and we should certainly outperform the membership growth that was contemplated. Our goal though, as we said, is we're not going to take our foot off the gas, so we will continue to strive to position ourselves to sustain industry growth rate or better on a sustained basis going forward, given the beneficial impact of that from a lifetime value perspective and importance in supporting a durable, strong continued EPS growth trajectory as well. On the trend question, as you said, other than the dental, which we've talked about as being more Humana-specific and where you will see us having made some benefit adjustments in 2024 and maybe potentially some additional in 2025 as we continue to watch that emerge. The broader medical cost trend, we do believe, is consistent with what everyone else has been saying. I do think there's some maybe timing differences and when different companies thought and to what degree they reflected it in 2024 pricing. And so I think, ultimately, though, if there is any residual price action that we feel we want to take in light of what we're seeing in 2025, to your point, we would not expect that to put us in an outlier position relative to others. Although it may be that some others have already taken more than we have, and it's just a matter of catching up. But we would say that it is an industry issue, and ultimately, to the degree it needs to be priced for would not create any competitive advantage or disadvantage because it seems fairly consistent across the competitor set. Operator: Thank you. And there are no other questions. I'd like to turn the call back to Mr. Bruce Broussard for any closing comments. Bruce Broussard: Right. Well, again, I would thank everyone for your support and your participation today. And like always, we want to thank our 70,000 teammates in being able to -- for us to be as successful as we are and being able to report the earnings we have. So, thank you and have a great day. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day, and thank you for standing by. Welcome to Humana's First Quarter Earnings Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speaker today, Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our first quarter 223 results and our financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analyst. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K and our other filings with the Securities and Exchange Commission and our first quarter 2023 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. All participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any reference to earnings per share, or EPS, made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa. Good morning, and thank you for joining us. Today, Humana reported financial results for the first quarter of 2023, reflecting a strong start to the year. Adjusted earnings per share for the quarter of $9.38 was above our initial expectations, with outperformance seen to date underpinned by strong membership growth and favorable inpatient utilization trends in our individual Medicare Advantage business. All other lines of business are performing as expected or slightly positive, further contributing to our strong quarter. Based off the strength of our performance to date, we've increased our full year adjusted EPS guidance by $0.25 to at least $28.25. Susan will share additional detail on our first quarter performance and full year expectations in a moment. I'll now provide an update on our operations and outlook. Our unwavering commitment to the advancement of our strategy and growth in our core businesses evident in our industry-leading Medicare Advantage growth, ongoing organic success in Medicaid, recent TRICARE contract award and continued expansion of our CenterWell assets. I'll touch on the recent progress made in each of these areas, starting with Medicare Advantage. The targeted investments we made in benefits, marketing and distribution for 2023 have continued to drive success post the Annual Election Period, or AEP, leading to our current individual Medicare Advantage membership growth estimate of at least 775,000 for the full year, an impressive 17% growth year-over-year. The favorable trend seen in AEP have continued into the Open Enrollment Period, or OEP, with strong growth in the D-SNP space where we've added 113,000 members as of March 31, representing a growth of 17% year-over-year. And notably, we've continued to see impressive growth in the larger non-D-SNP space, adding 474,000 members as of March 31, reflecting a compelling 12% year-over-year growth in non-D-SNP membership. In addition, growth in states with robust or growing value-based provider penetration remained strong. We have grown membership nearly 13% year-to-date in Texas, Georgia, Florida and Illinois, which are highly penetrated value-based markets. Importantly, the growth we're experiencing in 2023 continues to be high quality with better-than-expected retention, where we've now seen a 300 basis point improvement year-over-year compared to our initial expectation of 100 basis point improvement. In addition, we continue to see a higher percent of our new sales reflecting members switching from competitors than originally anticipated. We previously shared that 50% of our new sales in AEP reflected members switching from competitor plans. We've been pleased to see this trend continue in OEP. We are proud of the impressive membership growth achieved in 2023 and, with our strong fundamentals and best-in-class quality, we believe we are well positioned to grow at or above high single digits in the future. Turning to Medicaid. We have successfully implemented the Louisiana and Ohio contracts in the first quarter, adding 215,000 members as of March 31, and growing our total membership to greater than 1.3 million across seven states. Looking forward to 2024, our Medicaid business will add another state to our national portfolio. In March, Indiana announced its intent to award Humana's statewide contract for its new pathways for aging Medicaid program, which is now expected to go live July 2024. Our Indiana health plan will serve elderly and disabled Medicaid enrollees, including integrated care for dual eligibles enrolled across Humana's Indiana Medicaid plan and our Medicare D-SNP. Humana led all bidders with the highest score in the Indiana RFP, leveraging our local Medicare performance and national dual program capabilities, including 28,000 Indiana D-SNP members in 4-star plans. We are proud of our success in Medicaid to-date and anticipate continued investment to grow our platform organically and actively work towards procuring additional awards in priority states, with RFPs currently active in two states. In addition, Humana's largest Medicaid contract is up for bid, as Florida will begin [reprocuring] (ph) its statewide Medicaid program with awards expected by year-end. Humana has decades of strong Medicaid performance in Florida and we believe we are well prepared for this highly competitive procurement. In our military business, we are pleased to be awarded the next managed care support contract for the TRICARE East Region by the Defense Health Agency of the U.S. Department of Defense, the sixth TIRCARE contract Humana Military has secured since 1996. Under the terms of the award, Humana's military service area will cover approximately 4.6 million beneficiaries in a region consisting of 24 states and Washington DC. We are honored to have been selected to continued serving military service members, retirees and their families. Our CenterWell portfolio, comprising primary care, home and pharmacy, continues to see strong growth. As the largest senior-focused value-based primary care platform in the U.S., we now operate a total of 249 centers, serving 266,000 patients, including 207,000 across our wholly-owned and de novo portfolios, and nearly 59,000 patients served through our IPA relationships. This represents 16% growth in center count and 11% growth in patients served year-over-year. We remain on track to end the year at the high end of our previously communicated annual center growth of 30 to 50 through a combination of de novo build and programmatic M&A. And with over 17,000 new patients year-to-date, patient growth for 2023 is trending ahead of previous expectations and significantly higher than the 3,900 patients added for the same period in 2022. Within home solutions, the rollout of our value-based care model continues as planned, now covering over 815,000 Medicare Advantage members with full value-based model, inclusive of coordinating care and optimizing spend across home health, DME and infusion. This represents an increase of greater than 200% year-over-year, driven by expansion in Virginia and North Carolina in the fourth quarter of last year. Under this model, our home health utilization management program drives appropriate levels of care without compromising clinical outcomes. As a result, in Virginia and North Carolina, we have experienced a 600 basis point reduction in recertification rates on episodic contracts across all home health providers. CenterWell Home Health represents more than 30% of home health episodes in these states, compared to a national average of approximately 20% across geographies where CenterWell Home Health and Humana Health Plans have geographic overlap. In North Carolina and Virginia, CenterWell Home Health emergency room and hospital readmission rates are approximately 60 basis points and more than 150 basis points lower than other providers, respectively. In addition, we are covering a total of 1.8 million of our Medicare managed members with the standalone home health utilization management and network management capabilities across multiple geographies. We are seeing early success with these standalone capabilities reducing our network utilization by 200 basis points, while improving recertification rate on episodic contracts by nearly 1,000 basis points year-to-date. Finally, as recently announced, following a strategic review, we determined that our employer group commercial medical business was no longer positioned to sustainably meet the needs of our commercial members over the long term or support the company's long-term strategic plans. Our decision to exit this business augments Humana's ability to focus resources on our greatest opportunity for growth and where we can deliver industry-leading value for our members, customers and shareholders. It is in line with our strategy to focus our health plan offerings on public private partnerships and specialty businesses, while advancing our leadership position in integrated value-based care, including expanding our CenterWell healthcare service capabilities. Before turning it over to Susan, I'd like to briefly touch on 2024. We'd like to thank CMS for their thoughtful engagement throughout the rate setting process, demonstrating their ongoing support for the Medicare Advantage program. We are pleased CMS adopted a three-year phase-in and the risk model changes in the 2024 rate notice, which serves to mitigate the impact of unattended consequences to beneficiaries resulting from these changes. The final rate notice for 2024 reflects a decrease of approximately 112 basis points for the industry. We expect the impact on Humana to be a decrease of approximately 23 basis points with improvement versus the industry largely driven by our industry-leading Star's performance. Looking forward, we believe the industry will continue to see strong growth. Medicare Advantage products have seen a steady rise in their consumer value proposition, offering key benefits that are not covered by fee-for-service Medicare, including benefits focused on closing barriers to care, such as rides to the doctor, and deep focus on coordinating care for those with chronic illnesses. Medicare Advantage beneficiaries save more than $2,400 annually and 95% of enrollees are satisfied with their healthcare quality. The strength of the program is reflected by the nearly 32 million seniors enrolled in Medicare Advantage, but the penetration now at approximately 49%. In addition, we have seen the industry grow nicely through a negative rate environment in the past. Despite unfavorable rates in seven of eight years between 2010 and 2017, Medicare Advantage penetration increased from 25% to 35% over this period. We firmly believe the Medicare Advantage program will remain a compelling value proposition for seniors and expect Humana will be well positioned to remain an industry leader in 2024 and beyond. We will provide more specific thoughts on 2024 in the coming months post completion of the competitive bidding process. In closing, we are pleased with the solid start to the year, which reflects high-quality fundamentals and execution across the enterprise and positions as well on our pathway towards our mid-term adjusted EPS target of $37.00 in 2025. We look forward to providing additional updates on our performance and progress towards our mid- and long-term targets throughout the year. With that, I'll turn the call over to Susan. Susan Diamond: Thank you, Bruce, and good morning, everyone. We've continued our strong start to the year, today reporting first quarter 2023 adjusted earnings per share of $9.38, above our internal and consensus estimates. Our performance to-date shows solid execution across the enterprise and, importantly, reflects better-than-anticipated membership growth and favorable inpatient utilization trends for both our new and existing membership in our individual Medicare Advantage business, allowing us to raise our full year adjusted EPS guidance by $0.25 to at least $28.25. I will now provide additional details on our first quarter performance and full year outlook, beginning with our Insurance segment. As a reminder, in late February, we increased our full year individual Medicare Advantage membership growth estimate by 150,000 members to at least 775,000, but did not adjust our other detailed guidance points prior to issuing updated guidance today. With that in mind, revenue for the quarter exceeded initial expectations, driven by the better-than-expected membership growth. Individual Medicare Advantage PMPMs were in line with expectations, increasing 3.4% year-over-year, which is lower than our expected mid-single digit full year yield due to the 2% sequestration relief in effect during the first quarter of 2022. Turning to claims trend. First, I would remind you that we assume normalized trend for 2023 and expect the provider labor capacity to improve modestly throughout the year. In addition, our original guidance anticipated lower flu levels for the first quarter of 2023, given cases peaked in December, which was offset by assumed higher flu costs for the fourth quarter. During the first quarter, total medical costs in our Medicare Advantage business ran slightly favorable to expectations. We experienced lower-than-anticipated inpatient utilization for both new and existing members. While non-inpatient claims are less complete, early indicators suggest trends are in line with expectations. All in, we are pleased with the early performance of our Medicare Advantage business. Our Medicaid business performed in line with expectations in the first quarter. The Louisiana and Ohio contracts successfully went live on January 1 and February 1, respectively, adding approximately 215,000 Medicaid members as of March 31. Early indicators show performance tracking as anticipated in both markets. At this time, we continue to expect an increase of 25,000 to 100,000 Medicaid members for the full year, as the membership gains in Louisiana and Ohio will be largely offset by membership losses resulting from redetermination beginning in May. Finally, our stand-alone PDP and specialty benefits businesses are also tracking in line with expectations to-date. For the full year, we have updated our consolidated adjusted revenue expectations to a range of $100.7 billion to $102.7 billion, while updating our Insurance segment adjusted revenue expectations to a range of $97.5 billion to $99 billion. These changes reflect the removal of the employer group commercial medical business results, which are being adjusted out for non-GAAP reporting purposes, partially offset by the impact of our previously announced increased individual Medicare Advantage membership growth estimates for the full year of at least 775,000 members. From a benefit ratio perspective, we reaffirmed our full year Insurance segment guidance range of 86.3% to 87.3%. As previously shared, we expect the additional 150,000 member growth to impact the benefit ratio by approximately 10 basis points. As a result, we continue to be comfortable with our previous guidance range, but now anticipate the full year benefit expense ratio to be biased towards the upper half of the range, which is consistent with the majority of annual assessments today. As a reminder, the exit of the employer group commercial medical business is not expected to impact our full year benefit ratio expectations. Finally, with respect to operating cost ratio, we have provided consolidated adjusted operating cost ratio guidance of 11.3% to 12.3%. The 30 basis point reduction from the GAAP ratio is reflective of the exit of the employer group commercial medical business which carries a higher operating cost ratio. Before moving to CenterWell, I would like to take a moment to address the days in claims payable, or DCP, metric. While DCP is a metric that is often referenced as an indicator of reserve strength and earnings quality, it's important to keep in mind that DCPs can fluctuate in any given period due to items that are not reflective of claim reserve levels and may not have an impact on the current period income statement. As an example, the seasonality of net pharmacy expense, including reinsurance, is impacted by the phasing of coverage responsibility under Part D. Net pharmacy expense varies by quarter and does not have a corresponding reserve impact as pharmacy claims are largely paid in real time, resulting in a disproportionate impact to the DCP metric. This dynamic is the primary driver of our sequential DCP change. Net pharmacy expense is increasing nearly $2 billion from the fourth quarter of 2022 to the first quarter of 2023 due to the coverage responsibility being more heavily weighted to the health plan at the start of the year without a corresponding increase in reserves. This is driving a 3.5 day decrease in our DCP sequentially. Normal course changes in provider capitation payables and the timing of inventory claims processing also caused fluctuations in DCPs without impacting the current period income statement and is the driver of the majority of the remaining 1.2 sequential decrease and the entirety of our 1.8 day year-over-year DCP decline. Our concentration in Medicare products and growing number of members and value-based care arrangements can cause these items to have a disproportionate impact on our DCP level at any point in time. We believe the trends in IBNR and membership serve as a better indicator of the consistency in our reserve methodology and relative strength of our claim reserves. As of March 31, sequential growth in IBNR trends closely to our growth in total Medicare Advantage membership over the same period at approximately 10.5%. Finally, I would reiterate that we are comfortable with the utilization patterns seen in our Insurance segment and more specifically our Medicare Advantage business to-date as reflected in our updated full year adjusted EPS guidance. Now turning to CenterWell. The segment had a solid start to the year, performing modestly better than expected in the first quarter. Our primary care organization reported better-than-expected patient growth year-to-date, adding 7,300 patients or nearly 38% growth in our de novo centers and 8,800 patients and our more mature wholly-owned centers, representing 5% growth year-to-date. We now anticipate full year patient panel growth of approximately 25,000 as compared to our previous estimate of 20,000 to 25,000 patients, representing a significant increase over patient growth of 13,000 in 2022. In addition, we added 14 centers in the quarter, including seven net centers added through acquisition, expanding our center count to 249. We are also pleased to share that 67% of new patients and 87% of our total patient panel have completed a first -- a visit in the first quarter compared to 58% and 83%, respectively, in the first quarter of last year. Patient engagement is a key driver of retention and improving clinical outcomes. Financial performance continues to be on track and we are pleased with the progress of our de novo centers as they mature through the J-curve. In the home, total new start of care admissions and our core fee-for-service home health business were up 7.1% year-over-year for the first quarter, in line with our expectations of mid-single digit growth. However, we continue to experience pressure on recertifications due to utilization management programs of Medicare Advantage payers. As anticipated, we have also seen a slight shift in payer mix -- patient mix with a small decline in original Medicare admissions year-over-year, more than offset by strong growth in Medicare Advantage. And as expected, our cost per visit has increased more than 2% year-over-year with continued nursing labor pressure. Finally, we resumed tuck-in home health M&A activity in the quarter, completing an acquisition that added 11 branches with average daily census of 4,700 and approximately 25,000 admissions per year. We are committed to continuing to grow our agnostic CenterWell Home Health business and expand market share through organic growth and strategic M&A activity. As Bruce shared, expansion of our value-based home model is tracking in line with expectations and is demonstrating favorable outcomes. We continue to expect to cover approximately 1.8 million members by year-end with further expansion to 40% of our Medicare Advantage membership by 2025. Finally, our pharmacy business performed well in the quarter, benefiting from higher-than-expected individual Medicare Advantage membership growth as well as favorable drug mix. As anticipated, we saw a 100 basis point reduction in mail order penetration for our retained members as a result of retail pharmacy co pays now largely being on par with mail order benefit. We continue to invest to differentiate our order, delivery and clinical experiences to encourage further use of mail order and maintain our industry-leading results. Further, we remain focused on providing awareness and education of the benefits of mail order for our large block of new members to drive increased penetration throughout the year. From a capital deployment perspective, we continue to expect share repurchases of approximately 1 million in 2023. We will consider the use of accelerated share repurchase programs as well as open market repurchases, which we initiated in March under rule 10b5-1 to ensure we maximize value from these programs. Lastly, with respect to earnings seasonality, we expect the percentage of second quarter earnings to be in the low 30s. Before closing, I want to reiterate that we continue to be pleased with our operational and strategic progress and ability to raise our full year guidance based on the positive fundamentals seen across our businesses to start the year. Our strong Medicare Advantage membership growth and updated 2023 outlook positions us positively on our trajectory to our mid-term EPS target of $37.00 in 2025. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Our first question comes from Gary Taylor with Cowen. Gary Taylor: Hi, good morning. Quick clarification, and then my question, if I can get away with that -- with it that way. Appreciate the description of the days claims payable decline. And just wanted to see if there was any particular reason why the pharmacy impact that typical seasonality was sort of larger than the typical impact? And then, the real question I wanted to ask was particularly given some of your comments about your home care plans, in the final notice, there were -- in MA final notice, there were some rules that appear to create more restriction around how MA plans can steer patients to certain post-acute destination and sort of limit your ability to do that if a doctor has specifically prescribed a precise destination, your ability to substitute or manage that. I just wanted to see if you thought that would have any impact on either your costs or CenterWell in 2024? Susan Diamond: Hi, Gary. Sure, I can take those for you. So, your first question in terms of the Rx impact and whether that's larger than typical, the impact that you see from fourth quarter to first quarter each year as it respects to the pharmacy, responsibility is fairly consistent and that's just a dynamic of how reinsurance works as members move through the coverage phase. So that is a consistent dynamic. And the $2 billion change fourth quarter to first quarter I would say is not atypical. If you look back at the first quarter last year, a similar dynamic would have taken place. But if you recall, we had an offsetting impact. It was largely attributable to the timing of provider payables, namely capitation, which was really a carryover impact from the larger surplus payments that accrued throughout COVID, and that were subsequently paid in that first quarter. So, I would say not atypical, but in any given year, you may have other changes that may offset some of those typical impacts. On the final rate notice, I would say I'm not aware of any meaningful impact that we would expect as a result of what was included. I would say, generally, we are always honoring sort of whatever referral option was made by a provider as it submitted in the utilization -- as we do our utilization management reviews. So that's something we commonly will honor and respect as part of that process. So, again, I don't expect any meaningful impact to our everyday processes. Gary Taylor: Okay. Thank you. Operator: Our next question comes from David Windley with Jefferies. David Windley: Hi, good morning. Thanks for taking my question. I wanted to ask a question around CenterWell. I'm wondering if you have any markets where your CenterWell clinic strategy you would view as mature -- patient panels mature, number of sites at the number that you want them or even submarkets? And what percentage of your MA membership are you able to serve in that regard? I guess it ultimately is getting that your aspirations for percentage of members in your CenterWell strategy, but wondering if there are specific examples that you could elucidate? Bruce Broussard: Yes, David, thanks for the question. Our most mature area is going to be in Florida with Conviva, to be honest with you. Our CenterWell sites that are de novo in the various markets are very, very small to considering the market in totality. So, if you take a Houston or Las Vegas, those areas I would just say that we don't have the penetration just because of time. With your question around what we -- the percentage we cover, I would say it's going to be in the low percentage rate, I mean, below 5% in any one market. Obviously, places like Miami will have the most penetration for us, but I would say it is at an area that will be at the -- in the low percentages. David Windley: Thank you. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Yeah, hi, thank you. I wanted to ask about CenterWell. I was hoping you could talk a little bit more about how you expect the rate environment in 2024 and the phase-in of the risk adjustment model to impact margins at CenterWell over the next couple of years. I guess, how much of the rate impact do you expect to get pushed down to CenterWell and how will the company work to manage through the potential impact there? Thank you. Susan Diamond: Yeah. Hi, Stephen. So, one, we're not going to disclose the specific impact of CenterWell Primary Care. And honestly, to determine the ultimate impact, that is going to have to consider any benefit changes that our health plan partners make as well as any potential changes to capitation arrangements and other things. Having said that, we do not expect the full impact to be mitigated by benefit changes. And so, the team is working on a multi-year mitigation plan that will look at the range of options across the operating model, the clinical model, productivity and efficiencies and other things, and have already identified a number of mitigations that we think can offset. So, again, we don't expect the impact to be fully mitigated by benefit changes. It will likely take some time to implement all of the improvements that will offset that. But having said all of that, we would not expect the impact to CenterWell Primary Care to be material to the overall enterprise. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks. Just want to squeeze in a couple of quick follow-ups here. One on DCP, Susan, maybe you could give us an idea of the range and is this kind of the normal seasonality? So should we expect DCP to increase for the rest of the year? And what is the kind of normal range you think we kind of settle out in given the mix of business you have now? And then, on the services business, just curious if you could tell us just a little bit more about how the quarter looked relative to your expectations, how the home health business looked, and maybe where you expect to be within that guidance range given it's pretty wide? Thanks. Susan Diamond: Hey, Justin. In terms of your first question about DCP, what I would say, and I think as we've commented before, DCP can be difficult to predict just because of the changes in claims processing timelines, the pharmacy seasonality, et cetera, can occur at any given time, and given our disproportionate mix of Medicare business, we would be impacted more so than maybe some others. I would say this is not a metric that we track or forecast internally as well. And so -- and I don't think it would be prudent to try to predict it given some of the changes are outside of our control in terms of how they would impact the metric. And that's why I think again, we would suggest that investors also look at the trend in IBNR and membership. It's probably a better and more consistent indicator of reserve methodology, consistency and strength of reserves. One thing though I would point out to keep in mind is just, as I described in my comments, pharmacy changes can have a significant impact because they don't typically have corresponding IBNR changes. And with the changes that are coming in future years with the pharmacy phasing and coverage responsibility, we're likely to see more volatility rather than less in that metric going forward. In terms of the quarter, as we said, really saw results in line, if not slightly better across the board within the enterprise, certainly the most significant, as we said, on MA with the outpaced membership growth as well as the lower inpatient utilization in particular. While non-inpatient is less mature, as we always say, at least the early indicators in January results in particular, do appear to be in line with expectations. So, we feel good about that. As we said before, we had priced and anticipated significant utilization on our expanded healthy options card. So, we continue to feel good about what we've planned for with respect to that significantly enhanced benefit. Across the rest of the business, as we said, home health, we did mention strong new admission growth, although that was largely offset by reductions in recertification, which did have an impact in terms of overall revenue trends. So, revenue yield was closer to flat where we would have anticipated slightly higher, not anticipating the full level of recertification impact that we did see. They were able to mitigate much of that with some admin productivity efforts and are going to continue to work over the course of the year to try to identify new opportunities for additional growth and other mitigating options for -- through productivity. And then, as we said, the pharmacy business had a nice quarter. They again benefited from the higher membership growth as well as some favorable drug mix. And so that's reflected in our thinking as well. The primary care business, the outperformance on the patient panel growth was nice to see. But I would say overall financial performance relatively in line with what we expected. Operator: Our next question comes from Lance Wilkes with Bernstein. Lance Wilkes: Could you talk a little bit about your Medicaid business? Obviously, you've been making great progress on contract wins there. Can you talk about your priorities for enhancing the capabilities there? And I was particularly interested in three things. One, what you're doing to improve performance in the business just as it's an emerging business? Second would be, if there are particular areas that you're looking at to improve your scoring and RFPs and winning new business? And the third would be just with respect to social determinants and health equity, if those are important priorities? Obviously, you're well positioned from the MA side, but what you're doing in that space? Thanks. Bruce Broussard: Yeah, thanks, Lance. I'll try to address those questions. On the performance side, we continue to see actually a really good performance in the business. Obviously, it is dependent on maturation of the state contracts. So that's -- earlier in the contract, you see less profitability. As it progresses through the contract, we continue to see improvement both because of volume and in addition just being able to help individuals with their health and continuing to lower the use of the healthcare system as a result of prevention. I would say from a performance point of view, it's going to be contract based, but in our more mature contracts, it's performing quite well. And as Susan said, there were the ones that -- one of our divisions that actually was performing above plan. On the RFP process, I really don't want to share the details of what we're trying to improve on. But I will try to address your third point around the social determinants. That has been an area we've invested heavily in over the last number of years, both in the health equity side with our Chief Equity Officer in leading that and really focusing on certain populations that have been disadvantaged and along with ensuring that people have access to non-healthcare benefits that help them with their healthcare. We mentioned in areas like food, and security would be an area where we're focused on. Some markets actually -- social isolation would be another area that we're focused on. And that's a combination of both the plan and our foundation as we support communities that we have Medicaid in through our foundation too. And so, to summarize, performance is going well. It's based on the maturation of the contract, but I would say it's going quite according to plan. And then, on the social determinants side, it's really a focus of ours and both on the health equity side, and in addition and being able to provide benefits outside the healthcare side. Operator: Our next question comes from Nate Rich with Goldman Sachs. Nate Rich: Hi, good morning. Thanks for the questions. I wanted to follow-up on the utilization commentary. And I'm just curious if inpatient utilization was favorable to your expectations if you exclude the decline in COVID admissions? And do you anticipate inpatient volumes to continue to pick up given you alluded to capacity increasing? And Susan, is there anything that we should kind of keep in mind in terms of cadence of MCR this year? Thank you. Susan Diamond: Hi, Nate. Yeah, no, it's a great question. So, in the first quarter, as part of that lower utilization, some of that was COVID, which was lower than we had initially expected. I would say one thing to keep in mind, too, is the first quarter of last year, we did see a very high level of COVID last year and very significant depression in non-COVID. And then as the COVID dropped more quickly than we historically seen, we didn't see non-COVID bounce back at the same rate and pace. So, as we thought about our 2023 plan, we did anticipate the first quarter trends, in particular, would be higher than the full year average because of that dynamic. But all in, we expected trends to be normalized. And as you said, we also incrementally then anticipated some increase -- modest increase in healthcare capacity over the course of the year. I would say that while we had some COVID favorability on admissions, non-COVID was also slightly favorable. So, it was not all attributable to COVID. But certainly, given the seasonality of the COVID last year and what we're expecting this year, we would expect the first quarter favorability not to trend at a full run rate into the rest of the year because of that dynamic. But so far, really pleased with what we've seen again across both our new and existing numbers, similar trends across both. Operator: Our next question comes from Joshua Raskin with Nephron Research. Joshua Raskin: Thanks. Good morning. Just a quick clarification. I heard Bruce's comments on long-term industry growth well positioned. But was that supposed to mean 2024 also a year of industry growth? And then, my real question is just within CenterWell. It looks like the number of physicians is growing faster than both the center count and the patient count. I'm assuming that it's not patient panels are capped 400 per physician. So what's causing that dynamic? Should we think about a ramp in patients relative to that capacity, especially in light of the stronger-than-expected MA membership. Susan Diamond: Yes. Hey, Josh. So, to your first question on industry growth, we do continue to believe that we will see strong growth, including in 2024. We do recognize with the rate notice, there may be more disruption in 2024 than we've seen in the last couple of years and also because of some of the Star pressure that some we'll see and have to address in their benefit design. But given the overall strength of the value proposition of MA, even in a less favorable rate environment, we would expect to see strong growth. And as Bruce mentioned in his previous -- in his commentary, even in historical years when we had multiple years in succession of a negative rate environment, the industry still grew quite nicely when benefit values were much lower than they are today. So, we do think the strength of the offering will continue to drive strong industry growth and that Humana, in particular, will be well positioned to grow high single digit rate or above would be our hope. In terms of CenterWell, honestly, we'll have to probably look at that and maybe get back to you. What I would say is what logically comes to mind is just with the open -- planned openings of the centers, they certainly try to get ahead of that and add the physicians. They're ready to go. I know we did have some delays in center openings as a result of some sort of supply chain and other issues. And so it may be that some of the clinical teams were on staff in advance of some of those delays. So it's likely due to that, but we will follow up with the team and get back to you on that. Operator: Our next question comes from Scott Fidel with Stephens. Scott Fidel: Hi, thanks. I was interested just to get if your thinking has been evolving at all around the impact of Medicaid redeterminations on MLR? And just remind us how you're thinking about the impact of redeterminations on acuity mix in Medicaid and whether you're assuming there could be some timing mismatches around the states getting to fully factoring in changes in the acuity mix into the Medicaid rates? Thanks. Susan Diamond: Hi, Scott. Yes, I think we have previously mentioned that we believe we've seen about 300,000 additional members as a result of the PHE and the waiver of those redeterminations. We've assumed that we will retain only about 20% of those as they go through the redetermination process this year. We are over indexed, obviously, to Florida. And we do think Florida is probably a little bit better prepared than some other states in terms of how they're planning to go about the process. To your point and as we've stated, we have seen lower acuity for the members who are maintaining access through the PHE. And our assumption is that those will be the members who are largely lost as a result of the process. We know that Florida intends to focus on members with lower utilization at the start of their process. And so, within our plan, we have assumed that as those members roll off, that, particularly in the state of Florida, those lower acuity members will in fact be the ones that we see move off more quickly. So, we do feel confident in sort of how we've approached the planning for this year and the redeterminations, but obviously, as the process begins in May, particularly in the state of Florida, we'll be watching closely to see if the ultimate retention matches our assumption and then certainly over the next number of months watch the acuity. But our assumption is that the 20% that remain look more like a typical pre-COVID sort of block of Medicaid business. Operator: Our next question comes from the line of A.J. Rice with Credit Suisse. A.J. Rice: Thanks. Hi, everybody. Just two quick questions touching on stuff you've already talked about. But in Bruce's comments talking about the differentiation between MA and traditional Medicare. I wonder as we're often asked when there's a rate update that's less than optimal, whether that's going to slow down people's preference for MA. I wonder in your research, and I know you guys keep up with this, when you think about what prioritizes someone to choose MA over, and I know you used to say that at least out of pocket maximums was the number one, and then some of the standard benefits hearing, vision and dental, and the supplemental now has been added. I wonder would -- anyway to expand on your view about why MA will continue to be a priority even in a year where maybe there won't be any additional supplemental benefits that they've been able to see in the last few years, there won't be a new benefit added as much? And then, the other thing I guess is -- and I appreciate Susan's comments here on -- we've been asked a lot about -- we've had three public hospital companies talk about how strong their inpatient utilization has been at least relative to recent quarters. I'm wondering is the rationalizing that versus what you guys are saying, is that just that you plan for a step up in utilization and it hasn't happened to the amount that you thought, or is there any other way? Because a lot of those public companies focus particularly in Florida and Texas and are seeing seemingly strong volumes, but you're saying your inpatient side has been one of the areas of outperformance. Bruce Broussard: I'll take the first one and then Susan will take the second one. Just on your question on industry growth and preferences of our customers, I'd say first on the industry growth, we continue to see just really strong value proposition between Medicare Advantage and Medicare fee-for-service. As I mentioned, there's about $2,400 savings for Medicare Advantage beneficiaries. So, just in totality and we've seen that grow over the last number of years as a result of the industry's innovation and continuing to effectively reduce the cost of care through prevention. We don't -- we just believe that, that is so compelling that people are not going to walk away from that even though some of the benefits are -- might be changed. Which relates to your second question is really we've been doing a lot of work and we won't give you details on each of the areas there because there's some competitiveness there. But we've been doing a lot of work on what are the priority benefits that have and what are the less oriented ones. And it might be that you reduce some of the benefits, not eliminate them, would be an example of that or alter them a little bit. But it does depend on -- also on the type and the segment that you're oriented to. For example in the duals, we do find the supplemental benefit to be an important part of their decision making and that I think will continue to be important part of the offering within the industry and totality. In the other segments, we do see there's some uniqueness in their needs, but I would say that they're probably more refinement than actually elimination at all. And after the conclusion of our bid process, we can give you guys more detail and obviously in October when the bids come out. But I do believe, to answer your question, it's still highly compelling. I do think that we will alter some benefits, but we'll alter them in a way that is very manageable on behalf of the beneficiary, but it will be personalized to the segments themselves. Susan Diamond: And A.J., I'll touch on your inpatient question. Before I do that, just a couple of things I'd add to what Bruce mentioned. Within the population, the duals in particular, as we said before, arguably, every duals should be in MA. The non-duals, certainly some have preference for [meds up] (ph). But within duals, it's a very clear value proposition and we think ultimately we'll see higher penetration than the non-duals, which is why it continues to be a focus. The other thing is -- which is interesting is agents are electing MA at the time of eligibility at a faster rate than they did years ago. Years ago, it would take a number of years to get these sort of new cohort of agents up to the average industry penetration. We have seen adoption out of the gate more quickly, which has helped support some of the continued penetration increases as well. And the last thing for '24, it's important to remember, as we said before, de-averaging that recalibration impact in particular is important in the places where you see higher impact are those places that have disproportionately high benefit values. And so the ability to absorb some level of adjustment may still have a very compelling value proposition to beneficiaries. In terms of your question about the strong inpatient trends that some of the hospital systems have reported, just as you said, we expected that, particularly in the first quarter. Because if you look at the medical costs last year over the quarters, it was depressed in the first quarter. And with our expectation that we would see trends return to normal levels, we would expect a higher first quarter trend relative to the average we would have planned for, for the year. So again, I do think that's very consistent with what we've seen, and even with that expectation and what the hospitals are reporting, we are still seeing some net favorability in the quarter. Operator: Our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: Maybe just follow-up on that point there for a second, because it does seem like hospital companies, med tech companies, broadly speaking, reporting good volumes. And so, we've been struggling to figure out why all of a sudden Q1 that would be so strong. So, I guess two questions then. The first one is from your perspective, that strength is to some degree just comps and something that you plan for? Just to make sure that I understand that correctly. And then, second, to be extent that utilization is rising higher, you don't have to price until June, so that gives you time to monitor these trends to put into your pricing. But if I hear it correctly, at this point, you don't necessarily see a reason to add additional cushion into pricing next year because you're not seeing a trend issue so far on this data. Is that the right way to think about it? Susan Diamond: Yes. So, a couple of things. So one, yes, as I said, the first quarter of 2022, we believe was more depressed relative to subsequent quarters because of the COVID dynamics. And if you remember last year, we're all speaking in the fact that COVID declined much more quickly than it had in previous surges, but non-COVID didn't bounce back at the same rate, and we got a little bit of a lag. So the first quarter overall, utilization was lower. And so we did anticipate that from a seasonality perspective, first quarter trends would be higher than the average for the year. The other thing to keep in mind from our perspective is also that the -- we had -- I think it was 65 admissions per 1,000 of COVID in January of last year. Those all carried that extra 20% payment. And so because COVID on an absolute level is lower this year, we are also seeing some benefit in terms of year-over-year trends related to unit cost, because we'd be paying a lower average unit cost. This all -- was all contemplated in our outlook for the year. In terms of our '24, I would say even though we've seen some favorability on the inpatient side, it's too early in the year for us to take a position at the entire year inclusive of inpatient and non-inpatient is when you run favorable. So, you can think of our assumptions going into pricing as assuming that we will come in on as expected in '23, and then again normal course trend in 2024 as well as again some further modest increase in healthcare capacity, which, as we've said, we would expect to take a number of years to get back to pre-COVID levels. So, we are not assuming any favorability in '23 as we go into '24 pricing and assuming normalized trend will continue. Operator: Our next question comes from Sarah James with Cantor. Sarah James: Thank you. Can you give us any color on the new members that are joining? So, what is the sales channel mix look like compared to past years? And are you able to identify in retrospect any particular products or geographies where you're showing strength? Susan Diamond: Sure, Sarah. So, in terms of new members, as we commented I think on our fourth quarter call, we did see an all throughout AEP. We did see a meaningful decline in share within the call center partners. We had talked about the desire to incrementally shift some of that share back to our proprietary channels over a number of years. And because of some of the actions that the call center partners themselves took to pull back on some of the lower sort of quality lead marketing that they had done, as well as in the improvements we think in just the quality of their sales processes, they did see meaningfully lower share year-over-year. I think it was about 700 basis points lower than the prior year. That volume largely shifted to the independent field agent channel, which you can think of is more typical -- more like our proprietary channel in the sense that more of that's going to be through a face-to-face interaction through an independent broker. And what we've seen historically is that when you have a really strong value proposition, that channel -- the product will sort of do the work and you'll see nice strong uptake within that community, which is what we saw this year. And one thing that we view very positively is that channel tends to perform much more similar to our proprietary channel in terms of ultimate retention and plan satisfaction by the beneficiaries enrolled through that channel. So that's very positive. In terms of products and geographies, as Bruce mentioned in his comments, we were pleased to see some nice growth in some of our more mature highly-penetrated risk markets, which we view as quite positive. And that was intentional in terms of our strategy going into 2023 of where we want to make investments to grow. From a product perspective, certainly pleased with the strong dual growth that we continue to see, that remains to be a priority as well as our veteran plan. As we said before, broadly, we saw a meaningful -- the biggest increase year-over-year was seen in the non-dual space, which is by far the larger population, so again, was a priority for us. From a product perspective, we did introduce some new offerings that were intended to attract specific segment of the population, the Part B Giveback plan is one example where that really is designed for someone who is likely to have less sort of traditional utilization and is attracted to other -- some of the supplemental benefits that Bruce described as well as that Part B Giveback. And we have seen strong growth there, and those plans are tracking in line with what we had expected in terms of the acuity that they would attract. But really, we saw broad improvement across geographies and products given the way in which we deploy the investment dollars for 2023. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: Yeah. Thanks for sneaking in. Bruce, kind of a big picture question. As you now know kind of the 2024 rate environment and the Star's environment, do you think the company will have the ability to continue to take share like it has in calendar '23? Or should we think of -- my short question is should we think of '24 as more of a share gain opportunity for Humana or more chance for the company to kind of flex its margin capability in the individual MA market? Bruce Broussard: Yeah. It's obviously early in the bid cycle for us to give you the details that you want here. I would say, in general, we continue to remain committed to growing our membership growth in the high single digits there. And I would just use that as sort of a measurement for us as we think about whether it's share gain or not. As we enter 2024, obviously, our Star's position is a positive for the company. George Hill: Thank you. Operator: Our next question comes from Ben Hendrix with RBC Capital Markets. Ben Hendrix: Thank you very much. I just wanted to dig a little deeper on the earlier distribution question. You noted higher mix of new MA members switching from competitor plans, which you've said in the past can be favorable from a risk assessment perspective. But to what degree can you attribute those switching directly to that third-party channel -- broker channel? Any worry that these members may represent frequent switchers who could impair the overall persistency of the book? And then, any efforts or investments you've made to ensure that switchers do translate to accretive high LTV business? Thank you. Susan Diamond: Hi, Ben. What I would say broadly is just given the outsized growth we've seen this year, our current estimate is about 17% versus the overall industry growth rate of closer to 7% to 8% we predict for the year. I would say by definition you're going to see more switchers. The absolute number of agents and eligibles isn't materially different year-over-year. And so, a lot of that increase in outsized growth in market share gains is going to naturally come from switchers. So, I would say there is a portion that we believe is sort of that chronic switcher where you think it's probably about 7% of the population, which is just always going to be out there looking to see if they've got the best value. And we do tend to see that, that cohort traditionally over-indexes through the call center channel and they've become comfortable with that channel in terms of initiating a plan change. I would say though as we've been talking really all year, we've been very focused on efforts to improve retention both internally through some of our onboarding experiences, particularly when we have a member enroll through one of our non-proprietary channels to make sure we engage with them, ensure they understand the plan design and their benefits and are able to access those benefits. But also working with the call center partners in particular where we commented that for 2022, that was where we saw the largest deterioration in retention rates year-over-year. We were really happy to see that as a result of their efforts and ours, that channel in particular got back nearly to the retention rate that we saw in 2021 prior, so about a 380 basis point improvement in their attrition rate year-over-year. So, really we're able to make up much of the deterioration that we saw in 2022. And I would just say that we all continue to be very focused on retention and identify additional opportunities to engage with our members and ensure that they understand their benefits and are able to access them and that they're in the right plan to meet their needs in the hopes of seeing further improvement going forward. Bruce Broussard: We do see just on that -- in the switchers that there were a number of switchers that came to us as a result of frustration with service, and we feel those to have much more stickier relationships. And then in addition, as we see the brokers and how they look out to the future, the quality ratings and the number of members that you have in Stars, 4 Stars or greater plans becomes an important because they can predict sort of the benefit level as a result of that. And so, we do see brokers really oriented to a much more stable book and putting their members in -- with companies that have that stability both from a service point of view and then also predictability of the future. Operator: Our next question comes from Michael Ha with Morgan Stanley. Michael Ha: Hi, thank you. Maybe just another one on plan switchers. I understand you got roughly 50% this year for your new members. How does that compare to prior years? How should we think about that percentage going forward? Do you think it's sustainable or maybe there's a bit of a reversion back to the normalized level? The reason I bring it up is that, I believe, industry average for annual plan switchers is about 10% to 20%. So, if industry MA growth does slow a bit in '24, then certain plans with the higher percentage of new members that typically comes from plan switchers might be less impacted by the ebbs and flow the total industry growth, if that makes sense. Susan Diamond: So, Michael, I think to your first question in terms of quantifying, so historically, we've commented that the switchers would represent more like 30% of our overall new enrollment. And this year, we've seen that closer to 50%. And if you wouldn't mind, would you repeat the second part of your question? Michael Ha: Do you believe that's sustainable going forward into next year, years after, 50%? Susan Diamond: Yeah, I would -- sure. I would say to the degree you take market share, then you would expect to see a higher percentage of your enrollment come from switchers. If you were more at the industry rate, it would probably revert back to something more similar to historical. And so, it really does depend on absolute level of growth relative to the industry, I think is the main indicator of how that should trend. Bruce Broussard: We do believe next year there will be more shopping as a result of the change in the benefits. Susan Diamond: That is true, yeah. Bruce Broussard: And so, there -- I think it's going to be important both in your ability to have a predictable benefit plans after 2024 and the brokers can see that, along with the fact that when they do shop that they will be satisfied with the existing plan once they realize that the value that's provided there. So, we do -- in essence, we do believe there will be more shopping in 2024. Operator: Our next question comes from Whit Mayo with SVB Securities. Whit Mayo: Thanks. My question is around the growth in PPO versus HMO. And I'm just trying to think of any challenges that you may have with all this growth this year, and I guess, I mean this in the context of CenterWell. And should we expect that this could negatively impact them or any of your physician partners anyway around just attrition and what you're doing to maybe accelerate processes to minimize some disruption? Thanks. Susan Diamond: Yes, no, it's a great question and one that we've debated with our CenterWell partners actually historically. But it's important to keep in mind that outside of certain markets, particularly South Florida and some of the other very highly penetrated risk markets, most of our HMO products operate more like a PPO where they're open access. And so the beneficiaries do have the option to go out of network and still receive services. So, we would argue that the benefit or the plans operate similarly. And certainly from a pricing perspective, we would take that into account in the way that we price those PPO products and the level of benefits that are offered, recognizing you may see more out of network utilization. I would say risk providers historically number of years ago typically only took risk on HMO, but they have generally started to become comfortable taking risks on PPO offerings as well, including our CenterWell. And so, I do think that's something we'll continue to watch and see does the performance look comparable across the two. I would say it's still fairly early in the penetration of PPO products and probably too early to declare, but my expectation would be that they are not materially different in terms of the ultimate performance for their risk providers based on the way that we would price them and then also given the strong capabilities the risk providers have and the relationships they develop that can allow them to see results that are comparable to what they see in the HMO in non-gated markets. Operator: Our next question comes from Steven Valiquette with Barclays. Steven Valiquette: Thanks. Good morning. A couple of things here. First, the latest intra quarter individual MA membership guidance increased from 625,000 to 775,000. It wasn't totally clear the breakdown of that? Latest additional 150,000 members, how much of that was additional new members versus retained members, if you have any color on that? And then, Bruce, your comment on the switchers being frustrated with service levels at their previous plan, does that feedback surprise you, or is that normal course of business from your perspective? And then, finally just aside from those members switching because of service issues at their old plan, was there any consistent pattern on what variables and the benefit design that Humana that resonated the most among the new members aside from just people switching because of -- to you guys because of issues at their old plan? Thanks. Bruce Broussard: I'll take the second and the third one maybe and then Susan can take the first one. Just on the second one, relative to service, we did see in 2022 more frustration as a result of some plans growing -- really outgrowing their plan coverage there and frustrating the brokers and the members. And so that was a carryover and probably a little more extreme in 2022 that impacted '23 more. But as we've said many times, the strength of the brand and the strength of the product really carries us in the marketplace. And when we are competitive in the marketplace, our brand usually carries us forward. And do you want to take the first one real quick? Susan Diamond: Yeah, sure. In terms of the driver of the additional growth, what I would say is in the D-SNP space, the improvement is more related to improved retention relative to what we had expected. And then, in the non-D-SNP space, I'd say it's more attributable to new sales. So a combination of the two, but more indexed to favorable retention on the duals and sales on the non-duals. Bruce Broussard: And Steven, what was your third question again? Steven Valiquette: Yes, sorry, I threw a lot at you there. The third one was just besides people switching because of service issues, any consistent pattern on which variables in your benefit design resonated the most to attract new members? If you're able to comment on that [indiscernible] dynamics. Bruce Broussard: Yeah, I think we've said it before, I think two things. What we saw in the Part B Giveback, that was one that was really where we saw a lot of non-dual members go to, and really it was in markets that, as Susan has mentioned and I've mentioned, in value-based markets that we've traditionally have not grown as fast in. And then the other one is just the healthy food card. I mean, that's the other one that stands out for the duals. Susan Diamond: Yeah. And to add that if you remember last year, while we had a comparable value benefit to others and United in particular on the dual side, United have more flexibility in the way that card can be used. So, we introduced a similar option for 2023 as well as expand in this service category. So, as Bruce said, we do think that was very attractive and stood out relative to other options for 2023. Operator: Our next question comes from Lisa Gill with J.P. Morgan. Lisa Gill: Hi. Thanks very much. Susan, I just want to go back to your comments on the Rx side where you talked about a positive mix. Can you just give us a little more color on that? And then, secondly, can you talk about your commitment to Medicare Part D going forward? And as we think about the changes in Part D around DIR fees, how do we think about your bidding strategy for Part D? And again, how do you think about your commitment to that product line? Susan Diamond: Sure. Hi, Lisa. So, in terms of the favorability we mentioned in the first quarter, specifically the drug mix, okay, that's just going to be generic versus brand. And then within each of those categories just the literal sort of line-by-line mix of drugs underneath, recognizing each one would have different sort of margin profiles, so mostly related to that. In terms of Part D, I mean, we remain committed to Part D in serving those duals and offering a strong value prop to them as well. Although we also, as we said before, really look to that product too to try to take disproportionate share of members enrolled in PDP who ultimately then make the decision to move to MA. And as we've said before, we do anticipate -- we do see that we get a disproportionate share of those conversions within our own block relative to the share we get in the open market. And we do expect about 80,000 conversions out of that book for 2023. I would say there is a lot of complexity going forward in terms of some of the Part D changes, the phasing changes, the introduction of a maximum out of pocket and the responsibility changes. And as I've said before, the thing that we're very mindful of is just understanding the implications in terms of the risk pool underneath how the margin profile looks for different types of utilizing members and ensuring that we can maintain stability in that book. CMS has introduced some mechanics that will help the industry navigate through that like the premium stabilization, which is certainly helpful and we appreciate. So, I would say still a lot of work to do, but I would say we remain committed to continuing to support the Part D beneficiaries and provide a strong value prop, but do you recognize there'll be probably some additional volatility in the coming year to some of these changes are implemented. Operator: Our next question comes from Ann Hynes with Mizuho. Ann Hynes: Hi. Good morning. I would like to talk about operating cash flow, because excluding the Medicare prepayment, it looked a little light versus last year. So, anything you can provide on that would be very helpful. And secondly, can we have an update on RADV? I know the industry was waiting to talk to CMS to get more clarity on some things that were in the rules, so any update would be great. Thanks. Susan Diamond: Sure. Hi, Ann. With respect to cash flow, I would say that the year-over-year change in reduction is really just normal course working capital items. Two things in particular that driven majority of that change is commission payables and the timing of those and the amount of those, as well as then rebate collection Those are really the two main drivers. On RADV, I think as we said before, we did not expect to see anything additional as per final rate notice, which is what played out. And frankly, that we don't have anything further to update at this time. Our position remains a thing. We continue to be disappointed that it didn't acknowledge the need for an adjuster and it will be important to work with CMS and really understand how they intend to implement that program -- audit program going forward, as the details have not yet been released. So, we'll continue to try to practically work with them and hopefully get to a reasonable solution that everyone is comfortable with. But no, nothing new to report currently. Ann Hynes: Okay. Great. Thanks. Operator: That concludes today's question-and-answer session. I'd like to turn the call back to Bruce Broussard for closing remarks. Bruce Broussard: Well, thank you, operator. And in closing, we continue to be pleased with the solid start to the year, which as I mentioned before, reflects our high-quality fundamentals and the execution across the enterprise, and really demonstrates our commitment to the adjusted EPS target of $37.00 in 2025. I do want to thank our nearly 70,000 teammates and really contributing to the success and continuing to serve the customers in the best way. With that, I also want to thank each one of you for supporting the organization over the years and we look forward to having similar results in the coming quarters. Operator: This concludes today's conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Humana Fourth Quarter Earnings Conference Call. At this time all participants are in a listen-only mode. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Lisa Stoner, VP of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. In a moment, Bruce Broussard, Humana’s President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our fourth quarter 2022 results and our initial financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management’s prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana’s website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our fourth quarter 2022 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today’s press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today’s discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management’s explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I’ll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa, and good morning, everyone. We appreciate you joining us. Today, Humana continued the momentum seen throughout 2022 and reported another quarter of strong operating and financial results. Adjusted earnings per share for the full year were $25.24, which was above our previous estimate of approximately $25 and represents an annual growth of 22%. We achieved this compelling earnings growth while also making meaningful progress in advancing our strategy, which I will touch on more in a moment. Looking forward we provided full year adjusted EPS guidance for 2023 of at least $28 representing growth of 11% over 2022, consistent with our previous commentary. We anticipate this strong growth despite the headwind we faced from the divestiture of 60% interest in Kindred Hospice. We also reaffirmed our expectations for a full year individual Medicare Advantage membership growth of at least 625,000 members, a 13.7% increase year-over-year. Recall that our 2025 adjusted EPS target of $37 is underpinned by an assumption of return to individual MA membership growth at or above the industry rate by 2024. We are very pleased to have accomplished this goal ahead of expectations. Before providing additional detail on our operations and outlook, I’d like to take a moment to address the RADV final rule released Monday. I want to start by emphasizing the strength of the Medicare Advantage program, supported by a value proposition that is superior to fee-for-service Medicare. 30 million seniors have chosen to enroll in MA, of which nearly 34% identify as racial and ethnic minorities. The MA program delivers high-quality and improved health outcomes, resulting in a 94% satisfaction rate and lower total cost of care through improved care coordination providing savings to the Medicare program while helping seniors achieve their best talent. The strength and support of MA is an important backdrop as we talk about a long-awaited final RADV rule. I’d like to reiterate Humana’s core belief when it comes to RADV. Namely, we believe risk adjustment is an important element of the program and incentivizes plans to cover all individuals regardless of health status. We have long supported CMS’ desire for greater transparency through auditing, and we’ll continue to partner with CMS to promote program integrity. We strive to have a fair, compliant and transparent system. While we’re still reviewing the final rule and considering its impact, I will share some of our initial observations. First, we support CMS’ decision not to extrapolate the result of any audit payments for the years prior to 2018. As CMS acknowledged auditing such age time periods represent a unique challenge that may produce results that are not truly reflective of the plans compliance or coding accuracy [ph]. The important part of RADV ruling is the audit methodology. Therefore, we look forward to working with CMS to learn more about the methodology, including contract selection, sampling and extrapolation as a rule did not provide the details needed to fully understand the potential impact of the future audits. And finally, we are disappointed CMS’ final rule did not include a fee-for-service adjuster in the process, which we believe is necessary to determine appropriate payment amounts to MA organizations. We are considering all our options to address or challenge this admission and obtain clarity about our compliance obligations. With that said we are committed to working productively with CMS to ensure the integrity of the program has maintained, and beneficiaries do not face higher costs and reduced benefits as a result of this rule. For years, MA has been an example of a successful public-private partnership that works for Medicare beneficiaries, providers and taxpayers. And we’re committed to working with CMS on a path forward to ensure that MA continues to be an option that millions of seniors have come to depend on. Now turning to an update on our operations and outlook. We entered 2023 in a position of strength. Industry leader in the delivery of senior-focused integrated value-based care, delivering high-quality outcomes at a lower cost. Our deep focus on value-based care, both through our CenterWell platform and our highly diversified value-based care solutions and locally oriented provider relationships is one of the differentiated capabilities that gives Humana a durable competitive advantage. We closed 2022 with 70% of our individual MA members engaged in value-based arrangements, which incentivizes providers to comprehensively manage patient needs and reduce total cost of care. Our extensive experience in value-based care combined with our use of deep analytics and digital capabilities, first-mover deployment of interoperable solutions, as well as our customer-centric products and solutions. That’s Humana apart from peers. We believe these differentiated capabilities have contributed to our durable success in quality and customer experience as demonstrated by five consecutive years of leading Stars results, and individual MA membership growth of 10.4% on a four-year compounded annual growth rate from 2018 to 2022 as compared to industry growth of 9.7%. We complemented our differentiated capabilities with targeted investments and benefits, marketing and distribution for 2023, which has accelerated the strong momentum in our MA franchise. The improved plan designs have resonated with consumers and brokers resulting in our above industry growth expectations of at least 625,000 members for the full year. Our 2023 growth outlook includes strong growth in the D-SNP space, where we have grown 72,000 members as of January, a 50% increase over 48,000 members added in the 2022 AEP. And importantly, the majority of our growth for 2023 is coming from the larger non-D-SNP space. We added approximately 422,000 non-D-SNP members through 2023 AEP, a significant increase from the 90,000 added in 2022 AEP, and representing an impressive 10% year-over-year growth in non-D-SNP membership. We achieved our strongest growth in states with robust or growing value-based provider penetration. For example, our top states by absolute growth were Texas, Georgia, Florida and Illinois, which are highly penetrated value-based markets. Together, they grew 163,000 members in 2023 AEP, a 450% increase over the 29,000 members achieved in those states last year. The robust membership outlook reflects high-quality growth, with retention improving over 200 basis points year-over-year better than our initial assumption of a 100 basis points improvement. We are pleased to see our external call center partners improve retention by 380 basis points year-over-year, reflecting their enhanced focus on quality and customer satisfaction. In addition, approximately 50% of our new sales reflect members switching from competitor MA plans, which was higher than anticipated and significantly improved from the 30% experienced in 2022. We also saw a shift in our overall sales channel mix to higher-quality channels. Our internal sales channel and our external field broker partners represented 53% of total sales in the 2023 AEP compared to 44% last year. As shared before, these channels drive better engagement with members leading to greater planned satisfaction, retention and lifetime value. Our strong 2023 membership growth was broad-based across our geographic footprint and benefits not only our MA business, but also our growing and maturing payer-agnostic CenterWell platform, enhancing our ability to drive more penetration and integration of our CenterWell assets. Our primary care organization also experienced strong growth during AEP and is expected to add 8,000 to 10,000 new patients across our de novo and wholly owned centers. And we are happy to share that nearly 60% of these new patients had appointments scheduled as of December 31. This is a key metric for us to measure the engagement level of new members and engagement is a key driver of retention. For the full year, we expect to grow patient panels by 20,000 to 25,000 through organic growth and programmatic M&A, meaningfully higher than the approximately 13,500 patient growth experienced in 2022. Our center expansion remains on track, as we ended 2022 with 235 centers and are scheduled to open an additional 10 centers to 15 centers in the first quarter alone. We expect to come in the near – the high end of our previously communicated annual center growth of 30 centers to 50 centers in 2023, through a combination of de novo build and programmatic M&A. In the home, we have continued to expand our value-based model, which coordinates care and optimizes spend across home health, DME and infusion services. We are now supporting approximately 15% of our MA members with the model, expanding coverage to an additional 433,000 members during the fourth quarter. We remain on track to cover approximately 40% of our MA members with a fully based, value-based model by 2025. In addition, as previously shared, we are implementing some of these capabilities on a stand-alone basis to accelerate value creation. We rolled out the home health utilization and network management capabilities to 1.4 million members, bringing the total of covered members to 1.9 million, creating incremental enterprise value in advance for the full value-based market rollout. Finally, in our pharmacy business, we once again increased our industry-leading mail order penetration levels in 2022, driving 38.6% penetration in our individual MA business, a 40 basis point increase over 2021. We anticipate maintaining this industry-leading position in 2023 as we further invest in the consumer experience and encourage the continued use of mail order despite comparable co-pays in the retail setting beginning this year. Before turning it over to Susan, I am excited to be able to speak to the senior leadership appointments we announced this morning. Dr. Sanjay Shetty is joining Humana as the President of CenterWell effective April 1. This newly created role comes as we continue to meaningfully expand our CenterWell capabilities, strengthening our payer-agnostic platform and integrating the clinical experiences for patients across the CenterWell platform. Sanjay comes to Humana from Steward Health Care System, where he currently serves as the President. He will draw on his extensive experience leading a large health care system as well as his deep understanding of technology and application of data and analytics and modernizing workflows to accelerate the integration of our CenterWell assets. Sanjay’s addition to the management team, he brings new and differentiated skills with extensive health care experience across a broad spectrum, including Medicare, Medicaid, physician groups and value-based care, and we are excited to have him on board as the President of CenterWell. In addition, we are thrilled to announce that George Renaudin has been promoted to President of Medicare and Medicaid and added to the management team effective immediately. George has been integral to our success of the company joined and having joined the company team in 1996, spending the last 26 years dedicated to core operations of our Medicare business. Bringing Medicaid under his leadership complements his current responsibilities for the operations supporting more than five million Medicare Advantage and Medicare Supplement members. With the addition of Sanjay and George to the management team, we have closed our search for the President of Insurance. We are confident that the depth of talent we now have in both the management team and across the broader leadership within the organization, positions us well to continue to execute against our enterprise strategy. As with any company of our size and caliber, we will continue to evaluate strategic additions to and the evolution of our leadership team as we advance our strategy to develop strong synergistic growth across the enterprise. In closing, I would again reiterate that we are entering 2023 in a position of strength. The strength is bolstered by Humana’s differentiated capabilities and grow our payer-agnostic platform, and underpinned by the strong fundamentals in the Medicare Advantage industry. Importantly, the robust membership growth and financial outlook for 2023 puts us on a solid path towards our mid-term EPS target of $37 in 2025. We look forward to providing additional updates on our progress towards our mid- and long-term targets throughout the year. With that, I’ll turn the call over to Susan. Susan Diamond: Thank you, Bruce, and good morning, everyone. Today, we reported full year 2022 adjusted earnings per share of $25.24, ahead of our expectations of approximately $25 and representing a compelling 22% growth year-over-year. As Bruce shared we delivered as impressive earnings growth while making significant advancements in our strategy, including a quicker-than-anticipated return to above-market individual Medicare Advantage membership growth for 2023 and further advancement of our CenterWell platform. Before discussing details of our performance and outlook, I would note that we realigned our reportable segments in December, moving to two distinct segments, Insurance and CenterWell. I will speak to our 2022 results and 2023 outlook in terms of the new segment structure with references to the old segments to provide clarity as needed. I will start by discussing our fourth quarter results and underlying trends before turning to our 2023 expectations. We reported fourth quarter adjusted EPS of $1.62, above internal expectations and consensus estimates. Results for our Insurance segment were modestly favorable to expectations. As recently shared, total medical costs in our Medicare Advantage business ranged slightly above previous expectations during the fourth quarter, driven by higher-than-anticipated flu and COVID costs, as well as higher reimbursement rates implemented for 340B eligible drugs. Collectively, these items had an impact of approximately 80 basis points on the fourth quarter benefit ratio for both the Insurance segment as well as the previous retail segment. Importantly, these are discrete items in the quarter and do not have a carryover impact into 2023. Excluding these items, total medical costs in our Medicare Advantage business were modestly below our previous expectation. Our Medicaid business continued to perform well in the quarter with lower-than-anticipated medical costs. In addition, the favorable utilization seen throughout the year in our commercial group medical and specialty businesses persisted in the fourth quarter. All in, excluding the discrete impacts related to flu, COVID and 340B, I just described, medical cost experienced in our Insurance segment were favorable to expectations in the quarter, continuing the trends experienced throughout the year. This segment also benefited from administrative cost favorability driven by our ongoing cost discipline and productivity efforts while also covering incremental marketing spend. Within our CenterWell segment, each business performed largely in line with expectations in the fourth quarter. Our primary care organization continues to improve the operating performance in our wholly owned centers and we’re pleased to report that we increased the number of centers that are contribution margin positive from 88 at the end of 2021 to 110 at year-end 2022, a 25% increase year-over-year. In addition, we increased the number of centers that have reached our $3 million contribution margin target from 18 in 2021 to 31 at the end of 2022. In our de novo centers, we grew over 9,000 patients in 2022 or 91%, while our de novo center count increased by 18% or 56%. As Bruce shared, we expect both center and patient growth to further accelerate in 2023. In the home, total admissions in our core fee-for-service home health business were up 9.1% year-over-year for the fourth quarter and up 6.3% for the full year in line with our expectations of mid-single-digit growth. In addition, we continue to expand our value-based model at the expected pace. We implemented the full value-based model in both Virginia and North Carolina in 2022 and ending the year covering just over 760,000 members or 15% of our Humana MA members, up from 5% coverage in 2021. Finally, our pharmacy results remain strong, reflecting industry-leading mail order penetration at 38.6% for our individual Medicare Advantage members. The benefits of mail order extend beyond our pharmacy operations, leading to better medication adherence and health outcomes, benefiting our members and health plan. As an example, members who utilize CenterWell pharmacy demonstrate medication adherence rates ranging from 650 basis points to 840 basis points higher than we see in traditional retail pharmacies for cholesterol, blood pressure and diabetes treatments. Now turning to our 2023 expectations and related assumptions. Today, we provided adjusted EPS guidance for 2023 of at least $28. This represents a 11% growth over 2022, which is in line with our previous commentary and overcomes a headwind of approximately $0.92 or 3.6% related to the divestiture of a 60% interest in Kindred Hospice in August 2022. Our 2023 outlook reflects top-line growth above 11%, with consolidated revenues projected to be north of $103 billion at the midpoint driven by growth in our individual Medicare Advantage, Medicaid and CenterWell businesses. These increases were partially offset by the divestiture of a 60% interest in Kindred Hospice, and expected declines in our Group Medicare Advantage, commercial group medical and PDP membership. At this time, we expect first quarter earnings to represent approximately 35% of full year 2023 adjusted EPS. I will now provide additional detail on the 2023 outlook for both of our business segments, starting with Insurance. As Bruce discussed, we anticipate individual Medicare Advantage membership growth of at least $625,000 in 2023, a 13.7% [ph] increase year-over-year. We added approximately 495,000 members during the annual election period and anticipate continued strong growth for the remainder of the year. Touching on Group MA, we continue to expect a net reduction of approximately 60,000 members in 2023. This reduction is primarily driven by the loss of a large group account partially offset by expected growth in small account membership. We remain committed to disciplined pricing in a competitive group Medicare Advantage market. For our PDP business, we now expect a membership decline of approximately 800,000 members for 2023, an improvement from our pre-AEP estimate of a one million member reduction. This improvement was driven by better-than-expected sales and retention in our Walmart Value plan. We are committed to providing affordable coverage for beneficiaries while also improving the contribution from our PDP business and remain focused on creating enterprise value by driving mail order penetration and conversion to Medicare Advantage. We are projecting approximately 80,000 of our PDP members to convert to a Humana Medicare Advantage plan in 2023, which represents a disproportionate share of all Humana PDP members who are expected to switch to a Medicare Advantage plan in 2023. In our Medicaid business, we anticipate that our membership will increase 25,000 members to 100,000 members in 2023. This change reflects membership additions associated with the start of the Louisiana contract, which went live January 1, as well as the Ohio contract, which began today. We expect to add approximately 140,000 members in Louisiana and 65,000 members in Ohio at implementation with Ohio membership ramping to 130,000 by year-end and to a total of 225,000 in 2024. The 2023 membership gains in Louisiana and Ohio will ultimately be offset by membership losses resulting from redeterminations beginning April 1, which will continue for 12 months. We are proud that our Medicaid footprint will now span seven states and cover over one million members, a strong platform that we have established largely through organic growth. We intend to continue to invest to grow our platform organically and actively work towards procuring additional awards and priority states. Finally, we anticipate the total commercial medical membership including both fully insured and ASO products will decline approximately 300,000 members in 2023 as we remain focused on optimizing our cost structure and margin in this line of business. The Insurance segment revenue is expected to be in a range of $99.5 billion [ph] to $101 billion, reflecting an increase of nearly 13% year-over-year at the midpoint. The year-over-year change includes the impact of the phase-out of sequestration relief beginning in the second quarter of 2022 as well as the impact of changing member mix within our Medicare Advantage business. This segment benefit ratio guidance of 86.3% to 87.3% is 20 basis points higher than the 2022 benefit ratio of 86.6% at the midpoint, driven by the targeted investments made in our Medicare Advantage plan designs in 2023 as well as Medicaid growth, which carries a higher benefit expense ratio. Importantly, we have assumed a normalized trend into 2023 including the expectation that provider labor capacity will improve modestly throughout the year. In addition, we have assumed the flu favorability seen to date in the first quarter is offset by higher flu costs in the fourth quarter. In summary, we are guiding to Insurance segment income from operations in the range of $3.2 billion to $3.5 billion for 2023, an increase of more than 12% over 2022 at the midpoint of the range. For our CenterWell segment, we expect EBITDA in the range of $1.3 billion to $1.45 billion for 2023, a slight decrease from 2022. The 2023 outlook reflects the impact of the divestiture of a 60% interest in Kindred Hospice in August 2022, which created a $150 million year-over-year headwind, largely offset by continued growth in our primary care, home and pharmacy businesses. In our core fee-for-service home business, home health admissions are expected to be up mid-single digits. While we have strategies in place to continue to take share in fee-for-service Medicare, we do acknowledge it is a shrinking market with the increasing penetration of Medicare Advantage. Accordingly, our projected admission growth for 2023 reflects a slight decline in fee-for-service Medicare admissions year-over-year, more than offset by strong growth in Medicare Advantage. In addition, CenterWell home health is focused on increasing nursing capacity through recruiting and retention initiatives. Our voluntary nursing turnover improved from 31.9% in 2021 to 30.6% in 2022. We continue to invest in clinical orientation and mentors and technology focused on reducing administrative tasks and drive time for clinicians, which we expect to drive further improvement in nurse recruitment and retention. With respect to our value-based home model, we expect to expand coverage to approximately one million additional members by year-end 2023, 800,000 of which are currently served under the utilization and network management model. In our primary care business, as Bruce shared, we expect significant center expansion throughout the year through a combination of de novo bills under our joint venture with Welsh, Carson as well as programmatic M&A. All in, we anticipate adding nearly 50 centers in 2023, an increase of approximately 20%. In addition, we expect to add 20,000 patients to 25,000 patients during the year in our de novo and wholly owned centers, representing nearly 12% growth year-over-year. Finally, our pharmacy business will benefit from the significant growth in individual Medicare Advantage membership in 2023, as we anticipate maintaining our industry-leading mail order penetration rate. From an operating cost ratio perspective, we are guiding to a consolidated operating cost ratio in the range of 11.6% to 12.6% for 2023, a decrease of 100 basis points at the midpoint from the adjusted ratio of 13.1% in 2022. This decrease reflects the divestiture of a 60% interest in Kindred Hospice in August of 2022, which has a higher operating cost ratio than the company’s historical consolidated operating cost ratio as well as the incremental run rate impact of our value creation initiatives. Touching now on investment income and interest expense. We anticipate investment income will increase approximately $450 million in 2023, resulting from the higher interest rate environment, coupled with the impact of approximately $100 million in realized losses experienced in 2022 that are not expected to recur. From an interest expense perspective, while the majority of our debt is fixed rate, we do expect interest expense to increase approximately $110 million year-over-year. I will now briefly discuss capital deployment for 2023. We will continue to prioritize investments to drive organic growth. From an M&A perspective, we remain focused on opportunities to enhance our CenterWell capabilities with a particular focus on growing our primary care and home businesses. And finally, we recognize the importance of returning capital to shareholders and expect to maintain our strong track record of share repurchases. We will consider the use of accelerated share repurchase programs as well as open market repurchases to ensure we maximize value for our shareholders. We also recognize that dividends are important to our shareholders, and we are committed to growing our dividend. In closing, I would like to echo Bruce’s sentiment that we enter 2023 in a position of strength. The strong earnings growth delivered in 2022 combined with the robust membership growth and financial outlook for 2023 increases our confidence in the midterm target of $37 in 2025. We look forward to providing continued updates on our progress towards our mid- and longer-term targets throughout the year. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Certainly. And our first question will come from Josh Raskin of Nephron Research. Josh, your line is open. Josh Raskin: Hi, thanks. Good morning. I want to focus on CenterWell, and I understand the decline from the hospice sale. But maybe if you could give us some color on what’s the organic growth rate around both the revenues and EBITDA. And then if you could talk about your recruiting initiatives and how you’re trying to bring physicians into the centers? Thanks. Bruce Broussard: Yes. Hey Josh, thanks for the questions. On the recruiting side, we do it both nationally and locally. And what we’re finding in the – we have a dedicated team also to the recruiting area. What we’re finding in the recruiting is that we are really the younger population we’re able to recruit to, and then also the older population, the more the experienced ones that are really looking to change their approach and clinical area and specifically around moving from an E&M code driven, primary care billing to more of a value based. And what we’re finding is once we – they are experienced with the value base, the retention side is much greater because it’s a better quality of life for them. But more importantly, it’s also much aligned with what they went to school for around proactive care and care that is more oriented to prevention as opposed to just the treatment side. So through a centralized approach and also oriented to locally, but really oriented to people that are looking for value-based payment options. Susan Diamond: And Josh to address your other question related to just the organic growth that we anticipate for the CenterWell segment. So in total, the segment is expected to grow revenues about 6% year-over-year with pharmacy slightly above that number based on the strong individual MA growth, although they’re also impacted by the decline in the PDP membership. The home is slightly down, and that’s again reflective of the growth that I had mentioned in my commentary about the core fee-for-service expansion as growth as well as the expansion of the value-based model, but obviously offset by the disposition of the 60% interest in hospice and the movement of that line of business to below the line is a minority investment. For CenterWell primary care, that business continues to grow. But as you know, the majority of the de novo growth is off balance sheet as part of the Welsh, Carson deal. So also isn’t reflected in our actual revenue growth and EBITDA it’s going to be reflected in that minority investment as well. But specifically, the segment in total is expected to grow 6% for the on-balance sheet portion. Josh Raskin: Okay, Thanks. Operator: One moment. And our next question will come from A.J. Rice of Credit Suisse. And A.J. your line is open. A.J. Rice: Okay. Hi, everybody. I think she’s calling on me, it was a little jumbled there. Thanks for the comments on the RADV rule, and I know that’s still under review by you guys and the industry. One of the things in some of the data that was released by Kaiser and others running up to the rule release was some data suggesting various error rates on audits done on results from the 2011 to 2013 time period. And one thing that got some play was the fact that Humana seem to have a little higher audit error rate or somewhat higher error rates than some of the peers. I know that was years ago. I’m sure the entire industry has invested in making sure that they do better in future audits. But I’m wondering if you guys could give us your perspective on that and any initiatives you’ve done to try to make sure that going forward, that won’t be an issue. Susan Diamond: Hi, A.J. Thanks for the question. In terms of the variation that was reflected in the report that came out, I would say first, we don’t have access to the data, obviously, to be able to really evaluate or assess those differences, so I really can’t comment on the variation. More generally, I would just say that we don’t have any reason to think that the inherent error rate within the Humana population would be meaningfully different from others. And so maybe just reflective of the audit selection and process that they’ve used historically. In terms of the question of what we might expect going forward, I would say, that is also impossible to really assess. Even in the periods they have audited, they have used different methodologies over that period. And as you saw in the final rule that came out earlier this week, they did not provide specificity on what the audit methodology will be going forward. And so the error rate that you might expect is going to be highly dependent on the audit methodology and extrapolation that they ultimately define. And so that is one of the things that we look forward to working with CMS on to better understand to fully assess, what might be expected going forward. A.J. Rice: Okay, thanks a lot. Operator: One moment. Bruce Broussard: Operator, are you there? Operator: Yes, I’m sorry. Justin Lake of Wolfe Research. Your line is open. Justin Lake: Thanks. Good morning. I guess, first, I’ll just follow-up on A.J.’s question and then ask my own. Maybe the – I assume – I know CMS methodology changing and they didn’t give a lot of specificity, but I kind of would assume an error rate is an error rates. So maybe you can just tell us, I mean, even CMS has said errors rates for the industry have improved. So one, are you doing your own audit to see how this has trended over the last 10 years? Maybe you can give us some color on how the error rate, forget about extrapolation and all that, but just how the error rate in these in your own audits might have been trending over that period of time? And then my question would just be, as a follow-up. The – as you think about CMS in 2018 will be the first time they use extrapolation on an audit. Whatever that error rate is, can you give us some color in terms of how you share that with investors. And more importantly, kind of how you would think about it from a bidding perspective? Would you kind of take a onetime charge on something that was from 2018, whatever that repayment might be? Would you build it into the bids going forward as kind of a reserve and just assume it’s a lower revenue number, a premium number like a rate cut? Can you give us some color on that as well? Thanks. Susan Diamond: Sure. Hi, Justin. To your first question about just broadly how to think about how error rates may have trended over time. What I would say is that generally, the growth in value-based provider penetration as well as the increased activity within in-home assessments over that timeframe as well as just the normal course activities that all health plans undertake to – as part of Medicare risk adjustment, frankly, all work to improve accuracy. And so I would expect that some of those programs have grown, particularly value-based care and home assessments that we would see hopefully some improvement relative to those initiatives. But in terms of what might be happening in the broader sort of and much larger organic base of provider claims, it that’s difficult to say because again, we don’t have that information. And it will ultimately depend on how the audit methodology is defined in order to fully assess the impact of that. In terms of how we might think about the impact of this from 2018 and forward, I would say that from a 2024 bidding perspective, based on what we know today and given that the 2024 bids are due in just a few months, I would say it’s unlikely that there would be any impact to 2024 bids. But we’ll certainly need to look to see if CMS provides any guidance in the advanced notice and bid instructions given just the uncertainty that exists regarding how the contract selection and audit methodologies will be defined in the future. But our focus will continue to be on delivering value and strong value within our MA claims to members, including the goal of stable premiums and benefits in 2024. So we look forward again to working with CMS to better understand the planned audit methodology going forward and assessing any future impact, but unlikely that will be finalized in time for the 2024 bids. Operator: Thank you. And our next question will come from Kevin Fischbeck of Bank of America. Kevin Fischbeck: A little more color on your insurance MLR guidance. I think in your comments, you mentioned that it’s up in part due to and they benefit design improvements. I guess, I was under the impression that you guys were trying to target stable margins on the MA business. So just want to understand that nuance. And then you mentioned Medicaid pressure due to new contracts. So, I was wondering if there’s anything in there about redeterminations? And then finally, any color on commercial would be great. Thanks. Susan Diamond: Hey Kevin, this is Susan. Yes. So in terms of the MLR guide for 2023, the way you should think about it is that we did through our value creation initiative, create capacity with the enterprise to fund those targeted investments without impact to overall earnings and EPS. But keep in mind that the enterprise savings that were generated were across the entirety of the enterprise. They wouldn’t have all been generated by the Medicare line of business. And so given all of that investment was redirected to Medicare, you would see some impact to the MLR, all other things being equal for Medicare. And then as always, you have to consider, given the growth that we saw and some of the dynamics that Bruce mentioned about new members, switching members and retention all of those would go into our estimates for MLR for the year as well. Outside of just the Medicare trend, as you pointed out, the Medicaid growth will also impact the MLR Medicaid in general has a higher MLR. And given the growth that will happen at the beginning of the year – will be in Ohio, that will certainly impact it and be mitigated over the course of the year through redeterminations. And as we’ve commented previously, the members who had access Medicaid through the deferral of the redeterminations did tend to be lower acuity and higher contributing. So as they roll off, that would have an impact to the Medicaid MLRs as well. So those, I would say, are the two main drivers as well as just more generally, our continued approach of a more conservative initial guide as we set expectations with the – they intend to certainly mean and hopefully exceed those expectations. Operator: Thank you. And our next question will come from Stephen Baxter of Wells Fargo. One moment. Stephen, your line is open. Stephen Baxter: Hi, thanks. I wanted to ask about retention in Medicare Advantage. I think you said you more than doubled the improvement that you targeted for 2023. So it sounds like you’ve gotten retention back to where you would have initially planned heading into open enrollment for 2022. I was hoping you could talk about what your outlook is for retention as you continue to evolve your channel strategy? Do you think retention is stable from here? Do you think it can improve? And if it can improve? Any sense of what the pacing would look like would be great. Thank you. Bruce Broussard: Thanks for the question. Yes, as you articulated, we’re very happy about the 200 basis point improvement in the retention this year. It is a combination of both internal work and the combination of our partnership with the channel, they increased 350 basis points. As we look forward, it’s probably going to be more stabilized as we think about it with some improvement, we’ll continue to work on it. But with the large increase in improvement in the channel outside that really contributed to the 200 basis points. And I don’t know if you’re going to see that, is that large of an improvement in 2023 and 2024. [Technical Difficulty] Operator: This is your operator. Unfortunately, you could not hear me speaking. I have introduced Scott Fidel [Stephens] twice. Scott, your line is open. Scott Fidel: Thanks. Can you hear either of those first introduction Scott, can you hear me okay? Susan Diamond: Yes. Scott Fidel: Okay, good. Just wanted to follow-up on just the home, the home outlook and appreciate the details you did give. Just interested give, just given some of the moving pieces with the hospice divestiture. When just looking at the home health business, can you give us your view on what you’re expecting the revenue growth trends to be there when considering some of the volume indicators that you gave us? And then also just interested in your expectations for home health margins in 2023. Just when considering both the final fee-for-service rates and the shift that’s playing out to value-based care? Thanks. Susan Diamond: Sure. Hi Scott, this is Susan. So in terms of revenue trends, because of the hospice divestiture, you will see a decline year-over-year. It’s just over $100 million decline. We have a meaningful offset in the growth of the value-based model, in particular, which is a risk-based capitated arrangement with the health plan. And so as we significantly expand the coverage of that to one million members that does drive meaningful revenue appreciation, consider that close to $1 billion for 2023. That’s offsetting what otherwise would have been pressured from the 60% divestiture of the hospice asset. From an EBITDA contribution, you can think of, again, this segment is being down year-over-year, and that’s primarily a function of that higher-margin hospice divestiture being replaced with the less mature value-based model contribution. We expect increasing contribution in markets over time. They don’t start immediately at full impact. And so the value-based model expansion, you can think of is closer to breakeven in 2023. And then that being offset by the loss of the hospice earnings in our reporting. And I would say on the core home health services, we do expect, I would say, relative margin stability. We’ll certainly continue to watch labor trends and make some further investments in nursing, recruiting and retention, as I mentioned in my commentary, but I’d say relatively stable margins in the home health business. Scott Fidel: Okay, thanks. Operator: And our next question will come from Stephen Baxter of Wells Fargo. Stephen, your line is open. Stephen Baxter: Hi. Yes, I’ve had my questions, so I’m happy to give you the floor back and move to the next person. Susan Diamond: Certainly. Operator: Our next question will come from Gary Taylor of Cowen. Your line is open. Gary Taylor: Hi, good morning. I wanted to ask about the 2023 MLR guidance, but maybe come at it from the other side of the angle from what Kevin asked. We tried to look back at years in the last decade where you had really above-trend enrollment growth like 2014, 2015 and 2019. And generally, MLR was up in those years, although 2019 was probably mostly the HIF holiday. But I’m just trying to think through your commentary about retention being higher, which should imply keeping more comprehensively coded patients and 50% of enrollment from plan switching, which should also imply more comprehensively coded patients. So, I’m just wondering if inherent in the MLR guide is an assumption that your new class of 2023 is better profitability than typically you would ascribe to a new class of patients and any implications on kind of that margin improvement progression we would expect in the 2024. Susan Diamond: Hi Gary, great question. So there are a number of things that will impact the MLR as a result of the membership mix. As you said, the higher than typical rate of members – new members coming from competitor MA plans would generally be viewed as positive. Those numbers do tend to be contribution margin positive even in the first year. We’ve many times commented on, in general, when you think of the full new cohort of new members as being breakeven from a contribution margin basis, but that’s based on that historically lower switching rate. So the fact that we saw more switchers, incrementally that would be viewed as positive. As you said, relative to our previous expectations, at least, the higher retention is certainly positive from a contribution margin perspective as those are going to be the most impactful from a current year contribution standpoint. The other two things I would say, work negatively against MLR. One is, one plan in particular, the plan where we offered a meaningful Part B giveback. We do expect that plan will attract an overall lower acuity membership given the plan design and the way it’s structured, and we did see stronger growth in that plan than we had originally expected. So again, that relative to all other members would likely be a negative to MLR. And then finally, I would say the plan-to-plan switching that we saw this year, and we commented on this at JPMorgan as well. For the existing members that we do have, we did see more members switch to another Humana offering than we had initially anticipated. Typically, that’s where they will see a richer plan in market and select that plan. So while still positive and more so than an otherwise new member, year-over-year, they would see less contribution given the planned change that they initiated. And the last thing I’ll just point out that is a bit unique this year is in order to make the level of investment that we did in our Medicare offerings, the way the bid dynamics work, we have to create savings for relative to A&B cost to fund those additional benefits and recall that CMS shares in those savings through the rebate. And so in order to invest $1 billion in benefits, you have to actually save more than that and then share some of that with CMS. And so the implication of that is and otherwise increased to MLR relative to what it would have been at a lower investment level. So all of those things are contemplated in our current year guide as well as, as I said a moment ago, just our continued approach of taking a conservative view of the guidance at the beginning of the year. Gary Taylor: Thank you. Operator: Thank you. And our next question will come from Nathan Rich of Goldman Sachs. Your line is open. Nathan Rich: Hi good morning. Thanks for the question. I wanted to go back to RADV, if I could. It looks like the elimination of the fee-for-service adjuster, is set to go into effect. I guess, how significant of an impact could that element have relative to some of the other factors you mentioned where there seems to be a bit more uncertainty around contract selection and sampling methodology? And then Susan, I think you had previously talked about potential for the industry to litigate the outcome of the final rule to try to resolve some of these uncertainties. It’d be great to get your kind of updated thoughts on how you think that process could play out? Susan Diamond: Sure, Nathan. So, I would say, as we think about the ruling, as Bruce mentioned, the fact that they will not be extrapolating to periods of 2017 and prior, we certainly view as positive and we would consider the exposure for the audits that have been completed for those periods to be immaterial. So that was definitely positive. As we think about what CMS has shared for 2018 and forward, and as we said in our commentary, it will be – we will need to evaluate obviously, the audit selection methodology and extrapolation methodology. And also understand our compliance concerns as part of our normal course MRI activities. And as we do that, we continue to evaluate all of our options to ensure that the omission of a fee-for-service adjuster and the resulting impact is addressed. And so again, at this time, that’s really all we can say. There’s going to have to be additional collaboration with CMS to better understand some of the go-forward activity, but we just continue to – and we’ll continue to evaluate all of our options to address the primary issue of the lack of acknowledgment of the need for a fee-for-service adjuster. Nathan Rich: Thank you. Operator: Our next question will come from Lisa Gill, JPMorgan. Your line is open. Lisa Gill: Hi, thanks very much. Good morning. Susan, I was wondering if you could just maybe discuss your expectations around the number of patients that will be in capitated relationships for 2023. And maybe just overall, the number that will be in any type of risk relationships as we think about 2023? Susan Diamond: Sure. Hi, Lisa. I would say that – we would probably expect relatively stable percentages and as we’ve disclosed historically, you consider about a third of our membership in full capitated arrangements another third in some form of value-based arrangement, and then the final third in more fee-for-service type arrangements. And just given the strong growth, our goal every year is to a minimum maintain that penetration and ensure that the new members who are enrolling with us get to that penetration level. So given the strong growth this year, you’ll certainly have to evaluate that. But as Bruce said, we saw very strong growth in highly penetrated markets. So hopefully, that may be a bit of a tailwind as respect to those ratios. But generally, you can – given the high penetration already, the goal is to maintain that as we continue to grow at or above the market rate. Lisa Gill: And if you see better penetration, can you just remind us, will that help to improve the initial guidance that you’ve given here around medical cost trend for 2023? Susan Diamond: I would say, we’ve evaluated the 2023 membership growth and the quality of that. And as we’ve said earlier in the commentary, net-net, you can think of that all in as net positive relative to what we would have previously expected, but immaterial really to our overall estimates for 2023. And certainly, we’ll evaluate the claims trend as we do every year. And if we do see some positivity, we’ll certainly keep you apprised. But I would say from the growth itself, while positive, would not be considered material to our overall estimate. Lisa Gill: Great. Thank you. Susan Diamond: Next question. Operator: Thank you. And our next question will come from Michael Ha of Morgan Stanley. Your line is open. Michael Ha: Hi, thank you. Just a quick follow-up on Susan’s response to Gary’s question and then the quick one value creation plan. So at least Susan mentioned existing MA members switching to a plan with a higher Part B rebate had a meaningful impact MLR. Just wondering how many approximate members is related to larger impact MLR? And then quickly on the value creation plan. I understand it’s tracking very well. I think on track to exceed $1 billion in savings. So that’s great. And just a couple of questions, like how much in excess of $1 billion are you now targeting to save for 2023? And then now the AEP is over, you think about that $1 billion in relation to strong membership growth, increased planned investments and sales margin? And how does it compare to your original expectation? Are the investments tracking in line with the $1 billion? Thank you. Susan Diamond: Hi, Mike. Yes. And just to clarify, the enrollment in Part B plans was a broad comment. We saw a strong sort of choice within that product from new members. And I’m sure some of our existing members may have switched to those plans as well. But I would say the majority of the outperformance in that product was more related to new members than switching. But certainly, provides a different alternative in terms of the way the benefits, the guarantee Part B giveback on the premium side, and there is a trade-off for the relative richness of the benefits relative to other plans. So again, just based on, I would say, more of the acuity of the membership that we expect those plans to attract being lower is why I would say that, that would sort of all other things being equal, negatively impact the MLR that you would expect. The plan to plan change broadly is just recognizing that typically when a member changes plans, it’s usually because they’ve identified a plan that has richer benefits that they will move to. And so year-over-year, their contribution, while positive, will just be less than it was in the previous plans. In terms of the value creation plan, yes, as you said, we did outperform our initial goal of $1 billion. I would say you can think of that as sort of a 10% to 15% outperformance. As we mentioned, though in 2023, we did plan for the intent to reinvest some of those savings into other admin categories and investments, particularly marketing and distribution with the intent of continuing to take progress on shifting some of our external call center market share back to our proprietary channels, which we’ve described historically is requiring some upfront investment, given that we fully fund the marketing for our proprietary channels. We’ll see lower commissions over time, but relative to the external channel, those costs are a little bit more front-loaded. And so our 2023 plan does continue to contemplate that, increased investment in 2023, so that we can make further progress. Having said that, we will certainly evaluate the stronger-than-expected results that we’ve seen so far in 2023 overall, but also by channel and the team is currently evaluating all of the marketing metrics and developing sort of a point of view of how we will think about our go-forward plan, particularly for 2024 AEP and whether there’s opportunity to optimize what we might have initially expected. So more to come on that, but our claim does contemplate the same level of increased investment that we planned for at the time of our bids last year and the planned use of some of those value creation savings to fund that investment. Operator: Thank you. And our next question will come from Steven Valiquette of Barclays. Steven, your line is open. Steven Valiquette: Yep. Great, thanks. Yes. Good morning everybody. Thanks. Yes, we talked about the MLR guidance for 2023 a lot on this call so far. Just one other question around that sort of a clarification. But you mentioned that you expect the provider labor capacity to improve modestly throughout the year. Just wanted to get some quick clarification around that in terms of – do you consider that to be a pent-up demand when you’re referring to that? And maybe just the other question would just be at the midpoint of the MLR guidance, are you assuming any sort of pent-up demand related to elective procedures or any other pent-up non-COVID care coming out of 2022 that may have to be absorbed in 2023 at the guidance midpoint. Thanks. Susan Diamond: Hi Steven, so as we thought about the MLR and specifically the mention of provider labor capacity, I would say that is more a broad belief that over time, we will see improved clinician labor capacity which, as we all know, has been impacted throughout COVID, and we believe still at lower levels than we would have exchanged in the absence of COVID. So our belief is that over time, it won’t be an immediate correction, but over time that we will see clinician labor capacity increase and that when we do additional utilization will also follow. And I think as we’ve commented before, one of the spaces that we continue to see lower than historical utilization is in the observation space within the hospital systems. Today, what we’ve seen throughout COVID is ER utilization in inpatient stays, observation stays, which you can think of as the sort of shorter duration stays are materially lower, which makes sense as the hospitals would certainly look to maximize sort of the revenue within their beds for any given patient. So we would expect as labor capacity increases. That will be one area where I imagine we will start to see some return to pre-COVID levels as there is sufficient capacity to support those additional patients in the facilities. So I would say it’s not explicitly pent-up demand. And based on all the analysis we’ve done, we don’t believe there’s a large amount of pent-up demand sort of that needs to work its way through the system. Historically, we have seen some evidence of that, but it’s typically after a very large COVID spike where there’s significant depressed non-COVID utilization, which fortunately we haven’t seen for some time, and we are not forecasting that type of event to occur again in 2023. So our guide does not have an explicit assumption around pent-up demand, but rather just taking the resulting sort of baseline trend we experienced in 2022. Increasing that for normal course trend as well as the expectation of some higher utilization is labor capacity returns. And as I mentioned in the commentary and expectation that flu will also see higher costs than we saw in 2022 as well. Steven Valiquette: Okay. All right. That’s helpful. Thanks. Operator: Thank you. Our next question will come from George Hill of Deutsche Bank. Your line is open. George Hill: Hey, good morning guys, and thanks for taking the question. Susan, I hopped on a couple of minutes late. I was wondering if you could just spend another minute talking about, what drove the increased cost in 340B and the duration after this year. And I guess I would just know – I’m sure you guys thought it was a court ruling on Monday that looks like it’s going to give the manufacturers more flexibility with which pharmacies they want to participate with and which drugs they kind of want to provide discounts around. So just kind of would love more color on kind of what happened in 340B and what you guys see going forward? Susan Diamond: Sure, George. So the impact that we saw in the fourth quarter of 2022 was a result of an increase in the ASPC schedule. That was defined as for claims paid on or after September 28, 2022. And there was no ability for CMS to provide any budget neutrality offset in 2022. And so the lack of a neutrality offset is what caused the higher cost that we incurred in the fourth quarter that we had not previously anticipated. As you think about going forward in 2023, we will have that same higher ASPC schedule in effect. However, CMS did implement a change in the outpatient conversion factor, which reduces the cost for other services and drive something much closer to budget neutrality, which is why you haven’t seen ongoing run rate impact into 2023. George Hill: Thank you. Operator: One moment. And our next question will come from Ben Hendrix of RBC. Your line is open. Ben Hendrix: Yes. Hi. Thank you very much. With regard to CenterWell, you’ve noticed focus on payer-agnostic platform, but you’ve also noted strong margin contribution from integration with your MA book. Can you remind us how you are prioritizing engagement with your MA plans versus payer-agnostic development as you plan de novo center development going forward? Thank you. Bruce Broussard: Well, we actively pursue and engage other payers on this. We do believe that’s an important part of our growth strategy and in addition, continuing to provide value back to the MA industry overall. But it is highly dependent on the growth of the plan. So this year, you saw significant growth as a result of our MA – the insurance side doing quite well. And so I would say our engagement is very broad and very oriented to continuing to be payer-agnostic, but it’s highly dependent on the insurance plans ability to grow. Ben Hendrix: Thank you. Operator: No further questions. I would now like to turn the conference back to Bruce Broussard for closing remarks. Bruce Broussard: Thank you, operator, and thanks for your continued support. And most importantly, thanks for our 65,000 teammates that allow us to really report these wonderful results. As Susan and I have reiterated, we are entering 2023 with – in a position of strength and look forward to continuing to provide you updates throughout the year on based on this strength. So thank you and everyone have a wonderful day. Operator: I would now like to conclude today’s conference. Thank you for participating. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 Humana Inc. Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host, Lisa Stoner, Vice President of Investor Relations. You may begin. Lisa Stoner: Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our third quarter 2022 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our third quarter 2022 earnings press release as they relate to forward-looking statements and to note in particular that these forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa. Good morning, everyone. We appreciate you joining us. Our third quarter 2022 results reflect the continuation of solid fundamentals and strong execution across the enterprise as seen throughout the year. We reported adjusted earnings per share of $6.88 for the quarter, above our initial expectations. The strength of the quarter allowed us to raise our full year 2022 adjusted EPS guidance by $0.25 to $25 at our September Investor Day. We are pleased to affirm this recently raised outlook representing a compelling 21% growth over 2021. Susan will share additional detail on our third quarter performance and our full year expectations in a moment. We appreciate the opportunity to share our value creation framework at our recent Investor Day as well as the subsequent engagement with investors over the last several weeks. We are excited about the company's future and our focus on executing against our strategy to deliver on the commitments communicated. As previously discussed, achievement of our mid-term earnings target of $37 in adjusted EPS in 2025 and is underpinned by a return to at or above industry Medicare Advantage membership growth by 2024. Now that we've seen competitor plans for 2023 and the annual enrollment period is underway, we are happy to provide initial expectations for 2023 membership growth today. Based on our understanding of the competitive landscape, we are anticipating individual Medicare Advantage full year growth of 325,000 to 400,000 members. This represents an expected growth rate of 7.1% to 8.7%, in line with our expectation of high single-digit industry growth. As we've spoken about previously, we've made substantial investments in our MA product offering and are confident in our strong competitive position. Through targeted surveys and deep analytics, we've designed products to meet – better meet our members' needs. For example, 100% of our dual eligible plans will offer the healthy option allowance, which allows our members the flexibility to direct funds to pay for healthy food, over-the-counter items, transportation, health supplies, rent and utilities. We are differentiated in this benefit through the wide breadth and flexibility of spending categories as well as the rollover feature we offer in many geographies. Outside our specific consumer segment strategies, we also improved plan offerings for our broader membership. For example, for our zero premium HMO and LPPO products, we believe we're at parity or above the key competitor plan value in approximately 80% of our markets. We also expanded the footprint of our zero premium LPPO product now offered in over 2,400 counties, a 34% increase year-over-year to better serve members looking for low-cost options with network flexibility. All combined we believe our plans are providing unique solutions to seniors most urgent needs, providing both affordability and value, which is especially important given current economic conditions and knowing many seniors on fixed incomes. Beyond our product investments, evolving our distribution capabilities remain a focus and we are continuing to advance our omnichannel strategy. As we've previously discussed, we've been working closely with our external partners to improve sales quality through a variety of initiatives. We are confident that we'll continue to maintain strong partnerships and drive better quality through this channel, such as improved retention and better customer satisfaction. Meanwhile, we continue to enhance the capabilities in our internal channels, which tend to provide higher quality sales. We are leveraging improved analytics and artificial intelligence for all inbound calls to drive improved experiences for both our agents and our customers. We believe this, in combination with our refreshed marketing strategy, will result in an increase in internal sales of approximately 20% year-over-year. Our ability to maintain our leadership position in the MA industry is supported by our excellence in quality and customer experience. Our success demonstrated in areas such as our Star ratings, where 96% of our MA members enrolled in plans rated four stars and above for bonus year 2024. Humana has now achieved the highest percentage of members in four-plus star contracts across all our national competitors for five consecutive years. Our commitment to quality is also evidenced in our CMS audit results where we once again saw a significant improvement in our overall results for CMS has recently completed triennial audit when compared to our 2019 program audit. And finally, we are proud that Humana has been named the best overall Medicare Advantage insurance company by U.S. News and World Report, which created an honor role based on the centers for Medicare and Medicaid services newly released Star ratings for Medicare Advantage plans. Additionally, Humana ranked as the best company for member experience and was declared the best company for low premium availability. The durability of our success in these areas reflect our differentiated capabilities, including highly diversified value-based care solutions and locally oriented provider relationship models, the use of deep analytics and digital capabilities, first-mover deployment of interoperability, as well as customer-centric products and solutions. The entire organization is focused on efforts to continuously raise the bar on quality and member experience so that our members can receive better outcomes and we will continue our relentless pursuit of maintaining our industry-leading results. Turning to our $1 billion value creation initiative. I'm pleased to share that we have line of sight to fully realize the $1 billion goal in 2023, which will support the investments for MA growth in 2023 that I just described. The effort has required difficult choices, focused execution and changes in the company, which we have already started to show positive results that we expect to continue over the near and long-term. While the formal $1 billion goal has been achieved, we are committed to ongoing improvement in operating leverage with a target of approximately 20 basis points annually on a business mix adjusted. Going forward, we intend to continue our historical focus on productivity, utilizing a framework that has been enhanced with the best practices learned through our value creation efforts. We are focused on running our business in a way that will create sustainability driving operating leverage while creating a culture that promotes continuous improvement, workflow efficiency and technology adoption to automate and assist our work wherever possible. We are encouraged by the early indications of the sustainable productivity framework. As an example, I'd like to highlight productivity efforts in our pre-authorization process where we're leveraging an in-house artificial intelligence solution to automatically match incoming faxes to the correct authorization requests. This solution creates administrative efficiencies across millions of inbound images. We are also scaling this solution to multiple business units such as pharmacy and are also expanding the application of this type of AI to provide decision support to clinicians, which will result in improvements to authorization turnaround times, reduction in friction for providers and creating a better member experience. Before turning it over to Susan, I'd like to say thank you to our 63,000 employees that bring their best sales to work every day and make our success possible. I appreciate all they do for our members and patients. I would also like to thank our shareholders for their continued support. We are excited about the strong fundamentals of the industry we operate within our competitive positioning in the MA market for 2023, and beyond the scaling of our healthcare services offerings, and opportunities to compound our growth through local market integration, and continued cost discipline and capital deployment. We look forward to delivering against the commitments we shared with you at Investor Day. With that, I'll turn the call over to Susan. Susan Diamond: Thank you, Bruce. And good morning everyone. Today we reported adjusted EPS of $6.88 for the third quarter, representing 42% growth over third quarter 2021. Results in the quarter came in above initial expectations driven primarily by lower than anticipated medical cost trends and our individual Medicare Advantage and Medicaid businesses. Recall that we raised our full year adjusted EPS guidance by $0.25 to $25 at our Investor Day in September, which we affirm today. Our revised full year guidance anticipated the strength of the quarter and reflects a compelling 21% growth in adjusted earnings for 2022, while funding incremental marketing to support the 2023 AEP selling season and the dilution related to the hospice divestiture. I will now provide additional details on our third quarter performance by segment, beginning with Retail. Medicare Advantage membership growth and revenue remain in line with expectations, total medical costs and our individual Medicare advantage business were lower than initial expectations for the quarter with the favorable inpatient trends seen throughout the year continuing with some moderation. With respect to group MA, we shared last quarter that we were seeing higher than expected non-inpatient utilization. As I mentioned in September, we have been pleased to see positive current ERE [ph] statements and moderating trends during the third quarter, suggesting that some of the higher trend we described previously was likely due to pent-up demand. Finally, I would note that while it is early in the season, flu levels are running as anticipated. All in our Medicare Advantage business is strong and tracking consistent with the updated expectations shared at Investor Day. Our Medicaid business also performed well in the quarter experiencing lower than anticipated medical costs. We updated our full year Medicaid membership guidance from a range of up 75,000 to a 100,000 to our current guide of up approximately 175,000 to reflect the extension of the public health emergency to January, 2023. We are prepared for the Ohio contract to go live on December 1, adding approximately 60,000 members at implementation, which is included in our guidance. Group and Specialty segment results were in line with expectations for the quarter with our Specialty business continuing to benefit from lower than expected dental utilization. We continue to anticipate a reduction of approximately 200,000 employer group medical members in 2022, driven by our discipline pricing and focus on margin stability. I will now discuss our Healthcare Services businesses. Pharmacy results for the quarter were in line with the increased expectations we communicated in April as a result of the outperformance scene earlier in the year. The Primary Care Organization continues to perform well with results in line with expectations for the quarter. The team is focused on executing on the expansion strategy we shared at Investor Day, and we continue to expect to add approximately 30 to 35 centers to our portfolio through the first quarter of 2023, bringing our total center count to greater than 250. Patient served also continues to grow as expected and we anticipate serving nearly 250,000 value-based patients by the end of 2022. Turning to the Home in our core fee-for-service business, home health episodic admissions for the third quarter are up 5.1% year-over-year, while total admissions are up 6.4% year-over-year. Year-to-date episodic admissions are up 3.9% while total admissions are up 5.4% tracking in line with our full year expectations of a mid-single-digit year-over-year increase. In addition, we plan to expand our value-based home health model to cover an additional 450,000 Medicare Advantage members in the fourth quarter, bringing our total covered lives to approximately 15% as of the end of the year. From a capital deployment perspective, our debt to capitalization ratio decreased by 590 basis points in the third quarter to 39.4% as we retired $2 billion of debt following the divestiture of our majority interest in Kindred Hospice, which closed in August. We continue to anticipate a customary level of share repurchase in 2022 and as a result, expect our debt to capitalization ratio to be in the low 40s at the end of the year. I will now take a few moments to provide additional color on our early outlook for 2023 starting with membership. As Bruce shared, while it's still early in the AEP, we remain confident that the investments we made to support 2023 growth have positioned us well and we are pleased to share our individual MA membership growth expectations today of 325,000 to 400,000 members, which is in line with our expectation of high-single digit market growth. As we always caution this time of year, it is early in the AEP selling season, so the outlook we provide today could change depending on how sales and voluntary dis-enrollments ultimately come in. Initial sales volumes are strong and favorable to our expectations. Recall that we have limited visibility into member disenrollment data this early in the AEP season as those results take longer to complete, but we do expect modestly lower attrition in 2023 as a result of our improved benefit offerings, enhanced onboarding support for all new members and increased focus on sales quality and retention by our call center partners. We also advanced our analytic models incorporating additional granular inputs and machine learning techniques, improving our sales and retention forecasting ability. Taken all together, these improvements and early results support our confidence in the guidance shared today. With respect to group Medicare Advantage, as we previously stated, growth can vary year-to-year based on the pipeline of opportunities, particularly large accounts going out to bid. We expect a net reduction in group MA membership of approximately 60,000 in 2023. This reduction is primarily driven by the loss of a large account partially offset by expected growth in small group account membership. We remain committed to discipline pricing in a competitive group Medicare Advantage market. With respect to standalone PDP, the overall PDP market is declining as more beneficiaries choose Medicare Advantage. In addition, we remain disciplined in our pricing and as a result, our Walmart Value plan will not be as competitively positioned and our basic plan will exceed the low income benchmark in three regions in 2023, driving an expected net decline of approximately one million PDP members. As we look beyond 2023, we will evaluate the impact of the various regulatory changes proposed, which are likely to result in higher PDP plan premiums broadly and could lead to further industrywide movement from PDP to MAPD plans, given the strong MAPD value proposition. Our focus remains on creating enterprise value from our PDP plans by driving increased mail order penetration and convergence to Medicare Advantage. Finally, in our Medicaid business, we expect 2023 membership to be flat to slightly up as the new state awards in Louisiana and Ohio will largely offset the impact of redeterminations, which will begin following the end of the public health emergency. Louisiana has indicated that we will begin the program with 150,000 members while Ohio will ramp to 200,000 members over the course of 18 months. Turning now to our expected 2023 financial performance, I would reiterate our commitment to grow 2023 adjusted EPS within our targeted long-term range of 11% to 15% off of our expected 2022 adjusted EPS of $25. We will continue with our practice of conservative planning and at this time expect the current consensus estimate of approximately $27.90 to be in line with our initial adjusted EPS guidance. The earnings growth anticipated for 2023 will put us on a solid path to achieve our $37 adjusted EPS target in 2025. We look forward to providing more specific 2023 guidance on our fourth quarter earnings call in early February. Before closing, I would echo Bruce's appreciation to our employees for their contribution to our success and to our shareholders for their continued support. We are pleased to report another strong quarter and are excited about our outlook for 2023 and beyond. We look forward to delivering against the commitments we shared with you at Investor Day, providing better experiences and outcomes for our members, and patients and creating significant value for our shareholders. With that, we will open the line for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: [Operator Instructions] Our first question comes from Stephen Baxter with Wells Fargo. Your line is open. Stephen Baxter: Hi. Thank you. I wanted to ask about the individual Medicare Advantage outlook that you provided for 2023. Appreciate the commentary on expecting retention to be a little bit better. Could you maybe tell us or quantify how much that contributes to your growth outlook? Maybe what would your growth outlook be if you had the same result on retention that you did last year? And then more broadly, any early insight you have on competitive dynamics in 2023, either on plan benefits or for sales channels? Thank you very much. Bruce Broussard: Yes, we won't provide the detail on just how it affects the overall. First thing it’s just early in the process. But we do want to continue this practice of being transparent with our investors just on where we are in just two weeks into the AEP. What we are seeing is that new sales volume has been strong and higher than expected. Our close ratios are higher year-over-year than versus what our expectations are. And in addition, our field sales volumes are particularly strong. The call center channel volumes are slightly down year-over-year, which we expected. As I’ve mentioned, our term data is nowhere close to being complete. So, we have limited visibility into that. But what we do see is that we’re seeing improvement in our non-distant [ph] plans. And in addition, we are incorporating about a 100 basis point improvement in our term rate this year, and that’s really a result of what we’re seeing in our relationships with our broker along with the product that we’ve put in place and then just our workflow improvement in both the enrollment area and on the onboarding with our members. So, what we see early on is just a really exciting aspect of where we’re seeing good growth and that good growth is coming across all parts of the organization with continued improvement in our relationships with the channels. Operator: Thank you. One moment for our next question. Our next question comes from Kevin Fischbeck with Bank of America. Your line is open. Kevin Fischbeck: Great. Thanks. I just want to go back to your commentary about cost trend. It sounds like just because you didn’t beat MLR by as much this period. It sounds like what you’re saying is that cautions largely as expected and it’s more a function of you kind of lowering the MLR guidance with your September outlook? Is that kind of how you would frame it? And I guess just based upon how you’ve reported so far in Q3 is obviously implications for Q4 MLR versus where consensus is. I just want to make sure that I’m understanding how you thought about Q3 and then how to think about the implications for Q4 MLR. Thanks. Susan Diamond: Sure, Kevin. So, as you mentioned, we are seeing a lower-than-anticipated cost trend with the mid-quarter raise in guidance, it’s a little bit confusing, I appreciate. But so the beat in terms of cost trend was relative to our initial expectations for the quarter, which were considered in the $0.25 raise that we announced at our Investor Day in mid-September. So the commentary this morning was relative to our initial expectations. But then again, once we account for the increased guidance, then more in line with what we expected. In terms of Q3 versus Q4, as we look at current fourth quarter MLR consensus, the estimates currently are 87.6% [ph] for retail and 86.7% [ph] for consolidated. I would say that right now, they’re a little bit light and that given the announcement of the 3Q results today, which were higher than The Street estimates and reaffirmation of our full year EPS guide. We would expect that analysts will adjust their models accordingly. And then we would see then an increase in the fourth quarter and full year MLR as a result, which then should be more in line with our current expectations. Operator: Thank you. One moment for our next question. Our next question comes from Justin Lake with Wolfe Research. Your line is open. Justin Lake: Thanks, good morning. The – two numbers questions. First, just a follow-up to Steve’s question. You said the churn number is down 100 basis points. So is it just as simple as saying you have 4.5 million members in individual, 1% improvement at 45,000 members to growth versus last year. The math that’s simple. And then what drove the 4% decline in Medicare Advantage PMPM in the quarter? And lastly, a lot of questions on RADV. I was wondering if you could help us understand what a reasonable like fee-for-service adjuster that the industry is looking for at a CMS. So when we see that final rate or that final notice in February, what would be a reasonable number for fee-for-service adjuster that you’ve been lobbying for? Thanks. Bruce Broussard: I’ll take the first question, and then I’ll let Susan take the next two. On the 100 basis points, your math is correct, pretty simple there, Justin. So like always, you amaze me on your ability to back into the number. Susan Diamond: And then, Justin, in terms of the revenue PMPM, there’s a few things impacting it. There’s always that decline over the course of the year from the seasonality perspective as new members continue to enroll at low – typically lower risk scores and members passed away and those members passing late in to have higher risk scores. The other item that you need for this year is just sequestration, which as you know, sort of ended as of the second quarter, but was in place last year. And so that will have an impact on the year-over-year compare as well. In terms of your question on the fee-for-service adjuster, I mean, honestly, we just aren’t in a position to comment and wouldn’t want to speculate on what the fee-for-service adjuster would be, is it would ultimately be based on fee-for-service data to which we just don’t have access. Operator: Thank you. One moment for our next question. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open. Nathan Rich: Thank you. Good morning. I wanted to follow up on the outlook for MLR. I think for 2023, consensus is roughly flat. I guess could you maybe talk about how you’re thinking about the puts and takes to MLR next year? And I guess specifically, are you expecting a normalization of inpatient procedures over the course of the year? And any change to your expectations around utilization, just given the economic pressures you highlighted and maybe utilization of some of the investments that you made in your plans for next year? Thank you. Susan Diamond: Sure, Nathan. As we think about 2023, there’s always a variety of puts and takes that we’ll consider. I would say in terms of utilization, and I think we commented on this last quarter, as in respect to our initial expectations, we did not contemplate the better medical cost trend that we have seen develop in 2022. And so that certainly should be something that does continue into 2023, although we would expect some offset in terms of risk adjustment given the lower utilization. So that’s certainly something that we’ll take into account as we estimate MLR for next year, which obviously, we’re not prepared to give guidance on that today, but would certainly provide guidance on our fourth quarter call. In terms of inpatient procedures, I think we’ve also commented with CMS moving to remove certain items from the inpatient-only list, we frankly expected that to be more flat this year. And frankly, we’ve been pleased to see continued inpatient to outpatient movement, particularly with orthopedic procedures. The rates of outpatient sort of service is pretty high for some of those procedures. So in theory, we should start to see some moderation in that continued shift. Just last night, CMS did release the outpatient reimbursement. And within there, there are also some additional changes to the inpatient-only list. That’s something we’ll have to review in greater detail and consider what, if any, implications we think it will have on further shifting trends for 2023. But otherwise, for utilization, I would say, we are counting on sort of normal course baseline utilization trends. As we’ve commented before, there are two items we want to continue to watch. One is flu. I mentioned in my commentary that so far that is in line with expectations, which it is early in the season, but we are anticipating lower than historical levels, given what we’ve seen in the last few years. We will want to monitor that and see if that does continue or if we start to see an uptick, which we’d have to consider for 2023. And then finally, I would just mention that we know that healthcare capacity is constrained. That’s something we continue to watch. The labor trends and other factors and is something we will continue to be mindful of as we evaluate our go-forward medical cost trend estimates if we, in fact, start to see some of that return to higher levels. And it’s a capacity as we’ve been anticipating some additional utilization as well. So again, not prepared this year guidance today on the MLR, but certainly, we’ll do that on our fourth quarter call as we normally do. Operator: Thank you. One moment for our next question. Our next question comes from Gary Taylor with Cowen. Your line is open. Gary Taylor: Hi good morning. I guess kind of my key questions were answered. So, I just want to go to PDP for a minute where enrollment has been declining since 2017, but coming down a million members would be coming down almost a third, which is, I think, the largest decline you’ve seen. So clearly, this doesn’t generate a lot of earnings. I guess I have two questions. One is, I think it was Bruce who had made the comment about 20 basis points G&A improvement, business mix adjusted. This is a business with lower G&A. So if you’re going to lose a couple of billion dollars of revenue here, how do we think about that impacting sort of that G&A improvement next year? And then the second piece would just be, is the whole thesis behind PDP, which is kind of originally, it would really set up to be a nice feeder into MA. Is that thesis kind of the bump? Is it less important? Clearly, you’ve grown very nicely in the last six years, five years, despite the fact that PDP has been coming down. So, I just wanted to get a call out on your thinking around that. Bruce Broussard: Yes. Maybe I’ll take the latter point and then let Susan take the around the operating leverage. Gary, we do still see and we see conversions from PDP to Medicare Advantage on an ongoing basis. And we see that initial relationship we have with them as an opportunity to expand that relationship. One – two things are happening in PDP. First, there is a few plans that are really at the lower end, and we sort of question how they can get there at the price that they’re offering. And then there’s a group of plans that are sort of in the same area we’re in. So there’s a bifurcation that’s happening in the industry, which is really causing people to, I think, to go to the lower end pricing there as a result of just the aggressiveness in the marketplace. And we’re not going to follow that direction. But what we do see is also because of the value proposition that’s happened in MA that there’s a much larger conversion just overall between PDP to MA and results. It’s really that PDP is a declining business, not only in our company, but as you look at the industry side. But to answer your question, we do see it as a – still as a very viable opportunity for us to expand our MA platform through the PDP conversion as a result of just our relationship with the member and that is a specific strategy within our company. Susan Diamond: Yes. And then Gary, to your question on operating leverage, if you recall we were clear that the 20 basis point commitment was on a business mix adjusted basis just recognizing across all of our lines of business. We have varying degrees of admin loads, so we remain committed to that that target and with respect to the PDP decline in particular as you mentioned, the admin rate does run lower than say Medicare for sure and so that will be accounted for in our ultimate operating expense ratio. I would just say with this level of reduction as you said we will work hard across the enterprise to ensure we get the appropriate amount of variable costs out, but then also take some ground on the indirect costs as well to make sure that the rest of the organization isn't pressured as a result. Operator: Thank you. [Operator Instructions] Our next question comes from Scott Fidel with Stephens. Your line is open. Scott Fidel: Hi. Thanks. Good morning. Question just around the Home, and first just interested now that the final home health rates just came out, how that plus 0.7%. How you think about that sort of influencing your thoughts on home health margins for 2023? And then interested from the contracting perspective for your MA business, there's been a lot of focus amongst the home health industry and re-contracting to some different type of models. For example, moving to case rates with some value based care components to that. And it interested just in Humana's sort of interest in activity levels, I guess in terms of engaging in some of these types of recontracting considerations for – from the MA side as compared to from the home health side? Thanks. Susan Diamond: Sure. Hi Scott. So your first question on the final rule impact and I know we got some questions previously about the proposed 4.2% reduction and gave some commentary that from an enterprise perspective, that would've been about a $30 million hit relative to our sort of expectations at the time of bid. And that's a larger Home and Home Health business but mitigated by what would've been a benefit to the health plan. With the final rule coming out at 0.7%, obviously that headwind is no longer an issue and it would be slightly positive relative to what we thought at the time of bids, but I would say relatively immaterial, but certainly positive to what it would've been at 4.2%, which we had not contemplated earlier in the year. In terms of your question about how we think about the MA space in Home Health, Andy mentioned at Investor Day the work that his team is doing, both on implementing a full value-based model, which is inclusive of utilization management, network management, clinical advancement to take full capitated risk on Medicare patients and as we've mentioned in my commentary, we expect to have 15% of our members covered by that model by the end of the year. In addition, they're also working on value-based reimbursement models for the remainder of our Medicare population initially, and then would expect that we would offer – Kindred would offer those arrangements to other payer – MA payers as well. And so there, we are very focused on the same things making sure that we're driving appropriate utilization of Home Health services, but then also making advancement on the clinical side such that we can improve outcomes and would look to structure that contractually where there's some component of a fee-for-service payment, but then also participate in the savings that Kindred can help drive in terms of total cost of care going forward under a value-based payment model. So we would expect to continue to keep you apprised of our progress there. But we do intend to start with the Humana membership and then once we can demonstrate success, then look to take that to our agnostic payers as well. Operator: Thank you. [Operator Instructions] Our next question comes from George Hill with Deutsche Bank. Your line is open. George Hill: Yes. Good morning guys, and thanks for taking the questions. I guess first I'd ask kind of a big picture question on the recent star ratings performance. I suspect that you guys had a window into your star ratings performance before you held the Investor Day and provided the initial guidance. But I'd be interested if you guys had a sense for what the landscape was going to be like as it relates to Star's performance. And I guess does that kind of increase your optimism, your confidence in kind of outperforming the 2025 targets? Bruce Broussard: We did have a insight into our ratings, but we did not have the ability to understand how the industry was going to perform during the Investor Day meeting. We continue to be remained confident and the capabilities of the company, I wouldn't, it gives us more confidence in what we can achieve and in our commitment but I wouldn't say it's going to overly impact that that commitment. But I do, we're very proud of those ratings. I'm very proud of what it means to deliver better health outcomes as well as a better financial performance. Operator: Thank you. [Operator Instructions] Our next question comes from Josh Raskin with Nephron Research. Your line is open. Josh Raskin: Hi, thanks. Good morning. I was wondering if you could speak to expectations around growth in the number of lives where you're taking delegated risk in 2023, sort of compared to that 250,000 you'll end the year with, and maybe if you're growing MA in faster in areas that are supported by your own or other value-based care providers? And then if you could just update us your views on potential M&A specifically around primary care clinic operators? Bruce Broussard: Why don't I – why don't I take the latter and then Susan can take the former. On the M&A side we continue to find the best – best value for use of our capital is really doing in-market acquisitions, and being able to roll those into existing primary care clinics that we have in the marketplace. There's not only the ability to leverage the size and scale in the marketplace, but also the administrative productivity we get and just the ability to continue to offer broader value to the payers we serve. So I think that will be the most likely scenario. Of course we've looked at some of the larger transactions that are out there and have been reviewing that. I think at this time we're not really convinced that's the right direction for us and we'll continue to do in-market. That might change, but based on where the – where the values are trading and what we can do and inside our marketplace, we'll probably do medium-to-smaller acquisitions at this time. Susan Diamond: And then Josh to your second question; we didn't provide specific guidance this morning in terms of the increase in patients expected in our primary care business for 2023, because you can't expect that we will provide some commentary on our fourth quarter call. But what I will say more generally is that we certainly expect an increase in patient panel growth in 2023 relative to what we'll deliver in 2022. And as you said that's due to the additional centers that we've opened and then the continuing maturation of those centers. Some of that increased growth is also, as you sort of alluded to predicated on the improved Humana value proposition, which should then allow us to drive greater panel growth as a result of that. One thing we'll watch pretty closely is Florida in particular; we've made some nice advancement's there in the value proposition. We have a large number of our wholly own centers there and so we're anticipating improved growth within those whole owned centers and that is something in particular we'll be watching closely, but we'll certainly provide more commentary on our fourth quarter in terms of full year expectations for the provider organization patient panel growth. Operator: Thank you. [Operator Instructions] Our next question comes from A.J. Rice with Credit Suisse. Your line is open. A.J. Rice: Yes. Hi everybody. Just wondering we talk a lot about obviously what you're doing in the primary care arena and what you're doing with home health. The PBM it continues to be a big part of your services offering as well. Any thoughts or updated comments on strategically doing more with that, I know it's primary focus over the years has been just to service your internal MA population in your overall membership; but any thoughts on making any moves in that with respect to the PBM? Bruce Broussard: Yes. A few things there A.J., one is just continuing to grow our penetration in mail order and what we see is the opportunity to continue to make that convenient for our customers as a result of being able to have home delivery and what we're really working hard on both of the digital experience, but also shortening the time of delivery through having more warehouses closer to where a large number of our members are. So we are working hard on the opportunity to continue to improve the mail order rate overall. We do have a few customers; I would say small customers that are utilizing our platform under more of a private label. We've seen that. I think that is an area of opportunity but not an area of focus for us. We've done a lot of work on the specialty side and we see the opportunity to continue to grow our specialty business, which is in a more of a provider oriented and an agnostic provider orientation, and the ability to continue to have stronger relationships with the pharmaceutical side and being able to utilize patient compliant programs. So I would say continue to grow our mail order is top through continuing to improve our experience. And then secondarily, our specialty area, we will look at opportunities to private label or do white label for our delivery, but that probably will be less of the focus. Operator: Thank you. [Operator Instructions] Our next question comes from Michael Ha with Morgan Stanley. Your line is open. Michael Ha: Hey, thank you guys. Just wanted to dive a little deeper into next year’s MA growth. So based on analysis we’ve done on planned value and benefit richness that shows Humana increasing benefit which is significantly more than your peers and almost double the national average. So stronger benefit coupled with leading star ratings performance and a surprising decline and starts from some of your peers, seemingly it looks like you’re positioning into 2023 might be the strongest it’s been in recent history. I know you’re expecting roughly in line with industry growth next year. But I’m curious one, how is your MA growth application developed evolved since early October? And I understand and appreciate the multiyear earnings power that more membership growth can provide. But for 2023 specifically, just given the slightly dilutive impact of year one MA members, in the event you are able to exceed your growth expectations, how does that impact your ability to reach your target 2023 EPS, which gets to the low end of your long-term range. Is there a specific membership growth number that you think could be – end up being potentially diluted to earnings. Thank you. Susan Diamond: Hi, Michael, so in terms of your first question, in terms of how our thinking has developed since sort of before all the data was released, I would say, as the data came out and we commented investor, we are pleased to see that our positioning is relatively speaking, generally where we expected it to be going into 2023, and that the – certainly the positive rate notice and then in addition, the additional value that our value creation initiative opened up for us in terms of capacity to reinvest into our Medicare product was sufficient to get us back to a really strong value proposition. We’ve been able to also validate through discussions with brokers during that time that they are in agreement with our view that we are very well positioned in 2023. And I think a number of analysts have also had independent calls where they heard the same thing. That was further validation. We do recognize that we expect more change within the call center channel this year given some of the changes those partners are making, some comments they’ve made about reducing marketing, et cetera. And so that’s one of the reasons we continue to remain a little bit cautious in terms of our range, recognizing that we’ll need to see how that develops. But I would say, as Bruce mentioned in his commentary, all the early signals are positive, while we recognize it is still early. In terms of your second question about is there any level of growth that would compromise our EPS contribution for the year? I would say, from a growth perspective no, I think we’ve commented a number of times that new members typically have little to no contribution, but they wouldn’t be negative. They just wouldn’t add incremental earnings accretion in the first year. The more relevant metric is retention. Those members obviously are positive in terms of contribution. And so that’s why we always watch that closely. And to the degree we see outperformance in retention then we would – that could be a tailwind for 2023. And to the degree, it comes in lower, it could be a headwind. But again, based on everything we’re seeing and the strength of our product, we think our retention estimates and the improvement we’re expecting is quite reasonable. Operator: Thank you. [Operator Instructions] Our next question comes from Lisa Gill with JPMorgan. Your line is open. Lisa Gill: Thanks very much for taking my questions. Just a couple of really quick follow-up ones. One, Susan, you said that flu was kind of trending in line. But just given what we’re seeing in the Southern Hemisphere, I’m just curious as to what your expectations are for Q4 and maybe even in the first part of 2023. And then just secondly, to the thoughts around the PBM, Bruce you highlighted the specialty business. Clearly, there’s a number of biosimilars that are coming to the market. I’m just curious as to how you think about that. Is Humira a big drug when we think about your specialty business? And is there an opportunity there as we think about late 2023, early 2024? Susan Diamond: Hey, Lisa. So in terms of your first question about flu, so as I mentioned, we are seeing relatively low flu levels. It’s very early in the flu season for the fourth quarter, and so we’ll certainly continue to watch that. In terms of our expectations, we did anticipate in our guide that we would see flu levels higher in the fourth quarter than we’ve seen in the last two years, but not as high as we would have seen pre-COVID. And so far, again, while it’s early, the early trends are consistent with our expectations that we’ll certainly continue to watch that. For 2023, we then assume some further incremental increase in flu going into next year, assuming that it won’t permanently stay at the lower levels we’ve experienced to date. So we’ll certainly keep you guys informed. But so far, we are seeing it run in line with expectations, which are slightly higher than what we experienced previously. Bruce Broussard: And as you talk about Humira, as we look at both the 2023 and 2024, we continue to see that our existing contracting and the rebates that we receive. And when we compare that to what’s in the marketplace today, we don’t see a significant benefit coming from that. Now maybe as the competition increases and it becomes more oriented to driving down price. We’ll see some benefits. But in the short term, we just don’t see the benefits at. Operator: Thank you. [Operator Instructions] Our next question comes from Steven Valiquette with Barclays. Your line is open. Steven Valiquette: Thanks. Hello everybody. Just a quick question here following up on the RADV situation. You mentioned that you can’t really comment on what the adjustment might be for RADV with the new rule that was a new effect on Feb 1, following that 90-day extension. But investors seem to have just a pretty wide view on the potential impact of the company around the situation just based on some of the inbounds coming into us this week. I was wondering if you could maybe just take a second, just remind investors of the framework of the situation. And just more color on how heavily you guys are focused on this internally just for context. Is this a potential material risk factor? Or is it not expected to really be material relative to your preliminary EPS growth guidance you’ve already provided? Just wanted to get more sense for that just to help the investment community around this dynamic. Thanks. Susan Diamond: Hi Steve, yes, happy to answer that. So as we’ve disclosed previously, our view is that the proposed rule failed to adequately address the statutory requirement of actuarial equivalents by not applying a fee-for-service adjuster to the RADV overpayment calculations. We’ve been very proactive in communicating our position and have provided substantive comments to CMS. And actively engaged, hoping that CMS will address these concerns in the final rule. In addition, we’ve commented a number of times on our internal programs around risk adjustment, and we feel very good about what we feel are industry-leading processes as respect to Medicare Risk adjustment compliance. And our sophisticated mechanisms for correcting risk adjustment data if we determine there to be errors in that data. This has included internal contract level audits that we perform, which we have reported the results of which to CMS, including any identified over payments. And then as you pointed out, we do have a material risk factor. It’s included in our disclosures related to this item. So definitely would encourage investors to review that language as it does represent a material item depending on how the final rule comes out. Operator: Thank you. [Operator Instructions] Our next question comes from Rob Cottrell with Cleveland Research. Your line is open. Rob Cottrell: Hi, good morning. Thanks for taking my question. Just a couple of follow-ups. First, I appreciate the commentary on stronger-than-expected applications so far in AEP. But can you remind us the typical pacing of applications throughout AEP? How much is back-end weighted? How many applications come through after Thanksgiving in those last 10 days? And then secondly, interested if you can comment on expected utilization rates of some of the more cash-like benefits that you’re all offering next year in the healthy option allowance. Does that utilization increase given it’s more of a cash payment to the beneficiary? And does that have any MLR implication? Thank you. Susan Diamond: Hi Rob, yes, in terms of your first question in terms of sort of completion over the course of AEP. I would say you definitely see a little bit more back loaded, particularly say, the last two weeks of the AEP selling cycle, represents a disproportionate percentage of the sales. And so that’s why unfortunately, it generally takes since you get pretty late in the AEP cycle to fully predict what the outcome will be, even as you can imagine, the 2% movement in either retention or sales rates can have a meaningful impact. And so I would say it is back loaded. Terms are even more back loaded. And that’s a function of, if a member were to dis-enroll, they have to enroll another plan. That plan has to communicate it to CMS and then CMS communicated to us, which is why that takes longer for us to be able to see the full completion. In terms of the cash-like benefits and expected utilization, we do expect a very high utilization rate for those benefits. We’ve seen that for the OTC benefit and food card that we’ve offered the last number of years, and we expect that to be the case with some of the new services that are included in our offering for 2023. We also included an enhanced rollover benefit. We expect that to also generate some additional utilization as it provides more flexibility to members. We’ve contemplated all of that, obviously, in our pricing for 2023 and our estimates. And given the high rate of utilization we anticipate, I don’t expect that to create any pressure in terms of our guidance for 2023. Operator: Thank you. I’m not showing any further questions at this time. I’d like to turn the call back over to Bruce Broussard for any closing remarks. Bruce Broussard: As I stated at the end of my comments, I’ll just continue to reiterate, I want to say thank you to our 63,000 employees that really make our success every day and what they do. I also want to thank our investors for continuing to support – continue to support us. And as you can tell from the call and from our comments, we’re excited about the strong fundamentals of the industry and as a company and look forward to continuing to provide you updated progress on us meeting the committed. Thank you for your time today, and we look forward to continuing to have the dialogue on our progression. Operator: Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.

Lisa Stoner: [Technical Difficulty] …Humana’s President and Chief Executive Officer and Susan Diamond, Chief Financial Officer, will discuss our second quarter 2022 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the line for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management’s prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana’s website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K and other filings with the Securities and Exchange Commission and our second quarter 2022 earnings press release as they relate to forward-looking statements and to note in particular that these forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks, along with the other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today’s press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today’s discussion includes financial measures that are not in accordance with generally accepted accounting principles, or GAAP. Management’s explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release. Finally, any reference to earnings per share, or EPS made during this conference call, refer to diluted earnings per common share. With that, I will turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa and good morning and thank you for joining us. Today, Humana reported financial results for the second quarter of 2022 that reflected our solid fundamentals and strong execution across the enterprise. In the second quarter, our adjusted earnings per share, was $8.67, which was above our initial expectations. Our outperformance in the quarter was driven by broad-based strength across the organization. Our updated full year guidance of approximately $24.75 represents compelling earnings growth of over 20% over our 2021 results. Susan will share additional detail on our second quarter performance and our full year outlook in a moment. As we look ahead, we are confident that we continue to deliver strong results as a leader in Medicare Advantage and value-based care delivery. Over the last several months, we have taken deliberate steps to meaningfully advance our strategy. In our Medicare Advantage business, we finalized our 2023 product strategy as reflected in our bids and are confident the investments we have made will significantly enhance the value proposition of our offerings. These investments were supported by the enterprise commitment to delivering on our $1 billion value creation initiative, which we expect to significantly improve membership growth in 2023, while still delivering compelling earnings growth consistent with our long-term target. Beyond our product investments, we have worked with our external sales partners to enhance recruiting, training and incentive programs, which we believe will lead to improved member retention. We have enhanced the way we work with over all of our 40 external care partner centers – partners, creating increased alignment by linking incentives to quality and retention metrics and many of our partners have also revised agent level incentives to emphasize retention. We continue to see an increase in member satisfaction year-over-year, demonstrating the positive impact of our efforts. We held our annual external sales partner conference last week and are encouraged by the optimism and excitement expressed by our distribution partners on our commitment to return to market leading growth and in the specific investments we have made. We are also making significant progress in advancing our Medicaid strategy. We received notification of a contract award from Louisiana in June. We are very proud of the team’s success articulating Humana’s unique Medicaid capabilities and our ability to organically grow our Medicaid footprint. We are actively preparing for the Ohio contract implementation later this year as well as the implementation in Louisiana, which is expected in early 2023. In addition, we continue to actively work towards procuring additional awards in our priority states. Within our Healthcare Services segment, we continue to expand our CenterWell assets. We established a second joint venture with Welsh Carson that will deploy up to $1.2 billion of capital to develop up to 100 new CenterWell senior primary care clinics between 2023 and 2025. In the Home business, we began expansion of the value-based model in June with the implementation in Virginia, increasing the number of MA members covered by the model to 331,000, a 22% increase. These actions are building significant momentum within the organization and position us for continued strong growth and leadership in the delivery of integrated value-based care. Turning to our $1 billion value creation initiative, we have made strong progress towards our target and now have line of sight into initiatives valued at over $900 million in 2023 in design, execute or full realization stages. This is up from $575 million when we last provided an update in April. We are confident in our ability to fully deliver against the important commitment and ultimately realize $1 billion of value in 2023. As I have just highlighted, we have made meaningful progress advancing our strategy in recent months, resulting in significant expansion of our healthcare service businesses and further strengthening our Medicare Advantage and Medicaid platforms. In addition to our strategy advancement, the work completed on our value creation initiative has led to an organizational simplification that enables us to accelerate our previously planned organizational streamline. Beginning in 2023, we will realign the company into two distinct units: Insurance Services and CenterWell. Insurance Services will be made up of the businesses that currently sit in the retail and group and specialty segments, while CenterWell represent the current Healthcare Service segment. We believe this simpler structure will create greater collaboration across our Insurance and CenterWell business and will accelerate work that is underway to centralize and integrate operations within the organization. The realignment also expands the scope of authority for leaders and allows us to operate with greater agility and focus in increasing capture synergies across our portfolio. Importantly, we are committed to providing the transparency you are accustomed to receiving from Humana when we transition to the new segments to ensure you have the information needed to follow our progress and understand the economics of our material businesses. To lead this new segment, we have launched an external search for a President of Insurance and Enterprise Services. We are targeting candidates who can look across insurance business in key centralized platforms and services, driving enterprise-level strategic execution. We also look for this individual to bring deep experience in running complex organizations. A key focus of this role will be to help us continue to simplify our structure, to make us more agile and to further improve our ability to increase synergies between our businesses and improve outcomes for our customers. We anticipate naming this individual by the end of the year. As announced in our 8-K this morning, after a long successful career at Humana, Alan Wheatley will transition from his role at the end of the year. Alan has had a distinguished 31-year career at Humana and I am grateful for his significant contribution to the organization. We are confident that momentum Alan and team have created throughout 2022 in the Medicare business will drive a successful 2023 AEP. I appreciate Alan’s commitment to Humana and I am pleased that he has agreed to serve as a strategic adviser until next year to ensure a seamless transition. Alan has developed a strong leadership team with – in the retail organization and we are fortunate to have the opportunity for these talented and experienced leaders to expand their responsibilities. Effective August 5, George Renaudin will take on the new role of President of Medicare and Susan Smith, Senior VP, will take on an expanded role of leading our enterprise services, which includes our clinical, consumer experience, STARS and Medicare risk adjustment teams. John Barger will continue leading our Medicaid organization in his role as President of Medicaid. George, Susan and John, who have 55 years plus of combined experience across different functions at Humana will report to Alan until the new role of President is filled. In addition, [indiscernible] will continue to lead our Group and Specialty segment business, also ultimately reporting to the new President of Insurance and Enterprise Services when the segment realignment is finalized in 2023. In conclusion, I would leave you with the following. First, we are pleased with the momentum we have executing our strategy. Our strong year-to-date results, positive outlook for the remainder of the year and in the significant progress we have made in our $1 billion value creation initiative to improve membership growth for 2023. Second, we are confident that the evolution of our organizational structure will accelerate the advancement of our strategy and result in a more efficient and integrated organization. And finally, we remain confident in our ability to drive compelling returns for our shareholders. We invite you to join us at our virtual investor update on September 15, where we plan to give you more insight into our go-forward strategy and our positioning for continued success. We will provide you with a deeper view into our attractive financial outlook and appropriate KPIs, our leadership position in the industry and our long-term strategy, including additional detail into our home and primary care businesses. With that, I will turn the call over to Susan. Susan Diamond: Thank you, Bruce and good morning everyone. I will start by echoing Bruce’s confidence in our current year performance, the steps we have taken to improve membership growth in 2023 and our ability to drive compelling returns for our shareholders. Our second quarter 2022 adjusted earnings per share of $8.67 represents 26% growth over second quarter 2021 and is approximately $1 higher than our previous expectations. The favorable results in the quarter were supported by strong performance across many of our lines of business and were driven primarily by lower than anticipated medical cost trends and our individual Medicare Advantage and Medicaid businesses partially offset by higher than expected non-inpatient costs and group Medicare Advantage. We also experienced lower-than-anticipated administrative costs, some of which was timing in nature. Importantly, I want to reiterate that utilization in our core, individual Medicare Advantage business is running favorable to expectations. The lower utilization trends and lack of COVID headwinds seen to-date give us confidence in raising our full year adjusted EPS guide by $0.25 to approximately $24.75, while still maintaining a $0.50 EPS COVID headwind for the back half of the year. In addition, the revised guide contemplates an investment of approximately $0.75 EPS in additional marketing and distribution in the back half of the year to further support our improved 2023 Medicare Advantage product offerings. Finally, the revised guide covers $0.65 EPS dilution related to the pending hospice divestiture versus the $0.50 contemplated in our previous guide, which is expected to close in the third quarter. Our updated full year guidance reflects a compelling 20% growth in adjusted earnings for 2022, while funding additional investments to support our long-term growth. If we see additional favorability emerge in the back half of the year, including the remaining $0.50 in embedded COVID headwind, we will be prudent in balancing further investments in support of long-term growth and additional shareholder returns in 2022. We are focused on maximizing long-term value and will be transparent in our approach. With respect to quarterly earnings seasonality, at this time, we expect third quarter earnings to be approximately 25% of our full year estimate. Finally, as Bruce shared, we have made significant progress toward our $1 billion value creation plan. Actions during the quarter resulted in certain one-time costs of $203 million which have been adjusted for non-GAAP purposes. These expenses were primarily driven by consolidation and retirement of technology assets during the quarter, resulting in more efficient operations and lower investment requirements going forward. As we continue to advance the value creation plan, we expect to incur additional one-time costs in the back half of the year, which will also be adjusted for non-GAAP purposes. With that, I will now provide additional details on our second quarter performance by segment, beginning with retail. Medicare Advantage membership growth and revenue are trending in line with expectations. As previously mentioned, total medical costs in our individual Medicare Advantage business ran favorable to expectations in the second quarter. We continue to see lower-than-anticipated inpatient utilization partially offset by higher inpatient unit costs, while non-inpatient costs were slightly favorable to expectations. With respect to intra-year development, you will recall that our first quarter estimates considered the higher unit costs experienced in the fourth quarter of 2021. We were encouraged to see the first quarter restate favorably and have seen some moderation in inpatient unit costs relative to our previous estimates, while non-inpatient costs also restated slightly lower. With respect to COVID, we have seen an uptick in cases in recent weeks but hospitalization rates remain lower than we have seen in previous surges. While we are not concerned with the utilization patterns observed to-date, we acknowledge the continued uncertainty related to the pandemic and therefore maintained $0.50 of COVID contingency in our revised EPS guidance. We are pleased with the performance of our individual Medicare Advantage business to-date and remain on track to deliver at least 50 basis points of improvement in pre-tax margin in 2022. Group Medicare Advantage non-inpatient costs were higher in the quarter than our initial expectations in part due to higher surgical volumes, which we have assumed will continue for the remainder of the year. In 2021, we saw more significant depressed utilization in group Medicare than individual Medicare and expected some normalization in 2022. While group Medicare inpatient costs are consistent with our expectations year-to-date, non-inpatient costs have been higher in recent months, some of which maybe reflective of pent-up demand post the Omicron surge. We will continue to monitor emerging group Medicare trends to determine if the higher than initially expected utilization continues as currently contemplated in our full year guide or if we ultimately see the trends moderate. Our Medicaid business performed well in the quarter, experiencing lower-than-expected medical costs. We updated our full year Medicaid membership guidance from a range of down $25,000 to $50,000 to a range of up $75,000 to $100,000 to reflect the extension of the public health emergency to mid-October. We increased our Retail segment revenue guidance by $350 million at the midpoint from a range of $81.2 billion to $82.2 billion to a range of $81.7 billion to $82.4 billion primarily reflecting the increase in Medicaid membership expectations for the year. Despite the increase in expected Medicaid membership for the year, which carries a higher benefit ratio as well as the higher-than-anticipated non-inpatient cost in group Medicare, we have maintained our original full year retail benefit ratio guidance as outperformance in our individual Medicare Advantage business is providing an offset in the segment. Group and Specialty segment results were slightly favorable for the quarter largely driven by the specialty business and lower dental utilization trends in particular. As previously shared, we are focused on margin stability in the Employer Group Medical business near-term and as a result of rating actions taken in the back half of 2021 to incorporate expected ongoing COVID cost, we are experiencing higher attrition in our fully insured group medical business than originally anticipated. We are updating our full year commercial medical membership guidance from down $125,000 to $165,000 to down approximately $200,000. In addition, we are reducing our revenue guidance for the segment by $200 million at the midpoint reflective of the lower membership expectations. Full year pre-tax earnings for this segment remain on track, aided by the specialty outperformance. I will now discuss our Healthcare Services businesses. Recall that this segment had a strong start to the year with Pharmacy meaningfully outperforming in the first quarter, which we expected to persist throughout the year, although with some moderation. Pharmacy results in the second quarter tracked in line with our increased expectations. Mail order penetration was 38.5% year-to-date for our individual Medicare Advantage members, a 90 basis point increase year-over-year. Primary care organization results were slightly favorable to expectations for the quarter, driven by ongoing operational improvements combined with administrative expense favorability. We added 4 de novo centers and 10 wholly owned centers through acquisition in the second quarter, bringing our total center count to 222 after center consolidations. We are on pace with our targets for the year and continue to expect to operate approximately 250 centers by year end. Turning to the home, home health episodic admissions are up 3.1% year-over-year, while total admissions are up 4.9% year-over-year, consistent with expectations. For the full year, we continue to expect total home health admissions to be up mid single-digits. The hospice business performed well in the quarter, with total admissions up approximately 5% year-over-year driven by increased access to facility-based referral sources and incremental investments in the business to expand clinical capacity. The Kindred hospice divestiture is on pace to close in the third quarter. We have updated our full year guidance ranges to reflect this anticipated transaction, resulting in a reduction in Healthcare Services segment revenue of approximately $400 million at the midpoint, which reflects the hospice divestiture, partially offset by the increased pharmacy expectations discussed in the first quarter. In addition, we have reduced our full year consolidated adjusted operating cost ratio guidance from a range of 13.2% to 14.2% to a range of 13% to 13.5% as the hospice business carries a higher operating cost ratio than the company’s consolidated operating cost ratio. From a capital deployment perspective, we anticipate a customary level of share repurchases in 2022 and expect our debt to capitalization ratio to be in the low 40s at the end of the year as we utilize proceeds from the Kindred hospice divestiture to deleverage. Before closing, I would again reiterate that we are pleased with our performance to-date, fueled by broad-based strength across the enterprise, supporting our full year guidance raise and providing capacity to make additional investments in marketing and distribution in the back half of 2022 to further support our improved 2023 Medicare Advantage product offerings. We are well positioned to achieve our $1 billion value creation goal, which has allowed further investment in our Medicare Advantage offerings for 2023 and expansion of our healthcare services capabilities, while remaining on track to generate earnings growth in 2023 within our long-term target range. With that, we will open the lines up for your questions. [Operator Instructions] Operator, please introduce the first caller. Operator: Certainly. Our first question comes [Technical Difficulty] BMO Capital Markets. Pardon me, Matt. Please check your mute button. Matt Borsch, please check your mute button, your line is now open. And our next question comes from the line of Justin Lake with Wolfe Research. Justin Lake: Thanks. Good morning. Can you hear me? Bruce Broussard: I can. Susan Diamond: Hi, Justin. Justin Lake: Hi, good morning. So I’m going to try to squeeze in a couple of numbers questions. First on MLR in the quarter. It sounded like the MLR had some moving parts, but was in line-ish, give or take, with your own expectations. Obviously, consensus is a little bit lower than this. So I was hoping, you gave us some EPS seasonality. Given your retail business still has 100 basis points of a range, maybe you could tell us where you think you’re going to be in that range for the back half of the year and to think about 3Q versus 4Q? So people like me don’t mismodel it again for the back half. And then on the divestiture, Susan, can you walk us through the numbers a little bit more? I mean the $0.65 is a little bit bigger than I had expected. And just trying to understand how much revenue are you selling annualized, how much profit was there. What are you doing with the divestiture proceeds in terms of just like mapping out because if you’re a $0.65 for, let’s just say, third of the year of dilution, that would indicate to me that you have another $1.30 on next year of dilution? So that’s a pretty decent headwind to next year. And just how do you offset that? Because it sounds like you reiterated the 11% to 15% growth next year. Thanks. Susan Diamond: Sure, Justin. I’ll try to address those. So yes, in terms of MLR, as you said internally, it is meeting our expectation. As you mentioned, analyst expectations did vary. I think there was on the consolidated MLR, about a 200 basis point spread in analyst expectations at about 150% basis point spread in retail. There is a wide variation. What came out in terms of consensus was based on just a few who happened to respond to this survey. So we do want to reiterate that what we are seeing internally from an individual Medicare Advantage perspective, we are seeing better-than-expected results and better-than-expected MERs based on the – primarily the lower inpatient utilization we mentioned. Within the segment, though, as we said, there is some mix impact in terms of the higher Medicaid membership that comes with a higher MER typically as well as the group Medicare pressure that we mentioned in my commentary. But when you consider all of that, as we said, we are very pleased with our performance, in particular, the strength of individual MA improvement which, is reflective of the more conservative pricing approach we took in our bids that we’ve been talking about all year. For the full year, we also remain confident in what we are seeing we will certainly continue to watch the emerging trends to see if that results in any additional favorability in the back half of the year relative to our estimates. But currently, we are forecasting that we will be in line with our expectations for the retail segment for the year despite the higher Medicaid membership and group MA pressure. On the hospice transaction, as far as the divestiture, you are correct, the $0.65 is reflective of the expectation that we will close that divestiture in the third quarter. It is a little bit higher than you might expect if you just run rate some of the numbers that we shared when we did the initial transaction. There is about $1.5 billion in revenue associated with that segment. The reason there is a little bit higher dilution is the fact that the entity expects to take on debt once they divest. So the interest expense, particularly in this rate environment, is a little bit higher than we had initially expected in our guide at the first quarter and then also some of the dissynergies that will occur as a result of operating independently from the home health organization. All of that was considered when we contemplated the divestiture. And so as we’ve been thinking about 2023 planning, we were contemplating the divestiture of that position. And so we still expect to deliver within our long-term target range and be able to cover the impact of the hospice transaction, which we continue to believe is the right thing to do strategically. As for the proceeds, as we’ve said before, we do intend to use the majority of those proceeds to pay down debt to deliver on the Humana side, which will allow us to get back down to at the low 40s as we mentioned in my commentary. Justin Lake: Thanks. Susan Diamond: Welcome. Operator: Thank you. And our next question comes from the line of Matt Borsch with BMO Capital Markets. Matt Borsch: Alright. Let’s try it this time. Can you hear me? Susan Diamond: Hi, Matt. We can hear you. Matt Borsch: Okay, great. Sorry about my mute button malfunction. I was as obviously quite a bit here. Maybe I could just ask about the in-patient higher unit costs that you mentioned, is that simply a function of lower admissions and therefore higher acuity on what remains or is that reflecting some other factors that maybe you could touch on? Susan Diamond: Yes, Matt. Good question. And we spoke to some of this in the first quarter as we were seeing this and accounted for in our first quarter estimates. So if you recall, some of it is, as you said, just a reflection of when you see lower inpatient utilization, typically some of the lower-cost admissions are the ones that are no longer occurring and so you tend to see a little bit higher unit cost than what’s left over. So we did see some of that. But we did see some higher just unit cost for certain underlying procedures, and we continue to evaluate that. And as I mentioned in our second quarter intra-year development, we were pleased to see some of that moderate relative to what we had seen and booked as of the first quarter. So we will continue to watch that. The one other thing I would point out, and we mentioned this in the first quarter, some of the reasons we’re seeing lower inpatient volumes is a continued shift of procedures from the inpatient to the outpatient setting. And when that occurs, that typically results in activity that is lower than average unit cost with an inpatient setting shifting to that outpatient setting, also putting pressure on the unit cost. That was something that we had not fully anticipated as we entered the year. CMS, if you recall, reinstated the inpatient-only list. And so we did not expect to see continued shifting both in our utilization and unit cost estimates. And so as we’ve seen that continue to transition despite CMS’ actions, we saw the benefits of that on utilization, but then some increase to the unit cost. The unit costs are still higher than all of that said, then we would have expected still continue to watch that and see if in the coming months that doesn’t continue to moderate. We have great visibility in real-time to inpatient utilization, but to fully evaluate the unit cost, we’re dependent on those claims coming in over time. And so we will continue to watch that and keep you apprised of what we’re seeing. Matt Borsch: Just a quick follow-up. Is there any driver that you know for the shift to outpatient? Susan Diamond: It’s primarily orthopedic, which we saw in 2021 as well. And so we saw a significant shift in ‘21 and continue to see additional shifts, and it is primarily in the orthopedic space. Matt Borsch: Okay. Operator: Thank you. And our next question comes from the line of Kevin Fischbeck with Bank of America. Kevin Fischbeck: Great. Thanks. I want to try and better understand what you’re doing around 2023 growth. Are you committed to reaccelerating growth? And obviously, part of that is driven by the $1 billion of cost saves that you’ve identified. But then trying to understand a little bit how the outperformance and reinvestment into growth affects that. It sounds like that’s in addition to whatever you did on the benefit side, and we’re already planning to do from the marketing side. I just want to make sure I understand that. And then also, the outperformance in retail or individual MA, was that captured when you submitted your bids or is that – I mean that’s kind of developed more favorably since you submitted your bid? Susan Diamond: Sure, Kevin. Let me take that. In terms of 2023 growth, we are very pleased with the progress we’ve made on the $1 billion value creation goal. And as we’ve been saying, the intent is to use the benefit of that work to primarily support investment in our Medicare business, but also support some acceleration within our healthcare services capabilities. And within the Medicare business, we’ve commented that the majority of the dollars that will be directed to Medicare will support improved value proposition in our Medicare Advantage offerings, but also support increased investment in marketing and distribution to support that. As we completed all of the planning work by the Medicare organization, as they thought through their product strategy, I would say the Medicare team was really pleased with the capacity that, that $1 billion value creation effort created for them, and they feel really good about the investments it allowed them to make and are feeling confident that we will be able to demonstrate significant improvement in our Medicare growth in 2023. As Bruce mentioned in his comments, we had a chance to meet with our external distribution partners recently and share some of those details and we’re really pleased with the reaction and positive sentiment and optimism expressed and commitment to returning to growth that our investment is demonstrated. In our commentary this morning, we were pleased to announce that given the outperformance we’ve seen in 2022 and the second quarter in particular that did give us some capacity to invest some of that outperformance into additional marketing and distribution that’s anticipated to support the 2023 AEP. And we felt really strongly that given the amount of investment we made in our Medicare products for ‘23, we’re going to certainly make sure we appropriately support it with marketing and distribution investments to ensure that we maximize the return off of those investments. So the team is really thrilled with what we’ve been able to do, and we’re feeling confident. We will obviously have to see how the landscape data comes out just exactly how we’re positioned and refine our estimates and we typically give you some sense in our third quarter call. I’m not prepared to do that today. But you want to express that we feel very optimistic and confident that we will see significantly higher growth relative to 2022 off the strength of the investments that we’ve made. In terms of the lower utilization, I would say, we’ve certainly talked in our first quarter commentary of some of the utilization, depression that we saw. I would say that generally, we attributed that to COVID at that that. As you recall, we were seeing a much faster decline in COVID hospitalizations with this latest surge than we’ve seen previously. And so we attributed the lower non-COVID utilization to simply a slower bounce back because that was not anticipated generally. So when you think about our bids, we would not have anticipated any of the favorability we’ve seen this year to signal sort of sustained below baseline utilization or medical costs and would have assumed in 2023 a more steady state sort of normal course level of medical cost trend. So to the degree we see further improvement that we think is reflective of just lower core trend then that would be favorable to what we would have anticipated at the time of bids. Kevin Fischbeck: Alright. Great, thank you. Susan Diamond: Welcome. Operator: Thank you. And our next question comes from the line of A.J. Rice with Credit Suisse. A.J. Rice: Hi, everybody. Thanks. Maybe just to clean up quickly, some of the questions have been already asked. I know you’re saying hospice is a headwind for next year and value creation is a positive. I wonder if I could broaden it out and get you to talk about at this early day without giving guidance, what your headwinds and tailwinds are in a major buckets for next year and maybe also with the 11% to 15% growth target, what’s the jumping off point in your mind for 2022 to get to that? And then Bruce, you’ve mentioned the reorganization insurance business and services business. It sounds like that’s mostly to facilitate better coordination internally. Can you tell us where some of those opportunities are. And then second, is this a prelude to the services business is beginning to focus on external clients. I want know home health does that already. But I wondered the PBM and some of those other areas that have historically just supported Humana. Are you thinking about opening that up? Bruce Broussard: Let’s Susan take the first question. Susan Diamond: Yes, A.J., I’ll take the first one then transition to Bruce. As it reflects 2023, our first quarter commentary did confirm that you can think about the baseline for ‘23 as the $24.50 that we adjusted to you then. I would say that for right now, we’re not going to comment on any further adjustment to the 2023 baseline or 2022 baseline rather for ‘23. And that’s just because we’ve got our Investor Day conference scheduled for September 15, where we do intend to talk about or expect long-term growth expectations. And so I don’t want to get in front of any of that. But I will say that broadly speaking, as we think have thought about our bid planning and our planning for 2023, we were mindful of our stated long-term growth target. There is always a variety of puts and takes that go into every – the planning every year. I would say some of the known headwinds would have been obviously the anticipated hospice divestiture that has always been contemplated in our thinking for ‘23. So that’s not a surprise. More recently, we have seen the proposed rate – negative rate adjustment for home health that would not have been something we previously contemplated. And we will have to see ultimately where the final proposal comes out and whether that sees some improvement relative to the current proposal. But that would be something that we hadn’t contemplated and one of those puts and takes we have to manage. From a positive perspective, certainly, membership growth in 2023, we’re expecting to see improvement. We will have to see as AEP plays out, whether that is more favorable than we might have expected, which could be a positive. And also the medical cost trends, obviously, that we’re seeing this year, as I mentioned in my commentary, we will continue to evaluate those and see whether some of that continues to be positive through 2023. We always have to think about then any risk adjustment implications of any utilization variation that we see and we will certainly be mindful of that. And I would say the one other thing we continue to watch is flu. We’ve seen very low flu the last few years. Some of the early indicators from Australia in particular do suggest a higher flu season for the fourth – potentially for the fourth quarter. So we continue to watch that. But again, that would be one of those puts and takes that we continue to watch. So a variety of things, but I would say nothing that’s such an outlier that is giving us concern at this point, but rather normal course things that we would manage through for 2023. And then Bruce, do you want to... Bruce Broussard: Yes, hey, A.J., just on the segmentation and the recruiting of a new president, a few things from that. First, we are seeing in our work on the $1 billion some really great opportunity to create some simplification and the ability to leverage a number of our different areas within the insurance area. So there is a lot of work now going into really consolidating service centers into one service center, the ability to use our clinical programs not only in the Medicare side, but also in our commercial book of business in a much more integrated way. And then the third area we’re seeing a lot of work being done and being able to utilize a lot of our consumer technology. And so in the work that we’ve done in the simplification through our $1 billion initiative, we just saw some great opportunity to be able to bring it together in a much more efficient way. In addition, what we do see in our work in the local markets of being able to integrate are various different healthcare services that there is a wonderful opportunity we refer to as the flywheel and we will provide you a further update at the Investor Meeting on September 15 about the ability to integrate across the various different services and be able to create a much more holistic approach in being able to move from primary care to home and even into our pharmacy utilization, both mail order and onsite. And so we see the opportunity to leverage that along with the fact that you brought up the payer agnostic. We do see some great opportunity today, both CenterWell primary care and the home are agnostic and continue to see great growth, serving both other payers and other parts of the Medicare system. And at the same time, we’re also seeing opportunity within our primary – within our pharmacy area to offer some agnostic opportunities there. So the ability for it to integrate and also to expand beyond the Medicare side of the business is really at the heart of what you see us more formally creating the CenterWell service side, while on the insurance side, continuing to leverage the efficiencies across the various different insurance platforms. A.J. Rice: Okay. Great. Thanks a lot. Bruce Broussard: Welcome. Operator: Thank you. And our next question comes from the line of Nathan Rich with Goldman Sachs. Nathan Rich: Good morning. Thanks for the questions. You talked about utilization in the individual MA business running favorable to expectations. Is the lower admits per 1,000 that you called out. Is that related to COVID? Or are you also seeing favorability on non-COVID utilization as well? And can you talk about what you expect over the balance of the year? And then Susan, could you also address the increase in days claims payable in the quarter? What drove that and what you were expecting in the guidance? And given that it is sort of above the longer-term rate that you target how you expect that to trend over the balance of the year. Susan Diamond: Sure, Nathan. Happy to answer that. So as you mentioned, we are seeing lower inpatient utilization, which we have seen all year. The first quarter, we did see certainly a faster decline in COVID that’s obviously now subsided. As we’ve gotten further away from that last surge, we’ve continued to see lower inpatient utilization. As we’ve analyzed it, there are a few things that are primarily driving that. One is lower flu. As I mentioned, we have seen lower levels than historical that impacted the first half of the year. That will certainly moderate in the third quarter because you see low flu activity in general. And as I mentioned, we will have to watch and see how flu develops in the fourth quarter. So right now, we are assuming that we don’t return fully to sort of pre-COVID levels, but rather it’s some moderation from that, but we are assuming it doesn’t run quite as low as we have seen through the pandemic. We have to watch and see how flu develops in the fourth quarter. Right now, we are assuming that we don’t return fully to sort of pre-COVID levels, but rather it’s some moderation from that, but we are assuming it doesn’t run quite as low as we have seen through the pandemic. We also saw, as I mentioned, continued inpatient-to-outpatient shifts. That was something, as I said, we did not contemplate in our initial guide. And so that’s positively impacting the inpatient utilization. We are seeing some higher unit costs as a result in utilization. We are seeing some higher unit costs as a result. But as I mentioned, on the non-inpatient side, while we’re seeing that higher utilization, we are seeing in total, though, slightly positive overall non-inpatient costs relative to expectations. So we’ve been able to absorb that higher volume shift within the non-inpatient estimates as well. And then we are seeing some improved impact from some of our utilization management programs. They are also positively impacting inpatient activity. So other than the flu that we will moderate some, we don’t have any reason to think that inpatient to outpatient or the positive utilization management impacts won’t continue for the rest of the year, and so that is contemplated in our full year guide. In terms of DCP, as you said, it is up 3 days sequentially, and that was primarily driven as you can see in some of our disclosures by additional provider accruals as well as fee-for-service days and claims payable. And so is reflective of a stronger reserve positioning as of the end of the second quarter versus what you saw first quarter. You can also see that reflected in the higher IBNR trends relative to premium. I think our IBNR trends were up 2.9% versus premium trends of about 1.9%. So we think reflective of an appropriately conservative posture with respect to reserves at the end of the second quarter. Lisa Stoner: Next question please. Operator: Thank you. And our next question comes from the line of Joshua Raskin with Nephron Research. Joshua Raskin: Hi, thanks. Good morning. My question is how do you accelerate the movement of membership to value-based care providers other than sort of building out the capacity? How are you working with the centers or external partners to get more of the MA lives into value-based care next year? Bruce Broussard: Yes. That’s a constant work for us, and we are up a little bit this quarter as a result of our efforts. A few things there. We continue to look at our partners that are – wanting to move to value base. And we’ve seen some really great opportunities there, especially over the last year or so as we’ve exited out of COVID, the ability for us to then provide resources for them in the – both the technology area and the human resource area to allow them to make that transition and then provide them a contract that allows them to appropriately manage that risk. Sometimes I want to take just upside risk, sometimes I want to take up and down risk with some kind of color or full risk. So we really want to walk with them as they evolve into their risk tolerance. But what we see the most is really building on the partnerships that we have in growing our membership base in those partnerships. And what we’ve seen in a number of markets where we’ve had once a fairly antagonistic relationship with both hospital systems and physician groups that they have evolved to be very positive. And as they evolve are positive, we see much more membership growth in that relationship, which has been very positive for us. What we also measured there, Josh, is not only what – how many members we have in value based, but also their surplus because we could get them into value based, but if they are not really performing both in the STARS risk adjustment and in addition, the health outcomes it’s really for not. And so a lot of the work we’re doing, not only is about getting more members in there but also making it more effective for our members to be – I mean our value-based relationships to be more effective. We’ve been averaging in the 60s, the mid-60s. We’ve increased a little bit this year, I would suspect that we will continue to see more members, but also as our membership growth grows that percentage doesn’t move as much. And so we are getting more and more members in there. But on a percentage basis, it might not look like we’re moving as much. But we are actually both effectively getting more members in there but as importantly, being much more effective in the way that we’re performing as value-based providers are getting more into the surplus. Susan Diamond: And Josh, I would add to what Bruce mentioned. I think in terms of some specific things we do to try to encourage the utilization of those high-performing providers, we certainly work with our distribution partners who have an opportunity at the time of enrollment to help with PCP selection. And so they are certainly educated on all the benefits of those high-performing primary care providers and know who they are in each market and can help with that. We certainly work to make sure our provider sort of physician finder tools that both agents and consumers use properly reflect the quality and the services that are available by those providers, and you will see that if you ever go out to the site and how those providers are ranked based on cost and quality. And then finally, I would say, certainly, our provider organization and our health plans work in coordination on marketing efforts and continue to try various campaigns and learn what’s proving to be effective in driving greater awareness and adoption of those high-performing models. So, all of those things, I think contribute in addition to what Bruce mentioned to some of the progress that we have seen. Joshua Raskin: Got it. And then if I could just sneak in. I just want to confirm, Susan, did you say that the baseline for ‘22 is still the $24.50 and has not changed, or were you just saying we will update it on September 15th? Susan Diamond: Yes. I think given that we have got the September 15th Investor Day coming up, where we have committed to providing an update on how we think about our long-term EPS growth range, we would just prefer to wait and have that discussion at Investor Day more comprehensively versus a discrete sort of commentary on the baseline today. So, it’s not that we are saying – it won’t change, we just want to go ahead and provide a more comprehensive update on September 15th. Joshua Raskin: Perfect. Thank you. Operator: Thank you. And our next question comes from the line of Ricky Goldwasser. Ricky Goldwasser: Yes. Hi. Good morning and thank you for all the details. So, Bruce, a question for you. I mean clearly, there is a lot of moving parts in core utilization. But just as we think kind of like big picture, 2.5 years into the pandemic, you are seeing that move to sort of lower cost in-patient. You talk a lot about home, telehealth. What are you seeing in the market? As you think about things, how do you think about sort of just kind of like structurally sort of core utilization because I am assuming that that’s something that will be part of how you are thinking about those long-term targets that you are going to provide us in September? Bruce Broussard: Yes, we continue to believe two things are happening and that are structural changes in healthcare. One is around the continued movement to a specialty-oriented mindset to more generalist, whether that’s primary care, but also the ability to leverage nursing and physician assistance, etcetera. So, just who is doing the work, we see that continuing to be pushed down. And then the second thing that we see is where it’s being conducted and how the procedures are being and the interventions are being offered. And we see a continued movement to more convenient settings that are also more cost effective. So, moving – obviously, the outpatient has been a long-term trend. But in addition, moving to the primary care office, but moving to the home, moving to telehealth and in addition to leveraging digital. And so we see that all moving towards a much more proactive and convenient setting, leveraging many other professional clinicians into the healthcare system. And we see that as an opportunity to continue to not only drive down where the cost is but also the health outcomes where we can continue to be much more proactive in the ability to slow down disease progression and really prevent preventable events. Susan Diamond: Next question. Sorry Ricky. Ricky Goldwasser: So, I am just kind of like thinking how you are kind of thinking about that as you think about the MLR. I mean clearly, you saw kind of like the MLR in the quarter that was a little bit higher than Street expectations. But are you starting to see that impacting the MLR when you parse out the membership mix? Susan Diamond: Sure. I will take that. So, I would say, as you mentioned, while MLR was different and didn’t meet consensus, that’s again reflective of how I mentioned earlier. There is a wide range in the consensus estimate. Those are not necessarily reflective of internal estimates. And so relative to our internal estimates, we did see outperformance particularly in our individual MA business. And so it’s important to keep that in mind. I would say that we are seeing so far, certainly in ER use observations. They are continuing to run lower than we saw pre-COVID. Some of that, I do think it’s probably reflective of people seeking out other sites of care that are more appropriate, whether that’s physician and urgent care that they became accustomed to during the pandemic and has continued. We do acknowledge, however, that we know there is capacity constraints within the healthcare system today. How much impact that’s having on some of the lower utilization, it’s hard to know for sure. And that is something, I think on the longer term trajectory we are going to have to continue to monitor and see ultimately where the utilization levels come in. The other thing to keep in mind is the higher mortality as a result of COVID, as we have said, has an impact on medical cost trend and overall utilization and a negative trend because those that passed way due to COVID tended to be higher utilizers, they had multiple comorbidities. And so that’s also reflected in our estimates and we will see continued impacts from that going forward. But otherwise, I would say a lot still to be learned. We are seeing some favorability and we will have to continue to assess the team’s thinking on how much of that will continue into 2023, but might see some moderation as capacity hopefully starts to return within the clinical community. Operator: Thank you. And our next question comes from the line of Stephen Baxter with Wells Fargo. Stephen Baxter: Yes. Hi. Thanks. I just wanted to ask about the guidance to make sure I can follow what you are doing there. It sounds like the quarter was $1 better and then I think you also removed $0.50 of the conservatism. So, that sounds like $1.50 is favorability, although maybe there is some double counting between those items. And then you are reinvesting $0.75. And I think I heard you say there is an extra $0.15 of dilution from the hospice divestiture. It seems like those items in aggregate would result in the guidance increase above the $0.25. So, I am clearly missing something. Can you understand – help us understand how you see the moving parts there and how we should be thinking about that? Thank you. Susan Diamond: Hi, Stephen, happy to do that. So, yes, so the outperformance for the quarter was $1. That does though include what you can think of as the $0.50 conservatism that we had included in our original guide in the first half of the year related to COVID. So, you can consider that as us releasing the $0.50 of conservatism within the second quarter results and part of the dollar, not additive to it. We have maintained the $0.50 in our back half year estimates, as I mentioned in my commentary, however. So, as you think about the dollar and then how we have used the dollar $0.25 goes to the guidance raise, the $0.75 of additional marketing and distribution investments that was not previously contemplated in our full year guidance and so $0.75 is being used for that. And then as you mentioned, we have acknowledged $0.15 of additional hospice dilution that was not contemplated in the revised guide as of the end of the first quarter. So, technically, that’s a little bit more than $1, and that just recognizes that we do have still the $0.50 of COVID contingency in the back half. And we also have any continuation of the outperformance we have seen in the second quarter that might trend into the third and fourth quarters, which is reasonable to think that we may see some additional improvement relative to our current estimates. So, that’s how we think about the dollar and how we have spent it based on the current performance. Operator: Thank you. And our next question comes from the line of Scott Fidel with Stephens. Scott Fidel: Hi. Thanks. Good morning. I was hoping you could just drill a little bit more into the proposed 4% home health cuts for next year. And I guess sort of two parts to that. One, if those costs actually did go forward in the final, how much impact you would see on home health margins or EBITDA. And then how that influences the shift that you are making over to value-based care. I would assume that, that would even sort of further motivate the acceleration over to VBC contracting from fee-for-service, but just interested in how you would think about that if the cuts could go through. Thanks. Susan Diamond: Hi Scott, yes, happy to take that. So, as you said, this is a 4% rate reduction is proposed. We certainly are – will continue to advocate and educate in terms of just some – while it’s predicated on the behavioral adjustment is the driver of that. We certainly want to make sure that people also consider the inflationary environment, the challenges with clinician labor. I think there is broad support for continued shift of care to the home and the benefits of home healthcare. And so we do hope to see some moderation that’s more reflective of the current cost trends within the space. But if it were to move forward as proposed at about the 4% cut for the enterprise, you can think of that as about a $30 million impact. It’s slightly higher for the Kindred business specifically. But within our Medicare business, we did not contemplate that level of rate reduction in our thinking for the health plan for ‘23. And so there is some mitigation within the year relative to that. So, that net impact at the proposed rate is about $30 million. As you said, given that rate cut, certainly, there is more emphasis on value-based payment models. We have seen that from other providers as well, which we are pleased to see. As respect to our plans, we were already well down the path of working on a value-based payment model. And as we – Bruce said in his commentary, we were pleased to see that we were able to expand our value-based – broader value-based home health, DME and infusion model in the State of Virginia this quarter as we had initially planned and remain committed to expanding that model to about 50% of our MA members within the next 5 years. So, we are I think ahead of that curve, but we are encouraged by some of the discussions we are having with some other home health providers who I think are becoming more focused on value-based payment models, which we do think is important and will provide an opportunity to get after some of the adverse implications in terms of hospitalizations and avoidable admissions that we think home health has an opportunity to impact if they become more focused on it. So, we are pleased with that. Bruce Broussard: And Scott, just to add to Susan’s comments, I think over time, you are going to continue to see this as being a great opportunity to leverage home health as being much more proactive as opposed to just the fee-for-service side and that more payment begins to be paid on outcomes relative to lower emergency room visits and admissions, etcetera. We are excited about that change. Obviously, there is static in the air as a result of rate changes, but we do think rate changes will accelerate the move to value based. Operator: Thank you. And our next question comes from Steve Valiquette with Barclays. Steve Valiquette: Great. Thanks. Good morning everybody. So, in this earnings season, we heard one of your major peers talk about the annual wellness visits among their MA members only now tracking back to pre-pandemic levels. So, I guess I was curious to hear how that’s progressing for you guys so far this year relative to your book. What the early implications might be for MRA payments you might receive next year in ‘23 versus ‘22? And also I am not sure if I missed this. But if you have any – just the color on the MRA payments that you might have just received in ‘22 relative to your expectations, that would also be great. Thanks. Susan Diamond: Hi, Stephen. Happy to answer that. So, in terms of annual wellness visits, I would say our experience this year is in line with expectations, so no significant outperformance or underperformance, but generally in line and haven’t heard anything in terms of any concerns in terms of the ability to get into patient time. So, I think that’s tracking as expected. In terms of MRA for 2023, certainly, as I mentioned, to the degree we continue to see lower utilization in 2022 relative to the expectations, we will certainly do the assessment to understand whether there would be any implications to ‘23 risk adjustment, but I would expect net-net for that still to be positive even after considering MRA. On the group MA side, where we are seeing higher utilization as you think about 2023, we would expect to see some mitigation as a result of that with increased MRA expectations as well. So, it works both ways. In terms of 2022, we did receive the midyear payment. And I would say it’s generally in line with expectations, maybe just slightly positive, but broadly in line with expectations, so no meaningful variance there. Steve Valiquette: Okay. That’s perfect. Thanks. Operator: And our next question comes from the line of David Windley with Jefferies. David Windley: Hi. Thanks for taking my question. I was hoping to follow-up on margin progression as a topic and thinking particularly in retail, you will expect to have a bigger incoming membership cohort in ‘23, which will not be coded in a relatively lower margin. You will have a smaller cohort kind of maturing out of ‘22. And then I presume you will have some offsets from investments from the value creation $1 billion. I guess I am just wondering how we should think about the relative toggle of revenue growth versus margin expansion contribution to your earnings growth in ‘23 if you are willing to talk about it. Susan Diamond: Hi David, yes, happy to address that. So, as we think about it, as you said, the higher ‘23 membership growth, as you mentioned, does tend to bring members who have lower margins until they are appropriately coded over time. We get their STAR scores up, etcetera. So, that is true. But keep in mind that we are also anticipating as a result of our product investments that we will also see higher retention. And so the higher retention that we will see those are going to be members who will positively contribute. So, ultimately, we will just have to see what the ultimate mix is from a combination of sales and retention in terms of any year-over-year change that, that might imply in terms of the margin. In terms of the investment that we have made, as you mentioned, the $1 billion value creation goal, that is going to generate savings across the enterprise. So, it will not obviously be fully generated within the Medicare organization but we intend to disproportionately invest those savings into the Medicare organization. So, all-in, you would think of that from just a pure individual MA perspective as being somewhat dilutive to the margin because we will be investing more dollars in that product than the savings that that line of business alone will generate. Within retail, we will get some further offset, obviously, from the savings that the rest of the retail organization will contribute. But then some will obviously be outside of that retail segment. So, we will certainly give you some more visibility to that as we talk in September about how we are thinking about our margin progression and EPS growth over time. But for right now, those are some of the bigger things that you can think about impacting 2023. David Windley: That’s helpful. Thank you. Susan Diamond: Sure. Operator: Thank you. And our next question comes from the line of George Hill with Deutsche Bank. George Hill: Yes. Good morning guys and thanks for taking the question. I think a lot of my topics have been covered. Just two quick numbers ones. I guess, Susan, on the $0.75 in marketing spend, I guess can you talk about where that’s going more specifically? How much do you think that is going to brokers versus maybe member outreach given that retention was an issue in ‘22? Susan Diamond: Yes. George, happy to do that. So, we have been talking a lot about just our distribution strategy and the goal of over time trying to see a little bit more volume shift back to our proprietary channels to create a little bit more balance and also recognizing that we tend to see better retention and customer satisfaction in our proprietary channels versus external. So, as you think about the incremental investment that we are making year-over-year that will be more weighted towards our internal channels in terms of the marketing and the investment in resources in our proprietary channels, but some of it will be going to external partners as well to make sure that we get the return that we would expect and the growth out of that channel as well. Within the external partner support that we are providing, I would say some of it is going towards making sure that our reimbursement is sort of the sales partner level is on par with peers. I think we have talked before about the fact that we were trailing behind the compensation level that some of our peers are providing. So, some of the dollars are going to address that and get to more of a parity position and also support some increased marketing in order to make sure that we can get the sales volume out of that channel that we would expect in order to achieve our overall improvement in Medicare growth. George Hill: Okay. It’s helpful. Thank you. Operator: Thank you. And our next question comes from the line of Gary Taylor with Cowen. Gary Taylor: Hey, good morning. Just a quick two-parter just one numbers question, and then my real question. It looked like the proprietary shared risk providers went down $200 million sequentially, and I presume most of those were like employed in your own centers. So, just wondering why that went down. And then the broader question I wanted to ask about ‘23, glad to hear you are still optimistic and confident about higher growth in ‘23. But just wondering, conceptually, is there an enrollment growth number that’s too high, that’s too much. I mean I think there is over under on a growth number where the Street would be worried about adverse selection and your benefit offering and impact on margin and that trade-off. But wondering if you really change, that’s the case, or do you just look at the net present value of an incremental member and your ability to retain them in the earnings contribution over time and you are not really thinking about higher bound as being an issue for ‘23? Susan Diamond: Hi Gary. Yes. I will take your second question first, and we may get back to you on the first one. But for the second question, I will say, certainly, as I said a minute ago, new members do tend to pressure, they come within a lower underwriting margin and tend to be about breakeven as we said, I think in years past. So, they can pressure sort of some of the returns that you might expect. I would say though, given how the trends we have seen in the last number of years, and I think we have been really smart about the investments we have made in 2023, we weren’t trying to position ourselves to be in the number one sort of product value position everywhere that would result in outsized growth or anything that I can think of from an anti-selection perspective. So, I am not overly concerned about that. I think we have stated, our goal is to get back to industry-leading growth as quickly as we can. We would love to do that in 1 year. We will just have to see whether peers made other investments for 2023 and how our ultimate offerings stack up. But I would say that’s not something that I am concerned about. In terms of your first question, Lisa, can you address that? Lisa Stoner: Yes. Hey Gary. So, I think all that is, it’s just difference in the way we are kind of showing our PCPs related to some IPAs. This is really to ensure we are aligned with the new disclosures we are giving around our primary care business back in the pages [ph]. So, no big shift there. It’s just a little reporting difference that you are seeing there. Gary Taylor: Okay. Thank you. Operator: Thank you. And our next question comes from the line of Rob Cottrell with Cleveland Research. Rob Cottrell: Alright. Good morning. Thanks for taking my question. Just wanted to dig into the divergent experience you are seeing in the individual MA book versus group MA. What is it about the group MA membership do you expect utilization is higher than expected in 2Q? And do you expect that to continue through the rest of the year? Susan Diamond: Sure, Rob, happy to take that. So, as I mentioned in my commentary, in 2021, we did see different utilization patterns across individual MA and group. And as I mentioned, in group MA, we saw significantly more depressed utilization relative to individual. Some of that we attribute to the fact that we did see lower overall COVID hospitalizations in the group MA population, and we attribute that to the fact that they tend to have a higher vaccination rate than the individual. So, we had lower COVID utilization, but similar levels of sort of depression in non-COVID utilization resulting in overall lower utilization in group MA. As we assess that going into 2022, we also had assessed the impact of mortality as a result of COVID and what the resulting impact was to morbidity. And as we have been able to review the trends that we are seeing, as we entered the year, we believe that some of that lower utilization was reflective of lower morbidity. And I think based on the trends we have seen, what we would say is some of what we thought was lower morbidity has turned out to be more reflective of just deferred utilization and pent-up demand that’s working its way through now. We are seeing higher surgical volumes, in particular, in group MA relative to individual. The volumes are about 600 basis points higher year-to-date in the group MA side than individual. That’s one of the reasons we have some reason to believe that this may be, to some degree, reflective of a pent-up demand that may still moderate in the back half of the year, and we will certainly continue to monitor it. But as I have said, it is trending a little bit differently. Some of that was probably just a reflection of sort of what we anticipated and allocated and attributed to morbidity versus pent-up demand. We will continue to watch it. As I have said, as you think about ‘23, if this does persist, we would expect to mitigate some portion of it through higher risk adjustments than we previously contemplated, and we view it as on a net basis, manageable within our 2023, but it is particularly reflective in the non-inpatient side. And like I said, we are seeing, in particular, some higher surgical volumes. Rob Cottrell: Got it. Thank you. Operator: Thank you. And I am showing no further questions at this time. So, with that, I will hand the call back over to CEO, Bruce Broussard, for any closing remarks. Bruce Broussard: Well, thank you, and thanks, everyone, for your support and continued confidence in the organization. And obviously, I want to thank our 70,000 teammates that make this a successful company and this quarter be such a successful quarter. And then we do look forward to seeing each of you at our September 15th virtual investor conference that we will go over a lot of more details about our longer-range views along with our continued services businesses. So, again, I thank you and look forward to services businesses. So, again, I thank you and look forward to seeing you on September 15th. Operator: Ladies and gentlemen, this concludes today’s conference call. Thank you for participating, and you may now disconnect.

Operator: Good day, ladies and gentlemen and thank you for standing by. Welcome to the Humana Inc. First Quarter 2022 Earnings Conference Call. [Operator Instructions] At this time, I would like to turn the conference over to Ms. Lisa Stoner, Vice President of Investor Relations. Ma’am, please begin. Lisa Stoner: Thank you and good morning. In a moment, Bruce Broussard, Humana’s President and Chief Executive Officer and Susan Diamond, Chief Financial Officer, will discuss our first quarter 2022 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the line for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management’s prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana’s website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our first quarter 2022 earnings press release as they relate to forward-looking statements. And to note in particular that these forward-looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today’s press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today’s discussion includes financial measures that are not in accordance with generally accepted accounting principles or GAAP. Management’s explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today’s press release. Finally, any references to earnings per share or EPS made during this earnings call refer to diluted earnings per common share. With that, I will turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa and good morning, and thank you for joining us. Today, Humana reported financial results for the first quarter of 2022, reflecting a solid start to the year. I’ll speak briefly about our first quarter results and outlook for the rest of the year before providing an update on our strategy and the steps we’re taking to position Humana for continued long-term success. Adjusted earnings per share for the first quarter were $8.04, which was above our initial expectations. This outperformance was primarily driven by favorable pharmacy results combined with lower-than-planned administrative expenses, some of which is due to timing. All other lines of business are performing as expected or slightly positive, further contributing to our strong quarter. We raised our full year 2022 adjusted EPS guidance by $0.50 to approximately $24.50, representing 19% growth over our 2021 results. Importantly, our updated financial guidance continues to include an explicit $1 COVID headwind. Our update guide also includes the dilutive impact related to the pending divestiture of the company’s 60% ownership of Kindred at Home’s Hospice and Personal Care division. Susan will provide additional detail on our first quarter performance and our full year outlook in a moment. Turning to our previously announced $1 billion value creation initiative, you recall, we committed to delivering this value for the enterprise through cost productivity initiatives and value acceleration from our previous investments. This will create capacity to fund growth and investment in our Medicare Advantage business, driving more robust benefits and lower cost for our members, which we believe will lead to improved membership growth. In addition to – enables further investment in our healthcare service capabilities, including expansion of our value-based home health model and transformation of the consumer experience and home delivery service model in Humana Pharmacy. I am pleased to report with the work completed to date, we remain confident in our ability to realize this value for investment in 2023. As shared in February, we are focused on four key areas that will drive the value creation, strategic initiatives, organizational efficiencies, third-party spend and automation and digital advancement. We indicated the value would be largely split evenly across the four categories. Through work completed in recent months, we’ve established goals throughout the business within the four key areas. We now expect strategic initiatives to account for about a quarter of our goal by organizational efficiencies and third-party spend will each come from – about one-third. The remaining 10% of value realized in 2023 will come from automation which given the nature of the work will drive some incremental impact in 2024. Susan will provide additional details on the progress made to date. We are pleased with the quick pivot of our teams to support the value creation initiative. It is important to maintain our focus on one of Humana’s core differentiators, our strong culture. Currently, we are seeing a slight decrease in engagement but remain in the top 20% of industry leaders. Engagement scores are impacted in part by the internal uncertainty around our value creation initiative as well as the strong external market pull, economic disruption and the inflationary environment. Importantly, we are seeing strong engagement with our nursing population, which is currently at 89%, and we are proud that 86% of our physicians would advocate for Humana as a Great Place to Work. While challenging choices remain to fully realize our goal, I am confident our team is equal to the task and understands the purposeful approach we are taking to make Humana even an even stronger company. In addition to creating capacity to invest in our Medicare Advantage product for 2023, we are also focused on working closely with our distribution partners to improve the retention of our members. We continue to work with our call center partners to more closely replicate the experience delivered by our employed agents through enhanced training. We are also focused on service level agreements aimed at improving the quality of the sales experience and ultimately, the customer satisfaction and retention. As part of this work, we have developed new computer-based training modules for our call center agents that focus on behaviors linked to customer complaints. While still early, we are pleased to see – have seen a decrease in complaints to CMS year-over-year. With respect to compensation for external brokers, we have introduced new compensation structures designed to improve overall quality by more closely tying administrative service fees to specific quality assurance activities and service levels as well as addressing agent level compensation to promote individual quality performance. Within our proprietary sales channel, we are looking at opportunities to advance our payer-agnostic capabilities to improve our ability to support consumers who desire more choice. In addition, we are making investments to better link digital-first shoppers to our internal sales agents. Digital shoppers are now able to not only complete an application online, but also request that one of our internal sales agents visit their home to discuss Medicare Advantage plan options. The digital shopper is also able to directly connect to one of our internal sales call center agents from humana.com to assist them in their shopping experience. Finally, we are working with brokers across our distribution channels in both internal and external to engage the customers and activities that are positively correlated to retention. This includes onboarding activities designed to promote engagement prior to plan effective date as well as efforts to help members understand and fully utilize their plans, benefits such as assisting in the activation of their healthy food card. With respect to 2022 Medicare Advantage membership trends, results of the open enrollment period trended slightly better than our initial expectations, driven by higher sales and improved voluntary termination rates, both of which we view favorably. The outperformance was partially offset by higher deaths related to the pandemic in the first couple of months of the year. Turning to our Healthcare Service businesses, as you know, we introduced CenterWell as the new brand to describe and connect our payer-agnostic healthcare service offerings. We have significantly expanded our healthcare service capabilities, including our senior-focused primary care, pharmacy and home care offerings, to better serve our medical members while also increasing our total addressable market. We have been developing our Healthcare Services capabilities in three phases. The first is building the capabilities. We are accomplishing this through a combination of organic build as we’ve done with our Pharmacy business. Inorganic growth as a result of our acquisition of Kindred at Home as well as through partnerships, such as those we have with Heal and Dispatch, which are site of care innovators in the home. The second phase includes enhancements to align with the value-based principles to improve health outcomes as well as expanding the capabilities to achieve the desired scale. Our primary care business is in this phase today as we are expanding our geographic presence through a mix of building de novo centers as well as tuck-in acquisitions. The third phase is integrating these capabilities in select local markets. We believe the integration of CenterWell Primary Care, home health and pharmacy in a local market will lead to improved health outcomes, increased customer satisfaction and decrease in the total cost of care while also building additional profit pools for the enterprise. Recall that a health plan member who utilizes the full suite of our healthcare service assets can drive 2x to 4x the direct margin contribution for the enterprise as compared to the health plan margin alone. This is what we refer to as the flywheel effect. Let me highlight some of the progress we’ve made moving our various capabilities through these three phases, starting with home. We started our journey with Kindred at Home in 2018, acquiring 40% minority interest with the belief that a key component of the next generation of integrated care delivery model was the ability to provide care to consumers in their home, meeting them where they want to be and a preferred lower cost setting, also recognizing that the traditional volume-based fee-for-service model limits innovation and home health. We then completed the full acquisition of Kindred at Home in August 2021, reflecting our continued commitment to investing in home-based clinical solutions that drive improved patient outcomes, increased satisfaction for patients and providers and value for health plan partners. We took another step on this journey last week with the announcement of the divestiture of our majority interest in Kindred at Home’s hospice and personal care divisions to Clayton Dubler and Rice or CD&R. We explored a broad range of alternatives for the hospice and personal care businesses and believe this transaction best allows us to accomplish our previously stated intent, divesting majority ownership of these non-core businesses while maintaining a strategic minority interest through our remaining stake. With CD&R’s established physician relationships, value-based care expertise and record of supporting providers to deliver high-quality care for patients. We are certain these divisions are well positioned for success under the joint ownership of Humana and CD&R. Importantly, we are pleased that when viewing this transaction in conjunction with our purchase of the broader Kindred at Home platform, we have been able to achieve our objective of substantially increasing our footprint in home care by acquiring one of the leading home health platforms in the country and an attractive valuation for our shareholders. Our home capabilities were further expanded with the acquisition of onehome last year. onehome’s management service organization capabilities and experience providing home health, infusion and durable medical equipment services establishes the platform for our value-based home care model. We remain on track to begin the launch of the value-based model in North Carolina and Virginia in June with the expansion in additional geographies planned for late this year and early 2023. Beyond shifting to value integrating DME and infusion onehome will also have the ability to help members navigate the broader care ecosystem. For example, if a member lacks a primary care provider onehome could connect the member with a high-value local option, including Humana’s primary care organization. In addition, if a member would benefit from home delivery of chronic medications, on home can help the member set up the home delivery through our Humana pharmacy. We believe these efforts can lead to both improved member experience and better health outcome, demonstrating the power of integrating our health service capabilities in the local market. Turning to primary care, we are actively scaling our platform through a combination of de novo expansion and inorganic growth. We are the largest senior-focused, value-based primary care provider in the nation with 214 centers today. This includes 37 centers in the Welsh Carson joint venture, which began in 2020. We expect to have approximately 250 centers by year-end and intend to add 30 to 50 centers per year going forward. As shared in February, we are committed to funding the organic growth of our primary care organization in 2023 and beyond through a combination of on- and off-balance sheet financing such that we expect no dilution to earnings growth from the organic expansion. As of March 31, the 2020 cohort of 20 centers opened within Welsh Carson joint venture had an average of 520 Medicare risk patients per center, approximately 60 patients per center higher than planned. In addition, our cumulative EBITDA results were in line with the plan. We are pleased with the results to date, which have demonstrated the performance consistent with the expected J curve. We continue work to establish off-balance sheet structure that will be leveraged beginning in 2023. We are applying the proof points in learnings from our joint venture with Welsh Carson to optimize the go-forward financing structure, considering enhancements such as limiting the financing to only the operating expenses. We look forward to sharing additional details when finalized in the coming weeks. Our pharmacy business is the most mature of our healthcare service businesses, driving significant value to the enterprise with industry-leading mail order penetration, resulting in improved medication adherence and better health outcomes for our health plan members. 38% of our individual Medicare Advantage members utilized our mail order services in the first quarter, a 100 basis point increase year-over-year. This increase is due in part to the fact that Medicare Advantage members retained in 2022, used Humana Pharmacy home delivery services, nearly 9% more frequently the members who disenrolled. This is another demonstration that members who engage with our Healthcare Service businesses not only create incremental enterprise profit but are more loyal to our health plans. This result demonstrates the impact of investments we’re making to transform the consumer experience and home delivery service model through improved e-commerce and logistic capabilities and additional distribution sites allowing us to deliver prescriptions to our members within 1 to 2 days. As you know, we committed to providing additional transparency into our Healthcare Service businesses in 2022, which began with the new disclosures we provided on the home and primary care in our first quarter earnings release. Susan will also provide further 2022 performance details during her commentary. In addition, we look forward to hosting a virtual investor update on September 15, 2022, where we will discuss the operational model and the long-term growth and earnings potential for the primary care and home businesses. The benefits of integrating our healthcare service capabilities in local markets and driving penetration by our health plan members as well. A progress update on our $1 billion value creation initiative and current thoughts on improving our Medicare Advantage membership growth for 2023. And the long-term outlook for the company considering future earnings growth opportunities, balanced against the ongoing investments necessary to advance our strategy. In closing today, I want to reiterate that we are pleased with our strong start to the year with all our business lines performing well. In addition, we remain confident in our ability to deliver on our $1 billion value creation plan. This will allow us to create the needed capacity to fund growth and investments in our Medicare Advantage business, which we believe will further drive significant improvement in our membership growth as well as further expansion of our healthcare service capabilities, while still delivering on our long-term earnings growth target in 2023. With that, I will turn the call over to Susan. Susan Diamond: Thank you, Bruce and good morning everyone. I will provide an update on our first quarter results, including line of business performance details, our outlook for the full year and progress made to date on our $1 billion value creation plan. Finally, I will provide an update on capital deployment, including the planned use of proceeds from the pending divestiture of our majority interest in Kindred’s, hospice and personal care businesses. Today, we reported first quarter 2022 adjusted earnings per share of $8.04 driven primarily by lower-than-anticipated administrative costs, some of which is timing in nature and outperformance in our pharmacy business. All other lines of business are performing as expected or slightly positive, further contributing to our strong quarter. Inpatient utilization was favorable across our Medicare and commercial businesses due to a faster decline in COVID admissions and slower rebound in non-COVID admissions than we’ve seen during previous surges and we will need to continue to monitor how utilization further rebounds in the coming weeks. Typically, we would not raise guidance at this stage as it is too early to fully evaluate results and medical cost trends in particular. However, given the main drivers of our first quarter outperformance, we are raising our full year guidance by $0.50 to approximately $24.50, representing nearly 19% growth over our actual 2021 results. Importantly, this revised guide continues to anticipate $1 of conservatism to cover a net COVID headwind should it emerge and also anticipates the estimated impact to earnings of divesting 60% of our interest in the Kindred hospice and personal care businesses later this year. With respect to quarterly earnings seasonality, at this time, we expect the percentage of second quarter earnings to be in the low 30s. We want to reiterate, however, that investors should continue to focus on the full year estimates as quarterly development will continue to be impacted by ongoing COVID-related timing dynamics. With that, I will now provide additional details on our first quarter performance by segment, beginning with our Retail segment. As Bruce discussed, results of our open enrollment period trended slightly better than previous estimates. If these trends continue for the remainder of the year, we expect our individual Medicare Advantage growth to be slightly above the midpoint of our current guidance range of 150,000 to 200,000 members. Revenue for the quarter was in line with expectations with individual Medicare Advantage PMPMs up 8% year-over-year. We continue to expect our PMPM yield to be in the high single-digit range for the full year. Turning to claims trend, total medical costs in our Medicare Advantage business ran largely in line with expectations in the first quarter. We experienced lower-than-anticipated inpatient utilization offset by higher inpatient unit costs and lower than projected favorable prior period development. As it respects prior period development, we saw inpatient unit cost for the fourth quarter of 2021 and restate higher than anticipated. As claims were received, the average cost of non-COVID hospitalizations restated higher and hospitalizations occurring in December 2021 and restated as a COVID admission, whereas the initial authorization request reflected a non-COVID admitting condition. Recall that we incur an additional 20% payment on any Medicare admission with a COVID diagnosis under the public health emergency even when it is not the reason for the admission. These incidental COVID admissions represented 10% to 15% of total COVID admissions during the Delta wave, increasing to 25% to 30% with the Omicron wave resulting in a meaningful increase in average unit costs. We will need to continue to monitor inpatient unit cost trends and COVID positivity rates throughout the year. With respect to current year utilization, COVID admissions peaked in January at 65 admissions per thousand, and then began reducing more quickly than we’ve seen historically, ending the quarter at approximately 2.5 admissions per thousand the lowest level we have seen since June of 2021 just before the rise of the Delta variant. Non-COVID admissions did not rebound as quickly as COVID declined resulting in net inpatient utilization favorability for the first quarter, although it continues to rebound towards expected levels. We considered the higher fourth quarter 2021 inpatient unit costs in our first quarter estimates, resulting in overall inpatient costs running generally consistent with expectations. As previously shared, we have limited visibility into non-inpatient trends until claims are received. And so as is customary, our first quarter results assume non-inpatient utilization is in line with previous expectations. All in, we are pleased with the early performance of our Medicare Advantage business and continue to expect a 50 basis point improvement in our individual MA pretax margin in 2022. However, as previously shared, much remains to be learned about the long-term impacts of COVID, including the impact of higher mortality on the morbidity of our Medicare members. Provided COVID levels remain low, we will have an opportunity to further evaluate baseline trends relative to our estimates. Moving to PDP, membership trends are tracking favorable due to higher sales in the Walmart Value plan and lower voluntary terminations in the premier plan. As a result, we have updated our full year guidance to down 100,000 members versus our previous projection of down 125,000 members. In addition, we continue to expect approximately 80,000 PDP members to move to a Humana Medicare Advantage product this year. Our Medicaid business performed well in the first quarter, experiencing lower-than-expected COVID costs. The Medicaid team is actively preparing for the Ohio contract implementation, which we expect to occur later this year. We updated our full year Medicaid membership guidance from a range of down 50,000 to 100,000 to a range of down 25,000 to 50,000 to reflect the extension of the public health emergency to mid-July. In addition, we were pleased to receive notification in the first quarter that the Louisiana Health Department announced its intent to award Humana a contract to serve Medicaid beneficiaries. We now expect the state to rescore the previously submitted RFPs with a decision anticipated in late May, and we are optimistic that we will once again score well given the strength of our offering. We continue to be very proud of our Medicaid program and success growing our footprint organically. Group and Specialty segment results were slightly favorable with growth our group medical and specialty businesses contributing to the positive results. The fully insured group medical business experienced favorable inpatient utilization due to fewer COVID admissions, similar to what we experienced in the Medicare business, partially offset by slightly higher-than-expected membership losses. The rating actions taken in the back half of 2021 to incorporate expected ongoing COVID costs resulted in slightly higher attrition than originally anticipated. Our specialty business also outperformed as utilization, particularly for dental services continues to run lower than expected. To the extent this lower dental utilization continues, we plan to reduce pricing to our Medicare Advantage business in 2023 accordingly. Our Healthcare Services segment had a strong start to the year. As previously mentioned, our pharmacy business meaningfully outperformed expectations, driven by higher-than-expected increases in mail order penetration, lower unit costs due to favorable underlying drug mix and lower cost to fill. We currently expect the favorability to persist throughout the year, although with some moderation as our previous estimates contemplated increasing mail order penetration rates over the course of the year. Our efforts to drive increased mail order penetration are demonstrating success with 38% of our individual Medicare Advantage members utilizing our home delivery services in the first quarter, a 100 basis point increase year-over-year. As Bruce mentioned, Medicare Advantage members retained in 2022 used Humana Pharmacy’s home delivery services, nearly 9% more frequently than members who disenrolled, also contributing to the strong start to the year. As a result of the outperformance seen in the pharmacy business, we have increased our full year healthcare services adjusted EBITDA guidance by $50 million to $1.725 billion to $1.875 billion from the previous range of $1.675 billion to $1.825 billion. This adjustment also contemplates the estimated impact to EBITDA of divesting 60% of our interest in the Kindred hospice and personal care businesses later this year. At this time, we have not updated revenue or operating expense guidance points as the impact could vary depending on the timing of the transaction close. Turning to the home. Beginning with our first quarter release issued this morning, we disclosed episodic and total admissions for our home health business. Episodic admissions are up 3.5% year-over-year, while total admissions are up 4.9% year-over-year, largely consistent with expectations. For the full year, we continue to expect home health admissions to be up mid-single digits. We also provided detail regarding members covered by our proprietary value-based home health model. We continue to expect approximately 15% of our Medicare Advantage members to be supported by this model as of year-end 2022 as we expand to additional markets, including Virginia and North Carolina beginning at the end of June. Within 5 years, we expect to support 50% of our Medicare Advantage membership with our value-based home health model and believe it will deliver mid-single-digit reductions in overall home health DME and infusion spend within 12 to 18 months of implementation and mid-double-digit reductions at maturity while improving patient outcomes. The nursing labor shortage continues to be a concern for the home health industry broadly, and we continue to closely monitor clinical staffing levels, capacity and admission trends making targeted investments to sustainably improve the recruitment and retention of nurses to position the business for further growth. We are particularly focused on markets where growth has been negatively impacted by insufficient nursing capacity. We are seeing positive results from our efforts, including a 5% reduction in full-time nurse voluntary turnover in the first quarter as well as improved recruiting in March attributed to the return to face-to-face recruiting. We are encouraged by the improvement we are seeing in recruiting and voluntary nursing turnover, but acknowledge there is much more work to be done. The hospice business performed well in the quarter with total admissions up 9% year-over-year, fueled by a general improvement in referrals led by increased access to facility-based sources, investments in the business to expand clinical capacity, mainly in the form of dedicated on-call nursing staff and winter storms that negatively impacted missions in the prior year. Turning to our primary care organization. Results remain in line with expectations for the quarter. We enhanced our primary care disclosures to include a breakout of clinics by de novo, which includes all new centers opened since 2020 under our Welsh Carson joint venture, wholly owned, representing all centers, not in the Welsh Carson joint venture and IPA, which reflects patients served by our Conviva MSO. We also updated our patient SERD metrics to only include Medicare patients covered by a value-based payment model as this is our focus and represents the primary growth driver for the business. As of March 31, we operate a total of 214 centers, serving 180,000 patients in Medicare value-based arrangements while also supporting 58,000 patients under IPA arrangements. We operate 37 de novo centers, which are focused on driving panel growth and patient engagement to ensure our patients’ needs are identified and we can begin our care planning. This early engagement supports our ability to identify and slow disease progression. We opened five new de novo centers in the first quarter and 14 since March 2021, representing a 61% increase year-over-year. These centers grew paneled membership by 4,500 in the first quarter and 9,100 year-over-year, a 163% increase in patients served. We operate an additional 177 wholly owned centers, serving 166,000 patients in Medicare value-based arrangements, primarily in Florida and Texas. We are focused on continuing to grow these centers organically and inorganically while also focusing on improving clinical and financial outcomes by leveraging our senior-focused, multi-disciplined care model supported by proprietary workflow technology and analytics. Since March 2021, we have increased our wholly owned center count by 30 and Medicare patients served by 37,000 or 29% with approximately two-thirds of this patient growth attributed to acquisitions of Florida and Texas-based primary care practices and approximately one-third due to organic growth, including patients served under DCE contracts. As we monitor the continued performance improvement of our wholly owned centers, we are pleased to report that 15 are producing our targeted EBITDA contribution of $2 million or greater and have an average panel size of 1,500 Medicare Advantage risk patients. Additionally, 69 of our wholly owned centers are EBITDA positive compared to 51% at this time last year. Finally, I would like to add to Bruce’s commentary on our $1 billion value creation plan, highlighting some of our recent progress. We are tracking various initiatives across discrete stages of development starting with ideation, followed by sizing, design and execution; and finally, realization of savings. We gained confidence as each initiative moves through the stages, and we’re pleased that initiatives valued at approximately $575 million are now in the design and execute phase. We continue to believe that the majority of initiatives will be implemented in the back half of 2022, which was contemplated in our initial guidance. Our lower-than-expected administrative expenses in the first quarter in part reflect management actions that accelerated savings we otherwise expected later this year as well as some timing-related variances. We remain confident in our ability to achieve our goal, creating capacity to fund additional investment in 2023, and we will continue to share updates on our progress throughout the year. From a capital deployment perspective, we expect to receive approximately $2.8 billion in cash proceeds upon closing of the pending Kindred hospice transaction. As shared last week, the enterprise value of Kindred hospice is $3.4 billion. The $2.8 billion in proceeds is made up of approximately $2 billion related to the repayment of debt from Kindred hospice to Humana and $800 million, reflective of 60% of the $1.4 billion equity value. We intend to use the majority of the proceeds for debt repayment as we look to deleverage back towards our target of approximately 35%. In addition, as previously disclosed, we continue to plan for a customary level of share repurchase in 2022. We expect our debt to capitalization ratio to be approximately 40% at the end of the year. Before closing, I would again reiterate that we had a strong quarter with all businesses demonstrating positive fundamentals supporting our full year guidance raise. There are a number of items we will need to continue to monitor to fully assess ‘22 performance, including non-coding utilization trends, the rate of COVID positivity and inpatient unit cost trends which is why we believe it is prudent to continue to allow for COVID conservatism in our guidance. Finally, we are pleased with the progress made to date on the value creation plan and remain confident in our ability to achieve our goal creating capacity for further investment in our Medicare Advantage business and expansion of our Healthcare Services capabilities, while still delivering on our long-term earnings growth target in 2023. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Our first question or comment comes from the line of Kevin Fischbeck from Bank of America. Your line is open. Kevin Fischbeck: Okay, great. Thanks. I guess I just wanted to dig in a little bit more to the guidance raise, if I understood it correctly. It seems like a little over half from the services business being higher and the rest is G&A, so you didn’t – should we read that into that you feel a bit at the lower end of your G&A guidance is the to change the range there? And I just want to make sure that I understand the MLR guidance is unchanged. There seems to be getting some questions about how MLR looks given the decline in BCP. Thanks. Susan Diamond: Sure. Happy to take that. To your first point, yes, as you think about the raise relative to our performance for the first quarter, First, I would mention that consensus was lower than our internal estimates for the first quarter. So, as we think about it internally, we think about $1 of the outperformance is what we were looking at from an internal perspective. And you are correct, you can think about that as roughly half attributed to lower administrative expenses and half attributed to the pharmacy outperformance. So as we thought about the year, as you said and as I said, we do expect that the pharmacy outperformance will continue, although with some moderation. And so that will allow us to support the $0.50 raise as well as the dilution that we’re currently estimating from a hospice divestiture later this year. On the administrative expenses, as I mentioned, some of that is timing. Some of that is a pull forward of savings we would have otherwise expected later in the year, so not necessarily incrementally positive. We want to see how that continues to develop. And then we will also look to see if we continue to see some favorability that may allow for some additional investment in the distribution and marketing strategy that we’ve talked to you about and may allow us to accelerate some of those investments, again, if we continue to see favorability, but we are not taking any of that into the full year guide currently. On the MLR then, I would say looking at the retail MLR in particular, analyst ranges were quite wide as we looked at the models. And so the comparison to what’s reported this morning is heavily influenced by the few that actually responded to the survey. So I think that’s part of it. As I mentioned in my comments, from an individual Medicare perspective, I can tell you that the MLR came in as we expected. Per my commentary, we did see positive utilization on the inpatient side due to COVID – with COVID. While we saw higher absolute levels in January, it declined more quickly than we’ve seen historically than we would have expected. And non-COVID was not able to rebound as quickly as COVID declined. So that was certainly positive. Given the high level of COVID, however, and the higher rate of what we refer to is that incidental COVID, where it wasn’t the admitting condition, but there is a COVID positivity diagnosis, that translates to additional unit cost. So we did see higher unit costs as a result. As I mentioned, we also considered the higher unit costs that we saw restated for fourth quarter and our first quarter estimates. And so as you think about that all in, the first quarter results reflect inpatient pretty much in line with expectations. And then for non-inpatient just given how early in the year it is and the limited visibility, we have those in the first quarter at expectations as well. We will continue to watch those things over the course of the year, but feel good about the early indicators we’re seeing and no source for concern about what we’re anticipating for individual MA or retail MLRs. Operator: Thank you. Our next question or comment comes from the line of Nathan Rich from Goldman Sachs. Your line is open. Nathan Rich: Hi, good morning. And thanks for the question. I wanted to ask on bid strategy for 2023. And in the release, you talked about the final rate notice and you expect rates to be up for Humana, 4.6%. A little bit below the sector average, and I think gap than you faced in recent years. I guess how does that impact the strategy for ‘23? And then I appreciate the details that you gave, Bruce, upfront about kind of the plan design and distribution strategy. Do you have an updated view on how you might allocate that $1 billion of savings across plan design and distribution that will ultimately provide the best ROI on those investments? Thank you. Bruce Broussard: Relative to the rate notice and our investment, I would say we feel very confident that we are going to have the ability to be competitive in 2023. So even though we might have a little bit some – because of our STARS scores, we see higher STAR scores in absolute, but on a relative change, it’s lower than the industry there. So we still have the same amount of dollars going into the program. The second part of your question, just about the allocation among the various different components, the bucket, so to speak, between plan design and the distribution and marketing. We just don’t feel comfortable today to give you that disclosure. As we enter the latter part of the year, and we’re in the AEP cycle, we will probably give you more details there. But I think today, it would be best that we don’t do that. Nathan Rich: Fair enough. Operator: Thank you. Our next question or comment comes from the line of Justin Lake from Wolfe Research. Your line is open. Justin Lake: Thanks. Good morning. Bruce, I wanted to follow-up on your commentary around the Investor Day. Specifically, you talked about doing something in June, you pushed it until September, just curious on the driver of that. And then what have you been hearing from investors in terms of what they – what they’ll be looking for at that Investor Day, specifically, any thoughts around margin targets in the Medicare Advantage business. Thanks. Bruce Broussard: Yes. As I mentioned, we are shipping for September. And the reason for the move between June to September is we just felt that the information more relevant as we entered the latter part of the year for a few reasons. First, we will be closer to AEP and provide more thoughts around our go-to-market strategy since we’re getting close to that. Second, we will have more progress on the $1 billion program, and I know that’s important in the short run. So those are really why we just felt that getting later in the year would be important to allow more timely information for the investors. Relative to the subject matters, I mean, we do look as an important part of our strategy of the Healthcare Service business being important, I think giving more disclosure around what that looks like and the strength of that over a longer period of time will be an important discussion. In addition, we will discuss just our earnings potential and the growth in our earnings potential, including how that affects margin and our view on the margin side. So we will discuss that as you articulated. It is an area of particular interest by our investors, and we will be prepared to discuss both the individual MA margin and then also just how healthcare services impacts the enterprise side. And then lastly, we will also just be able to give the investors much more update just on how we see the healthcare service business growing and the impact it has in the integration within the market itself because as I articulated, we’re building the capabilities, we’re leveraging and scaling the capabilities. And then in addition, an important part of that value is the integration in the local market as referred to in the commentary around the flywheel effect. And so that will be an important discussion that we will have. Operator: Thank you. Our next question or comment comes from the line of Matthew Borsch from BMO Capital Markets. Your line is open. Matthew Borsch: Yes. Thanks. As I’m looking back, I know there have been other years where it seems like you have weighted your MA product designed towards earnings improvement. And whether it was deliberately or somewhat unintentional that was seem to be the case for this year. I’m just wondering if I can ask why that isn’t more apparent in the Medicare Advantage profit margin that you’ve seen so far this year? I would have expected that to be a bigger driver maybe on the medical cost ratio side of the upside this quarter? Susan Diamond: Sure, Matthew. I can take that. And you’re right. As you look at the first quarter, and again, you’re looking at retail MERs versus individual MA. And so there are some differences in terms of the underlying product mix year-over-year, particularly around Medicaid and some growth in DCE membership, which has a higher MER than individual MA. Again, I do want to reiterate that from an internal perspective, as we look at the underlying businesses, each are performing as we would expect. So no concerns there. In terms of one other difference I would highlight in terms of just the first quarter specifically is the change in prior period development year-over-year. With COVID, there were a lot of changes in claim processing payment policy changes as a result of some of the stress that hospital systems were under. And so that significantly impacted prior period development. We anticipated a significant decline in prior year development year-over-year, and that will disproportionately impact the first quarter results. Which is why in our earnings release, we gave you the detail on what that would look like if you just stripped out PPD and the noise that, that creates. It’s hard to tell whether some of the analysts fully understood or anticipated the magnitude of that change year-over-year. So those are really some of the main drivers. And again, I just want to stress that we continue to feel comfortable with our expectation of a 50 basis point improvement in the individual MA margin, as we said, and believe we’re on track to do that and know early concerns. The other thing to keep in mind is the dollar of COVID contingency you can assume that’s largely in the retail MER expectation. As we said in our commentary, we continue to hold that conservatism within our guide. So, if it proves unnecessary over the course of the year, then that would benefit the retail MERs as well. Matthew Borsch: Very helpful. Thank you. Operator: Thank you. Our next question or comment comes from the line of Kevin Caliendo from UBS. Your line is open. Kevin Caliendo: Thanks so much. I just want to get a little bit of better understanding, maybe a better way to ask this is what do you expect the MLR trend to look like over the course of the year, meaning given what we saw in the first quarter with the prior period development, would we kind of just take where we started this year and where you expect to end, how would you see – is it more of a straight line, or is there going to be a little bit more of a hockey stick to the back end of the year? And just the part of that question, I guess is did you see any of the COVID headwinds in 1Q at all to $1? Susan Diamond: Hi Kevin, this is Susan. So, in terms of your second question around the COVID headwinds, we would say that we did not see a COVID headwind emerge in the first quarter. As I mentioned, given the dynamics we saw with the utilization patterns, the way we have thought about it is not just the absolute gross COVID impact, but rather net of any offsetting reductions in non-COVID. And so as I mentioned, while January saw higher COVID levels. And in fact, we saw that was the highest level of COVID admissions in any given month since the start of the pandemic in February and March, given the rate of decline and how much faster that was versus previous surges. We just didn’t see non-COVID have the ability to rebound at the same pace. So – and that’s true both across Medicare and commercial. So, we would say that, that was net positive. As we said in our fourth quarter commentary, we do not – we will be very cautious in releasing that dollar of contingency that we are holding, just recognizing the longer COVID goes on, we just don’t want to assume that patterns will remain the same as we have seen historically. And then as I mentioned in my commentary, just the rate of sort of COVID positivity itself, while the public health emergency is in force, we will drive additional unit costs for any admission that does happen to have a COVID positive diagnosis associated with it. So, we will need to continue to watch that. In terms of MLRs, with the exception of the PPD that I mentioned that will disproportionately impact the first quarter. I think if you normalize for that, then I would say there is nothing sort of unique about this year that we would expect MERs to be to vary other than the fact that sequestration, if you recall, is still in play, the way we were for the first quarter. It will reduce by half for the second quarter and then is assumed to be back in force for third and fourth quarter. So, that will cause a little bit of seasonality differences year-over-year. But aside from that, I can’t think of anything else specifically that we would expect unless, as I said the COVID – depending on what happens with COVID, which we have acknowledged could create some quarterly variations. Kevin Caliendo: Thank you. Operator: Thank you. Our next question or comment comes from the line of A.J. Rice from Credit Suisse. Your line is open. A.J. Rice: Hi everybody. I thought I might just ask you about the home health, Kindred at Home business and some of the things you are doing there. First of all, I think Susan, you called out some labor challenges that you are trying to address. I wondered how widespread those are in the business? And have they gotten worse in the first quarter versus what you saw in the fourth, or are they getting better? And then on the virtual value-based work you are doing. I am just trying to make sure I understand, is that Kindred at Home contracting with the Humana MA plans, or is it subcontracting with your primary care docs, how does that work? And how do you manage the steerage of the patients to make sure they end up in your home health operations and not someone else’s? Susan Diamond: Hey A.J. Sure. Happy to take that. The first question on labor challenges. I would say they are fairly widespread. There are certainly some markets where we have sufficient capacity and we are certainly doing everything we can to take advantage of growth opportunities there. But generally speaking, some of the larger markets where there is more of an opportunity, we continue to see challenges. I would say though they are – I would say they are getting a little bit better, primarily due to the fact that COVID has subsided. So, some of the labor challenges are due to nurses having to quarantine as a result of COVID. And so as we see that come down to, again, the lowest levels we have seen. That certainly helps as we have more nurses available. As I mentioned in my commentary, we are also pleased to see that we – our initiatives are having some positive impact on recruiting nurses and retaining those nurses, again, creating some additional capacity. But I don’t want to diminish the fact that it continues to be a challenge. We continue to watch sort of the wage environment and other sort of resources being used to recruit and retain nurses and we will try to make sure we stay contemporary with that. On the value-based model, the way that works is One Home, which is a company you might recall, we acquired last year, which currently provides home health DME and infusion services to our Florida and Texas members under a value-based model. That is the model that we are looking to expand. So, One Home actually contracts with the health plan under a capitated arrangement for all of the spend for those three service categories. And then in markets where there are downstream risk providers, they will then downstream sub-cap with those providers. But One Home is the one taking the full risk on those services. What’s unique about that model is the way that it is structured is they act as a convener and provide some relief and administrative burden from referring providers where the referring provider can refer a patient in for the home health DME and infusion services and One Home will take responsibility for placing all of those services. In the absence of that model, the referring provider has to discretely coordinate all of those services, which can lead to some fragmentation and dislocation in the way carriers delivered. So, with the One Home model, they will take responsibility and where possible, then they can refer that patient directly into Kindred or other high-quality home health providers in the market based on capacity and other things. And so that – typically, as we launch the market, we will go in with a more broad network to avoid any sort of provider and patient friction at start. And as the providers get more comfortable and understand the model, then we will look to then begin referring those patients into our high-quality providers in the market and certainly with Kindred top of mind. So, that’s how it works. Happy to answer any other questions when we talk later today, if you like. A.J. Rice: Okay. Operator: Thank you. Our next question or comment comes from the line of Stephen Baxter from Wells Fargo. Your line is open. Stephen Baxter: Hi. Thanks. I appreciate all the color on utilization and PYD certainly gave us a lot to digest. Just wanted to ask a clarifying question on the lower-than-expected PYD. So, on the inpatient unit cost side, can you just clarify whether or not the higher unit cost you experienced was purely the result of these incidental COVID dynamics? If you were to look at the remaining inpatient non-COVID utilization, I guess how did that compare to your expectations on the unit cost side? I guess big picture, just an update on acuity trends and how they are running on the non-COVID population? Thank you. Susan Diamond: Sure, Stephen. So yes, so on the PYD, we did see lower – prior period most favorable was just lower than we had previously expected and really attributable to higher inpatient unit costs in the fourth quarter. There were two main drivers of that. One was higher non-COVID unit costs. They were quite high in the fourth quarter. Frankly, there is still some work we are doing to understand why that is. And then also on the COVID admissions, as we set reserves at year end, we have the benefit of authorization data. And so we have really good data on the absolute level of admissions. From the utilization perspective, claims of restated just as we would have expected. So, the absolute level of admissions is consistent with what we thought. What we saw, however, is of those admissions we anticipated more restated as a COVID admission when on the initial authorization, they did not reflect COVID as the reason for the admission. And so we would have contemplated those as non-COVID admissions. Given the significant difference in unit cost for COVID admission versus non-COVID, that caused our December unit cost to restate higher. So, I would say it’s a little bit of a mixture with December, specifically related to COVID and the previous months more reflective of increases in the non-COVID unit costs, which we are still studying. Those are things again, we want to see how those continue to play out. But for the first quarter estimates, we have contemplated those higher unit costs. In terms of acuity, I would say broadly, we do not believe we are seeing an increase in acuity of the patients across any of our lines of business. There is no indicators of that so far. We think, again, when you are talking about the level of – particularly in the fourth quarter of sort of COVID admissions to some degree, this is a reflection of as you see that higher incidental COVID positivity rate, as I mentioned, the admissions that are then sort of left in the non-COVID bucket tend to be higher average unit costs and in this case, just happened to restate higher than we had initially expected. Lisa Stoner: Next question please. Operator: Our next question or comment comes from the line of Ricky Goldwasser from Morgan Stanley. Your line is open. Ricky Goldwasser: Yes. Hi. Good morning. Just wanted to focus on the pharmacy outperformance, I think you said it was about half of the dollar upside from your initial targets. So, what specifically kind of like drove outperformance? Susan, you mentioned that the existing members that are using your pharmacy services had a higher utilization of mail versus the wanted off-boarded. Is that sort of the entirety of it? Is it just kind of like that current member mix, or are there other more underlying trends that we can extrapolate for the rest of the year? Susan Diamond: Hi Ricky, yes, sure, happy to answer that. So, there were a couple of contributors to the pharmacy outperformance. One, as you said, was related to just some of the slightly favorable membership we saw across MAPD and PDP from an absolute perspective. And then as you mentioned, and Bruce and I highlighted, what we saw was that the members that were retained by the health plan through AEP had a higher use of Humana Pharmacy than members who disenrolled in AEP. And it was about a 9% difference. And that was a larger difference than we have seen historically. So, it was not something we had specifically anticipated. And so that higher membership and that dynamic of retaining more members who are more likely to use Humana Pharmacy contributed to some of the volume outperformance. I would say there was additional volume outperformance even above that, and we think that’s a reflection of the continued investments we are making in the pharmacy business to improve the service delivery model and experience overall. We implemented a number of initiatives over the course of 2021 designed to drive improved mailer penetration and use of the pharmacy business and saw success there. And we have seen further success in the first part of 2022, just beyond what we had originally anticipated. And as I mentioned, we did anticipate higher mailer penetration in ‘22 versus 2021 and we are just seeing that come in slightly higher even than we had expected, which we view very positively. In addition, we did see lower unit costs. That is a function of just the underlying drug mix and the negotiated rates. And so that is contributing as well. And then finally, we also saw a favorable cost to fill. And so as a result of some of the investments and enhancements they are making in the service delivery model and Bruce referred to some of those investments. We are also seeing some positivity with reduced cost of fill than we expected. So, all of those we view very favorably. And generally, you can assume that those do continue, although as I mentioned, we do expect some moderation because our plan did contemplate continued increases in mail order penetration over the course of the year. And so as we described in the commentary, you can think about our thinking on pharmacy is raising $0.50 now that reflects the outperformance and then also that outperformance allowing us to cover the potential dilution from a hospice divestiture, assuming that we don’t use the proceeds for share repurchase. Operator: Thank you. Our next question or comment comes from the line of Joshua Raskin from Nephron Research. Your line is open. Joshua Raskin: Thanks. Good morning. I wanted to clarify the 2022 sort of run rate or jumping off point for next year. Should we think about the $24.50 plus the dollar as sort of that starting point and maybe you could give us a little bit more color on the hospice dilution in 2023 or if buybacks or something else will offset that. And I apologize for the long question, but the real question is really, are there potential headwinds for 2023 that we should be thinking about that would preclude you from attaining your long-term EPS target, specifically thinking about investments in primary care, etcetera? Susan Diamond: Hey Josh. So yes, so for your first question, we would say that you should think about the ‘22 baseline at the $24.50. Similar to how we talked about it in our initial guide, we would just encourage you not to get ahead of us on the dollar of COVID contingency. As I mentioned, there is still a lot to see in terms of how medical costs play out over the course of the year and utilization more broadly, morbidity, etcetera. So, you can consider the baseline for now the $24.50 and we will continue to be transparent about what we are seeing. But certainly pleased with the ability this early to raise and get towards the higher end of our range and certainly hope that we can see continued progress, but I would encourage you to consider the baseline for now the $24.50. In terms of hospice solution, so as we have said, for 2022, the pharmacy outperformance will allow us to cover any potential dilution. We are internally anticipating that the transaction would likely close third quarter. And so that’s what we are thinking about in terms of our current guide. As we have talked about, this has been something that we have been planning and looking at options for some time. So, from a 2023 perspective, we have always been anticipating that we would divest a majority stake in hospice. And so that is contemplated and will be contemplated in our earnings progression in 2023, where we would expect to, again, see a return to higher levels of Medicare growth while also delivering within our targeted long-term range of 11% to 15% off of that $24.50 baseline despite the hospice divestiture. For the proceeds, as I mentioned in my commentary. My preference would be to use as much as possible towards deleveraging, just so we can get that down and give us some additional flexibility we mentioned in my commentary that we would expect to be at approximately 40% by year-end versus the 45% we reported for the first quarter. And so we do expect to use a majority for debt repayment. Joshua Raskin: Okay. So, 11% to 15%, even including the dilution off of the $24.50, that’s the right way to think about it. Susan Diamond: Yes, exactly. Joshua Raskin: Perfect. Thanks. Operator: Thank you. Our next question or comment comes from the line of Scott Fidel from Stephens. Your line is open. Scott Fidel: Hi. Thanks. Good morning everyone. Interested just to get your thoughts on Medicare provider contracting the environment for FY ‘23. Just as we are tracking all of the proposed Medicare FFS provider rate updates that are coming out from CMS. Most of them are tending to be notably lower than what the final MA rates actually came in at. So, just interested whether you see any type of positive arbitrage around that variance, or do you think ultimately that providers will be pushing for higher MA rate increases than what they seem to be getting on a net basis in Medicare FFS, at least based on the proposed rates so far. Thanks. Susan Diamond: Hey Scott. So, yes, so to your point, so right now, we will have to see, obviously, what the final rates come in at. But currently, with what we have seen preliminarily, they are lower than the overall average sort of rate increase in terms of the rate book. Most of our – on the hospital contracting side, I would say most of our contracts are tied to fee-for-service reimbursement. And so typically, we would not see much – whatever those rates come out with is what we would see. It’s not to say that we might not see some providers come and sort of want to talk to us. I would say they may want to talk to us about some other components of our contracts in terms of how we handle claims processing and audits and some other things, but I would not anticipate that we would be opening contracts up to move off of the them being tied to the Medicare reimbursement rate. I think that there are some other service categories, home health is one example where we tend to pay lower than Medicare fee-for-service rates. So, depending on where those rates come in, that could be an area where providers may come where they are being paid less than Medicare reimbursement, and they may want to have a conversation on that in this inflationary environment. So, we will continue to monitor it. I would say that at this point, based on what we have seen, we are not considering that a significant headwind that we are considering for 2023 and would view it as something that we can manage through. Scott Fidel: So, is it fair to say that you aren’t seeing some favorability here between the final MA rates and the likely net provider FFS rates, right? Susan Diamond: I mean based on what’s come out so far, and then that’s what it would suggest. And we will have to see where the final rates come in. Scott Fidel: Okay. Thank you. Operator: Thank you. Our next question or comment comes from the line of David Windley from Jefferies. Your line is open. David Windley: Hi. Good morning. Just focusing on the home health build-out and expansion there. You mentioned I think One Home relative to Texas and Florida launching your value based in North Carolina and Virginia. Can you talk about how rapidly you can continue to expand markets with that strategy? And then are there other – is that mostly an organic strategy or are there some inorganic bolt-ons that you could add to that to accelerate it? Bruce Broussard: Yes. A few things, I think our goal is to get to close to 50% over the next 5 years of our members to be in that. And that’s the full relationship with One Home. And there is really components of that relationship. One is around the actual ability to as Susan was describing the value-based payment area where you manage that and go through One Home from a contractual point of view. The second part of it is the build-out of DME and their pharmacy. And as you look at sort of the length of time it takes it actually is the latter part, the DME and the pharmacy takes more time than the actual contractual side. So, what we are testing right now is actually sort of a light and heavy model, so to speak. The heavy model has everything. And the light model is really more oriented to the contractual area of that. And we are hoping that, that will facilitate getting to the 50% quicker as a result of that and actually provide further improvement on the clinical costs, both in the clinical cost of the actual cost of providing the services, but also downstream prevention of ER visits and hospital admissions there. So, it’s really two-pronged. And again, we are trying to find how we can facilitate it quicker through a lighter model that doesn’t just have to require the build-out of the DME and the pharmacy side. Susan Diamond: Yes. And the one thing I would add to Bruce’s comment is, today, the model is deployed in markets that are heavy risk-based primary care. So, we are moving into markets where that’s not the same dynamic. And so we are really interested to see how these first implementations go and assuming those go well, then I do think we would look to go ahead and accelerate some of the further expansion. But I want to make sure we fully assess sort of how the model works and anything that we need to learn in the environment, recognizing it’s a little bit different. Bruce Broussard: And then your second question was organic versus inorganic. This will be mostly organic. I think the ability to – there is not a lot of assets out there to buy. And then in addition, I think the integration of it will probably not be as free as us just continuing to build the organic side. David Windley: Thank you. Operator: Thank you. Our next question or comment comes from the line of Lisa Gill from JPMorgan. Your line is open. Lisa Gill: Thanks very much. I just wanted to ask about your risk-based primary care relationships. Can you talk about the percentage of premium that are under those types of relationships and the impact to MLR? And then as I think about primary care services more broadly, how do you think about virtual healthcare? Bruce Broussard: I will take that. Today, it’s about two-thirds of our revenue is within the Medicare Advantage business is really with practices that are under a risk model. Now that varies between a full risk to we refer to as a path risk which is up and down, but whether it’s a bonus or up and down risk with some color around protection of it. So, we do see continued growth in that area and continued not only improvement in the number of members that are under that relationship, but also more and more of our practices are in surplus, which we really consider as being the most important value because this means that they are earning more dollars than they would in a fee-for-service environment. So, first, we do measure not only the total, but also the effectiveness and the impact it has on providers. Relative to virtual health, I would say we look at that as virtual primary care. We look at that as not only being part of the primary care itself and being incorporated in our relationship. But in addition, we are testing through our Heal relationship, actually attribution of individuals to a virtual health provider and then the ability to not only use virtual health but also go into the home. So, it’s not office base. It’s actually at traveling physician along with a virtual health component to it. And they are actually attributed the patient. And so we are testing that in a few markets as we speak today with a partnership that we have with one of our joint venture relationships we have, Heal. Lisa Gill: Great. Thank you. Operator: Thank you. Our next question or comment comes from the line of Gary Taylor from Cowen. Your line is open. Gary Taylor: Hi. Good morning. I just want to go back to reserves for a second, just a couple of parts to my question. I know days claims payable only down 0.7 of a day sequentially. But the fee-for-service IBNR piece was down about three sequentially. So, I just wanted some help if there was anything in particular driving that? And then my second part of the question was you are sitting at 43 days claims payable. There is a comment that pre-pandemic you ran closer to 40%. And just wondering, is that just sort of an FYI? Are you alluding to the fact that as we sort of move post-pandemic you anticipate moving back towards $40 and releasing some of those reserves into earnings over time? Susan Diamond: Yes. Hi Gary. And so to your point, there is a lot of noise just the last couple of years due to COVID and the impact to sort of claims submission timelines, capitated provider surplus amounts in payments. And I know we have talked about that in the last number of quarters and the magnitude of the impact of those dynamics. And so that’s why we provided the reference to the pre-COVID levels, which we think is a better benchmark to assess this it’s hard to otherwise normalize for all of those considerations. And so as you said, we are sitting three days above what our average ran pre-COVID, which we view is the more relevant compare to and feel good about the level of reserves that we are sitting on as of the end of the quarter. Gary Taylor: Can I just follow-up real quick. Is the dollar of COVID cushion? Is that – in your view, is that sort of already sitting in reserves that would be released, or is part of that anticipated to be generated by ‘22 operating results? Susan Diamond: Yes. So, I would say in terms of what’s currently sitting in DCP, to the degree some of our reserve estimates for the first quarter or prior year proved to be conservative as that would unwind, then that would have been some of what is currently reflected in the reserve levels. And the way we thought about in our plan anyway, we sort of layered in that conservatism ratably. And as we said in the earlier commentary, we certainly did not see a net COVID headwind in the first quarter, but we are being cautious about how we think about unit cost trend in particular. Gary Taylor: Got it. Thanks. Operator: Thank you. Ladies and gentlemen, this concludes the Q&A session. I would now like to turn the conference over to Mr. Bruce Broussard for any closing remarks. Bruce Broussard: Well, thank you, and thank you for all our investors in both participating in today and continuing to support the company. As we have communicated, we continue to believe that we started with a strong year and look forward to continuing that progression throughout the remaining part of the year. And then lastly, I would like to thank our 90,000 employees that are every day going to work to help support both these results, but more importantly, our members and patients that we serve on a daily basis. Thank you, and everyone have a great day. Operator: Ladies and gentlemen, thank you for participating in today’s conference. This concludes the program. You may now disconnect. Everyone, have a wonderful day.

Operator: Good day and thank you for standing by. Welcome to the Humana Fourth Quarter Earnings Call. At this time all participants are in listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised today's conference maybe recorded. [Operator Instructions] I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead. Lisa Stoner: Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our fourth quarter 2021 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the line for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission and our fourth quarter 2021 earnings press release as they relate to forward-looking statements and to note, in particular, that these forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks, along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business results. Today's press release, our historical financial news releases and our filings with the SEC are also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles, or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share, or EPS, made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa. Good morning and thank you for joining us. Today, Humana reported financial results for the fourth quarter of 2021 reflecting the strength of our core operations, which continued to perform well throughout 2021 despite the challenges the industry faced as a result of the pandemic. With that in mind, and as we enter a new fiscal year, I want to take a moment and speak not only to our 2021 results and our outlook for the current year, but more broadly about our strategy and the steps we're taking to position Humana for success. Susan will discuss our results and outlook in more detail in a moment. But at a high level, our 2021 results and our 2020 outlook are largely in line with recently provided guidance. Adjusted earnings per share for the full year were $20.64, which was above our previous estimate of approximately $20.50. This represents growth of 11.6% off of our 2020 baseline of $18.50 while covering a $1 unmitigated net COVID headwind. Looking forward, we provided full year adjusted earnings per share guidance of at least $24. This represents 11.6% growth over our 2021 baseline of $21.50 and 16.3% growth of our actual adjusted EPS of $20.64. This guidance includes an embedded COVID headwind of $1. Before I highlight some of the actions we're taking to deliver the improved individual Medicare Advantage membership and how we're applying learnings from the most recent annual enrollment season, I want to emphasize that we are operating from a position of strength. I'm incredibly proud that Humana is the second largest Medicare Advantage plan provider supporting over 5 million beneficiaries with high-quality coverage. The quality of our product offering is the highest among our public peers with over 97% of Medicare Advantage members in plan with a four-star rating or higher. We've also increased the number of contracts that received a five-star rating from one contract in 2021 to four contracts in 2022, which is the most in our history. Finally, we saw an improvement of 930 basis points in our Net Promoter Score this past year, reflecting our ongoing efforts to enhance the customer experience. We continue to advance our customer segmentation efforts, developing plans that are tailored to the unique needs of our specific member populations. This allows us to provide benefits that enhance and complement an individual's existing coverage through programs like Medicaid or entities such as Veterans Affairs. We're seeing great success through our initial segmentation efforts, growing D-SNP membership greater than 40% in both 2020 and 2021. In addition, our Humana Honor Plan designed for veterans that is also available to all Medicare eligibles grew membership 80% last year. We have a strong brand and our expertise caring for people as their age is highly recognized by consumers. As a result, we've increased market share over time, achieving annualized enrollment growth of 11% since 2017, which is well above market growth. Moreover, we have a proven track record of balancing membership and margin growth with our long-term earnings growth target range of 11% to 15% continuing to be the ultimate goal. With that in mind, a key element of our plan is to return to industry-leading membership growth without negatively impacting earnings growth. We will achieve this by leaning into our successful history of reducing costs and improving operational efficiencies. We are committed to delivering sustainable cost reductions in order to create the needed capacity to improve our competitive positioning. We are committing to drive $1 billion of additional value for the enterprise through cost savings, productivity initiatives and value acceleration from previous investments. This will create the capacity to fund growth and investments in our Medicare Advantage business and further expansion of our healthcare service capabilities. These efforts span several areas. First, we have already begun a critical review of our ongoing strategic initiatives across the company. We intend to further focus our investments on those priorities where we have the greatest conviction of significant value potential. We will slow or pause further investment in some areas in order to focus on accelerating value creation from investments we've already made. Next, we will drive further organizational efficiencies by optimizing our workforce in order to speed these – increase the speed, agility and pace we must work at as a large integrated healthcare organization. We see the opportunity to streamline our operating structure, standardized work and simplify certain processes to eliminate low-value work. Third, we will reduce and optimize third-party spend. In some areas of our business, this will translate to decrease in vendor use, while in others we will outsource work to best-in-class suppliers. In addition, with the ongoing reality of COVID and the way it has changed the way everyone works, we will be significantly rationalizing our real estate portfolio. And finally, we are driving greater operational efficiencies across the organization by modernizing, streamlining and improving our processes through automation and digital advancement. This includes the use of technology to replace manual efforts in our core operations and to increase productivity of our workforce. Beyond creating capacity to invest in our Medicare Advantage products, we are also focused on optimizing our marketing spend and sales channels to maximize growth. As we've discussed previously, we have undertaken significant work each year to determine the optimal level of marketing investment and how these dollars are put to work. Applying our learnings from the most recent selling season, we expect to further optimize our investment in marketing to ensure our messages are heard by more prospective customers. We also plan to accelerate digital capabilities to increase our effectiveness and efficiency and member acquisition and focus on experience of our existing members to improve retention. We will continue to focus on ensuring we have a clear differentiated and omnipresent brand with a strong call to action that supports industry-leading customer acquisition. And as we improve the value proposition of our plans, we believe we will see even greater returns from our marketing spend. Regarding our sales channel, we will look to optimize the use of our internal channels as well as external partners. Our 2,400 employed sales agents work to create long-term relationships with our members, ensuring they are educated on their planned choices and the benefits and additional support services each plan offers. This leads to better engagement, greater plan satisfaction and ultimately better health outcomes and longer tenure with Humana. We do not expect significant shifts in channel mix this year. We will continue our efforts to improve retention of our members broadly. This will include a particular focus on those enrolled in third-party call centers, where we've seen term rates approximately 400 basis points higher than our internal call sales channel. We'll be working with our call center partners to more closely replicate the experience delivered by our employed agents through enhanced training and service level agreements. And we'll also look for opportunities to create greater retention and quality incentives for sales partners. As I mentioned a few moments ago, Humana offers superior quality to its members, has a strong brand and a long history of expertise in caring for people as they age. Additionally, our clinical focus and suite of healthcare service capabilities allow us to take a holistic approach to supporting members, ensuring they receive high-quality, proactive and comprehensive care, which improves health outcomes. We will leverage the strength of these core fundamentals as we work with our internal and external partners to improve retention. As we look ahead and focus on our core operations, we are committed to continuing the track record of being capital efficient as we consider strategic advancement and return of capital to shareholders. To that end, we are committed to advancing our plans to divest a majority interest in our hospice business as we are confident we can deliver the desired experiences and outcomes for patients transitioning for restorative care to hospice through partnership models. We have continued to explore various alternatives for the long-term ownership structure of the business and have initiated steps to reorganize the hospice business for stand-alone operations while also making investments to improve clinician recruiting and retention to position the business for further growth. While we're not able to share details today on a specific transaction structure or timing, we expect that we will be in a position to provide a meaningful update by our first quarter call. Our ability to drive innovation and improved clinical outcomes is enabled by our strong integrated care delivery platform. And in recent years, we've made – have significantly expanded our healthcare service capabilities in order to better serve our members and strengthen our payer-agnostic care offerings. Our healthcare service businesses are an important component of our strategy and will contribute considerably to Humana's long-term growth. Combining our leading Medicare Advantage platform and growing pharmacy, primary care and home services increases our total addressable market and creates the opportunity for improved clinical outcomes lower cost of care and increased enterprise margin from our health plan members. Our PBM, which is the fourth largest in the country, processed 515 million 30-day equivalent scripts in 2021, an 8% increase year-over-year. In addition, our pharmacy dispensing business continues to deliver industry-leading mail order penetration. And we've successfully implemented tools to enhance our e-commerce experience while expanding our mail order footprint as we get closer to the customer. Our success is not only expanding volume but improving health outcomes, evident by our four-star level performance in medication adherence metrics, which are 3x weighted. In our primary care business, we are in the early stages of growth and continue to expand our geographic presence. We are committed to funding the organic growth of our primary care organization in 2023 and beyond through a combination of on- and off-balance sheet such that we expect no dilution to earnings growth from the organic growth expansion. To provide more insight into our primary care organization, we ended last year with 206 centers, representing a 32% increase over the prior year. We are accelerating the build-out of our platform through a combination of de novo expansion and inorganic growth. We completed nine acquisitions last year, bringing 40 newly wholly-owned centers to our portfolio. We also opened 15 new de novo centers and consolidated five clinics into other locations. We plan to continue prioritizing tuck-in acquisitions focused on the markets where we have established presence to provide more access and high-quality care to patients. In addition, we recently announced our intent to build an additional 26 centers this year under our existing joint venture with Welsh, Carson. When combined with planned acquisitions, this is expected to increase our center count by approximately 20% and bringing our total center count to approximately 250 centers by the end of this year. As we look to 2023 and beyond, we plan to build and acquire an additional 30 to 50 centers per year, again financed in a way that is not expected to be dilutive to earnings. I would remind you that each mature center is projected to drive annual EBITDA of $2 million to $4 million, highlighting the meaningful opportunity, increased contribution to enterprise earnings going forward. Turning to the home. We recently announced the appointment of our new home leader, Dr. Andy Agwunobi. Andy comes to Humana from the University of Connecticut, where he serves as Interim University President and as CEO of the UConn Health System. He will join Humana and serve as a member of our management team starting later this month. He has been responsible for many home health organizations as part of its integrated health systems. He has extensive operational experience with for-profit and non-profit organization. And as a doctor, he understands the value of care in the home, why seniors want more of it and our vision at Humana for making it easier for people to get the care they need at home. Kindred at Home has a strong fee-for-service business that we are committed to continuing to grow. In addition, as I shared last quarter, we have made substantial progress towards our goal of scaling and maturing a risk-bearing value-based model that manages the provision of home health, durable medical equipment and home infusion services. We believe the model has significant value creation potential, both within Humana as well as payer agnostically. We have a goal of covering nearly 50% of Humana Medicare managed members under this model within the next five years. The home model is active in South Florida and Texas today will begin – and today we'll begin the rollout of additional markets of Virginia and North Carolina in the second quarter with subsequent rollout to additional geographies this year and early next year. After completing these first two phases of expansion, our value-based home health model will provide coverage to approximately 15% of Humana Medicare Advantage members. In addition to the expansion of the full value-based model, we have the opportunity to accelerate our return on investment by introducing select components of the full based home health model, such as stand-alone DME or utilization management services in less dense markets. We believe approximately 60% to 70% of Humana members will be served by the comprehensive value-based model over time while the remaining will be supported by select components based on the needs of the market. Before I turn it over to Susan, I want to once again emphasize that Humana's core operations are strong, and we continue to create significant value by driving growth in our top-tier Medicare Advantage business, expanding our Medicaid footprint and increasing contribution from our healthcare service businesses and delivering ongoing cost efficiencies and productivity improvements across the company. Indeed, we have great confidence both in the fundamentals of the Medicare Advantage industry and the long-term growth prospects for Humana. And as we look ahead, our improved membership growth, combined with further penetration in our growing and maturing healthcare service businesses, position Humana favorably to deliver on long-term earnings target in 2023 and beyond. We have a proven track record of not only balancing membership and margin to deliver our long-term 11% to 15% earnings growth target, but also improving health outcomes and lowering the total cost of care for our members and optimizing our operations through productivity and efficiency initiatives, and we look forward to delivering on our latest targets. With that, I'll turn the call over to Susan. Susan Diamond: Thank you, Bruce, and good morning everyone. Today, we reported full year 2021 adjusted earnings per share of $20.64, slightly ahead of our expectations of approximately $20.50. As Bruce mentioned, despite the challenges we faced in 2021 due to the pandemic, our fundamentals remain strong with the underlying core business delivering solid results for the full year. Including the impact of an unmitigated net COVID headwind of $1, our adjusted EPS grew 11.6% off of our 2020 baseline of $18.50 and our individual Medicare Advantage membership grew 11%, outpacing the industry. I will now take a few moments to discuss our fourth quarter results and underlying trends before turning to our expectations for 2022. We reported fourth quarter adjusted EPS of $1.24, slightly above internal expectations and consensus estimates. Fourth quarter results for the retail segment were largely in line with expectations. Total medical costs in our Medicare Advantage business ran approximately 1% below baseline during the fourth quarter, in line with the forecast we shared in early November. While COVID utilization remain higher than initially expected due to the Omicron variant surge, we continue to see a corresponding reduction in non-COVID utilization through the end of 2021 and this trend has continued into early 2022. Although a smaller percentage of individuals that are infected with the Omicron variant require hospitalization as compared to previous surges, COVID admissions in recent weeks have been consistent with levels experienced in January 2021 due to the significantly higher rate of transmissibility of the Omicron variant. With respect to the flu, trends remain favorable to expectations in the fourth quarter and have continued this pattern in the first few weeks of 2022. In our Group and Specialty segment, our results were slightly better than previous expectations for both our group medical and our specialty businesses. All-in utilization and our fully insured group medical business continued to run a bit above baseline but slightly better than our previous expectations. Our Specialty business results also outperformed as utilization particularly for dental services continued to run lower than anticipated. Finally, each of our healthcare services businesses performed consistent with expectations in the fourth quarter. The integration of Kindred at Home operations remains on track and results post acquisition have emerged as anticipated. Fourth quarter 2021 home health admissions were up slightly while hospice experienced a low single-digit decline as compared to the fourth quarter of 2020. From a full year perspective, we have seen home health admissions up low single digits with hospice admissions down low single digits year-over-year. It is important to note that hospice volumes have been impacted by the higher mortality rates driven by COVID as well as lower post-acute facility volumes. As I shared last quarter, we are closely monitoring admission and clinical staffing trends and are making targeted investments to sustainably improve the recruitment and retention of nurses to position the businesses for further growth as trends begin to normalize. We improved home health and hospice nurse retention by double digits in 2021, positively growing net nurse headcount in the second half of the year. We also reduced the number of nurses who attrit in the first 90 days of employment in the second half of 2021 for the first time since the pandemic began. While we are pleased with this progress, we acknowledge that the labor market remains challenging, and there is more work to be done to further improve nurse satisfaction and retention. In our primary care organization, patient growth in our de novo centers exceeded expectations in 2021, increasing 68% year-over-year with these centers now serving over 20,000 patients. We expect this growth to continue into 2022. Finally, our pharmacy operations remain strong with industry-leading mail order penetration. Amongst our individual Medicare Advantage members, 38% of scripts prescribed in 2021 were dispensed by Humana Pharmacies mail order business, which continues to increase year-over-year. In addition, in more mature center well clinics, we have seen mail order penetration rates for Humana members approach 50%. And when combined with prescriptions dispensed by co-located Humana retail pharmacies, total Humana Pharmacy market share can approach 60%. Our strong mail order volumes continue to highlight that members value the convenience and cost savings mail order delivery provides, which also leads to better medication adherence and health outcomes benefiting our members and health plan. Before turning to our 2022 outlook, I would like to add to Bruce's earlier comments regarding our commitment to taking significant actions to create capacity for investments in our Medicare products, which will allow us to significantly improve membership growth in 2023 without impacting earnings growth. We have already begun taking action to deliver on this commitment, including engaging external consultants to benchmark Humana's operating structure and initiating a deep dive into processes across the organization to ensure that we identify a comprehensive set of opportunities. We are on a continuous journey of improvement and are confident in our ability to remain a leader in the Medicare Advantage industry and deliver on our long-term earnings growth target in 2022 and beyond. Now turning to our 2022 expectations and related assumptions. Today, we are providing adjusted EPS guidance for 2022 of at least $24, representing growth of 11.6% over our 2021 baseline of $21.50 and 16.3% over our actual 2021 adjusted EPS of $20.64, consistent with our previous commentary. This guidance contemplates an explicit COVID-related headwind of $1 in adjusted EPS. In addition, as previously shared, we are assuming medical costs return to baseline levels and the costs related to COVID continue to be offset by the depressed non-COVID utilization in our Medicare Advantage business. To the extent the $1 explicit COVID headwind is not ultimately realized, we will be conservative regarding the timing and pace with which we adjust our full-year earnings guidance to ensure we do not get ahead of any potential emerging trends. Our 2022 outlook reflects top line growth above 10% with consolidated revenues projected to be north of $92 billion at the midpoint, driven by continued growth in our Medicare Advantage business and expansion of our payer-agnostic Healthcare Services businesses, partially offset by expected declines in our commercial group medical, Medicaid and Medicare stand-alone Part D or PDP membership, 2022 EPS also reflects the impact of a reduced share count as a result of the $1 billion accelerated share repurchase program entered into in January. With respect to the forecasting quarterly EPS, we acknowledge it will continue to be challenging, predicting the timing of additional COVID surges and the related rise in COVID costs and offsetting reductions in non-COVID utilization which generally occurs on a lag. At this time, we expect the percentage of first quarter earnings to be in the high 20s. We will provide updated color on our expected quarterly patterns throughout the year but would encourage investors to focus on the full-year results given these COVID-related timing dynamics. I will now provide additional color on the 2022 outlook for each of our business segments, starting with Retail. As recently shared, we now anticipate individual Medicare Advantage membership growth of 150,000 to 200,000 members in 2022. We added approximately 138,000 members during the annual election period, including approximately 48,000 D-SNP members. Touching on Group MA, we continue to expect membership to be generally flat for 2022 as we do not anticipate any large accounts will be gained or lost as we continue to maintain pricing discipline in a highly competitive market. From a PDP’s perspective, we expect a membership decline of approximately 125,000 members for the full year. As previously shared, the overall PDP market continues to decline as more consumers enroll in Medicare Advantage, and we remain focused on creating enterprise value from our PDP plans by driving mail order penetration and conversions to Medicare Advantage. We are projecting approximately 80,000 of our PDP members to convert to a Humana Medicare Advantage plan in 2022. Finally, we anticipate that our Medicaid membership will decline 50,000 to 100,000 members in 2022. This change reflects membership losses resulting from the start of redetermination, which we expect to begin following the end of the public health emergency in April. These losses will be partially offset by membership additions expected as part of the Ohio contract award, which will go live in July. The addition of the Ohio contract award expands our Medicaid presence to six states, which as we have shared before, has been largely accomplished through organic growth. The Retail segment revenue is expected to be in a range of $81.2 billion to $82.2 billion, reflecting a 10% increase year-over-year at the midpoint. The year-over-year change includes the impact of the normalization of Medicare risk adjustment revenue in 2022, the phase-out of the sequestration relief beginning in the second quarter as well as the impact of changing member mix. The benefit ratio guidance of 86.6% to 87.6% is 80 basis points lower than the 2021 benefit ratio of 87.9% at the midpoint driven in part by the normalization of Medicare Advantage revenue in 2021, partially offset by the expected return to baseline medical cost trends. In summary, we are guiding to Retail segment pretax income in the range of $2.35 billion to $2.55 billion for 2022, an increase of 26% over 2021 at the midpoint of the range, which includes the impact of an approximate 50 basis points increase in individual MA margin year-over-year. Moving to our Group and Specialty segment, we are expecting total commercial medical membership, including both fully insured and ASO products, to decline by 125,000 to 155,000 members. This decline primarily reflects lower small group quoting activity and sales attributable to the COVID-19 pandemic, specifically as it relates to continued actions by our competitors to retain membership as well as the loss of a large group ASO account. These impacts are expected to be partially offset by strong retention of our existing members. From a profitability perspective, we expect this segment to show nice pretax growth driven by improved profitability in the group medical business resulting from the rating actions taken to account for the expected impact of COVID in 2022. This improvement was partially offset by a reduction in expected earnings from our specialty business year-over-year as we do not expect the COVID-driven outperformance seen in 2021 to continue. All-in we are guiding to a pretax range of $185 million to $285 million for the segment. For our Healthcare Services segment, we expect adjusted EBITDA in the range of $1.675 billion to $1.825 billion for 2022. The 2022 outlook reflects a full-year contribution of Kindred at Home and continued growth in our pharmacy and primary care businesses. These items are partially offset by investments to enhance our clinical capabilities and expand our value-based home care model as well as investments to support the continued expansion of our primary care organization. In our Kindred at Home business, home health admissions are expected to be up mid-single digits with hospice admissions up low-single digits year-over-year. As I mentioned previously, Kindred at Home anticipates ongoing staffing challenges in 2022 driven by the labor shortage the industry is currently facing. We are focused on mitigation efforts through targeted investments to improve recruitment and retention of nurses. We expect these investments to continue our second half of 2021 trend of improved retention and net nurse headcount growth providing additional capacity to support top line growth. In our Primary Care business, as Bruce shared, we intend to build an additional 26 centers in 2022 under our existing joint venture with Welsh, Carson, which when combined with planned acquisitions, is expected to increase our center count by approximately 20% in 2022 and bring our total center count to approximately 250 centers by the end of the year. Patient growth in our de novo centers is expected to exceed 10,000 in 2022, reaching approximately 30,000 by year-end, a 57% increase year-over-year. From an operating cost ratio perspective, we are guiding to a consolidated adjusted operating cost ratio in the range of 13.2% to 14.2% for 2022, an increase of 160 basis points at the midpoint from the adjusted ratio of 12.1% in 2021. This increase reflects the full-year impact of Kindred at Home, which has a significantly higher operating cost ratio than the company's historical consolidated operating cost ratio, the incremental 7.5-month impact of Kindred at Home operations are contributing approximately 150 basis points to the expected year-over-year increase. I would like to now briefly discuss capital deployment for 2022. We will continue to prioritize investments in our core business to drive organic growth. Strategic tuck-in M&A remains part of our overall framework and we will be prudent and opportunistic as we focus on organic growth in the near term. And finally, we recognize the importance of returning capital to shareholders, and we expect to maintain our strong track record of repurchases as demonstrated by the $1 billion accelerated repurchase program that we entered into in January. While our debt-to-cap ratio is temporarily impacted by the acquisition of Kindred at Home, we believe we have sufficient capacity to execute on high priority investments initiatives such as primary care growth while continuing to deliver strong shareholder returns. In closing, I would like to reinforce our commitment to drive $1 billion of additional value for the enterprise through cost savings, productivity initiatives and value acceleration from previous investments in order to create capacity to fund growth and investment in our Medicare Advantage business and further expansion of our Healthcare Services capabilities. As reflected in our initial guidance for 2022, we have entered the year targeting the low end of our long-term earnings growth range of 11% to 15%, which includes an embedded COVID headwind. To the extent this COVID headwind is not ultimately realized, we will be conservative regarding the timing and pace with which we adjust our full-year guidance. We believe entering the year with this headwind incorporated into our guidance is prudent in the current environment, and we are proactively taking steps to position the company to continue to deliver on our long-term targets in 2023 and beyond. With that, we will open the lines up for your questions. [Operator Instructions] Operator, please introduce the first caller. Operator: Our first question comes from Matthew Borsch with BMO Capital Markets. Matthew Borsch: Hey, thank you. Maybe if you could talk about how the likelihood of earnings upside for this year just given the way that you're positioned with a very, I don't know, very – but a conservative MA bid for 2022? Don't you think that would make margin upside more likely as you move through the year? Thank you. Susan Diamond: Sure. Hi, Matt, thank you. So certainly, as we've said repeatedly, we definitely are approaching our 2020 guidance with conservatism, which we think is a prudent thing to do. We disclosed the explicit $1 COVID headwind, which is embedded in our guide. And while we do consider that conservatism, we do just want to reinforce that there remains to be a lot to learn about COVID. There are certain dynamics that continue to emerge, things like whether Medicare will cover over-the-counter testing. We continue to watch the trends in terms of hospitalizations due to COVID. As I mentioned, while the Omicron variant seems to be less severe, it is much more transmissible, leading to many more COVID hospitalizations, some of which are not, frankly, directly related to COVID in terms of the admitting condition, but rather they're being admitted and happen to test positive for COVID. And that results in that extra 20% payment that's provided for under the public health emergency. So those are just two examples of the things that we'll continue to watch, which may prove to be that the $1 COVID headwind becomes necessary. But as we've said clearly, if it proves that – like we've seen historically that all of the COVID costs continue to be offset, and that proves to be conservatism, then you will see that release over the course of the year through additional earnings. And if the entirety of that $1 was not needed, then we would end up above the high end of our long-term targeted range. But just again, encourage everyone to not get ahead of us on that as there's still a lot to be learned and monitor, as it respects COVID trends over the coming year. Matthew Borsch: Thank you. Operator: Our next question comes from Justin Lake with Wolfe Research. Justin Lake: Thanks, good morning. A couple of numbers related questions here. First on the $1 billion, can you talk about how much of that $1 billion will be cost cutting versus other value creation? And what's the timing of the benefit here in 2022 versus 2023 and beyond? And whether any of these benefits assumed in 2022 EPS? And then quickly, just in your release, you reiterated your 11% to 15% earnings growth target for 2023 and beyond. Can we take that to indicate that you expect to grow 11% to 15% next year despite the headwind of lower membership growth from this year? Thanks. Susan Diamond: Sure. I can take that, Justin. So for your first question about the $1 billion cost cutting, how much is cost cutting, Bruce laid out four sort of high-level categories that we expect to contribute to that overall goal of $1 billion in value creation. We would estimate currently that each of those will probably proportionately contribute to that goal evenly over those four categories. There's still a lot to be done to finalize discrete initiatives and the timing of those, but that is our initial thinking. And we'll certainly keep everyone apprised of our progress towards that goal as we go through the year and finalize some of our 2023 pricing and bids. As it respects to the timing of that, as I said, we continue to work on the detailed assessment of opportunities that will lead to a variety of implementations over the course of the year. We are highly motivated to create a path to that. So we have a run rate going into 2023, so we can count on that in pricing. And we would certainly expect some benefit from these actions in 2022, although the benefit would be meaningfully smaller than our overall 2023 target, expecting that most of these initiatives would be implemented late in the year and so contribute less obviously to 2022 guidance. As we discussed recently with the reduction of our 2022 individual MA membership growth expectations that, that all other things being equal would have some negative impact to 2022, certainly, any acceleration we can get from the $1 billion value creation activities can certainly help as one of the puts and takes that we always consider as we finalize our full-year forecast. So all in, again, while we might have some impact from these initiatives in acceleration, that would be contemplated in our guide. And it's just one of many things that we've considered as we go out with our initial guidance. As with respect to 2023 and beyond in our commentary, we do remain committed to delivering against our long-term earnings growth target. We believe that the actions we'll be taking this year to position us to return to leading growth will help us do that without negatively impacting our expected long-term EPS target. So that's our current expectation. And certainly, we'll continue to keep you apprised as we go through the year. Bruce Broussard: And Justin, just to maybe create some clarity on when we talk about the initiatives that we're focused on and slowing down, I just want to reemphasize to the shareholders that we are very oriented to growing the primary care in the home area. And so those initiatives really would continue to see the planned investments in those areas, those other areas that we will slowly grow or pause as a result of this $1 billion goal. Justin Lake: Great, thanks for the color. Operator: Our next question comes from Kevin Fischbeck with Bank of America. Kevin Fischbeck: Okay. Great. I guess maybe just to go into this $1 billion value comment a little bit more. I mean some of these sounds like, things that as an enterprise you would be doing to some degree every year anyway. I mean how should we think about this $1 billion number? Is it incremental to what you would normally be assuming? Or is it you normally get $300 million and now you're doing $1 billion? And it sounds like, I just want to confirm that this is separate and distinct from trend vendors, but I just wasn't sure if that trend vendors were part of this $1 billion. Thank you, guys. Bruce Broussard: Yes, I'll take that. It is in addition to what we normally have seen over the years. As you know, we've continued to focus on our productivity. We do believe a number of investments that we've made over the last few years are ripe to really help with the productivity side of our organization. And in addition, I think there's some number of them that will also provide some clinical and additional clinical benefits for us. So this is in addition to our normal, as you referred to, the trend vendors our clinical outcomes there. So why don't we think about the investments there. But to be frank with you, we are pushing the organization to be more efficient. This is a much more larger effort for us as an organization, we feel that we have significant opportunity to do it. We believe that focusing on investing in our customer is the top priority for us and continuing to expand the Healthcare Services side. So that just takes a continued refinement of where we spend our money and focus on continuing to be more efficient. Kevin Fischbeck: Great, thanks. Operator: Our next question comes from Stephen Baxter with Wells Fargo. Stephen Baxter: Hi, thanks. I wanted to ask another one about the $1 billion. Any rough sense you can give us on how much of that will be allocated to Medicare Advantage versus Healthcare Services? And then within Medicare Advantage, how should we think about the balance between benefit improvement and what you're talking about doing on the marketing side? And I guess the continuation of that question would be, should we think about the entirety of that benefit as accruing to 2023? Or is there then going to be an incremental benefit from some of these efforts as we move into 2024? Just trying to think about how the growth acceleration could be sustained as we move past 2023. Thanks. Susan Diamond: Sure. Stephen, I'll take that. So the value creation will span all segments. Different segments that will probably contribute a little bit differently. Certainly, in our MA business and the scale at which we operate, as Bruce mentioned, we might expect more efficiency opportunities in that business versus within Healthcare Services where we're still looking to grow particularly in primary care, where it's less mature and then within Kindred, as we described, focusing on improving nurse retention for the purposes of creating additional capacity to drive top line growth is where we might focus. So it will look a little bit different. I would say, in places like Healthcare Services, we'll look for opportunities to optimize the business performance to improve additional pretax contribution and value acceleration where some of our more mature businesses will likely see more benefiting from more traditional cost initiatives and productivity. In terms of how we'll use the capacity that we create, that will be a combination of benefits, marketing and distribution on the Medicare side as well as continued investment in Healthcare Services across Pharmacy, Primary Care and Kindred in order to support some of our forward-looking capabilities there. So how exactly that will be allocated will be determined based on some additional work that still needs to be done as we approach our 2023 bids. Our teams are actively working to assess the impacts of the 2023 selling season and formulate their recommendations in terms of how to best optimize those investment dollars across product, marketing and distribution. It's hard to say right now whether we can fully get back to industry-leading growth by 2023. That certainly would be our goal, and we'll work hard to see if we can do that. But recognizing the rate notice still needs to be reviewed once that comes out and a variety of other factors we need to consider that will ultimately determine whether we can do that in one year or whether it takes a little bit longer. And again, as we go through the year, we'll keep you apprised of our efforts. But certainly, we'll work hard to accelerate growth as quickly as possible. Bruce Broussard: On your question on 2024 and just sustainable, our objective in this $1 billion goal is to have a significant amount of the savings to have a sustainable year-by-year. This isn't just a one-year shot. We're looking to really focus on the improved productivity as an important part of that. Obviously, the clinical programs we can build off of are really two areas that we look at as having sustainable long-term impact. Stephen Baxter: Got it. Thank you. Operator: Our next question comes from A.J. Rice with Credit Suisse. A.J. Rice: Hi everybody. I think I might just ask you about the primary care centers. It's been a while since you talked about the economics of those. I know, Bruce, in your comments, you said that a maturity – a center could contribute $2 million to $4 million. Can you talk a little bit about how long it takes? Any updated thoughts on how long it takes to get to profitability? And then once you get to breakeven, how long it takes you to get to that mature margin? And on a center, what would a $2 million to $4 million represent in terms of an EBITDA margin? Maybe just flesh that out a little more. Susan Diamond: Sure. Hey, A.J. So I think as we disclosed before, we anticipate that it will take roughly three to five years to deliver and achieve certain mature operating performance within an individual de novo clinic and through our Welsh, Carson partnership seem to be on track to deliver that. I don't believe we've disclosed the targeted margin for our primary care centers. But I think what we've said previously, we don't believe that our operating performance would look meaningfully different than others that are operating in the public space, other high-quality performing providers. So we have every reason to believe that our cost will be similar to others and performance level. A.J. Rice: Okay. Thanks. Operator: Our next question comes from Josh Raskin with Nephron Research. Josh Raskin: Hi, thanks. Good morning. I want to get back to the $1 billion of additional value and specifically the impact on Humana. Is all of that getting reinvested to help longer-term growth? Or does some of that actually – some of those savings actually fall to the bottom line? And then you talked about areas where you have the greatest conviction on significant value potential. Should we assume that, that means primary care in the home? I apologize for the run-on question, but the last part would be, you've spoken about a 4.5% to 5% target MA margin for the individual MA as you put this together in terms of this value creation project. Is there a different thought on target margins? And is that – should we be thinking more about enterprise level margins as opposed to individual MA? Thanks. Susan Diamond: Sure. Josh, I can take that. So in terms of your first question about whether the $1 billion investment would fall to the bottom line or be reinvested, I think our thinking right now is that it's likely to be predominantly reinvested into high priority areas, including Medicare product, distribution and sales as well as primary care in the home. Having said that though – that allows us to return to industry-leading growth, just the trajectory of that membership growth and the resulting benefits to the full enterprise and the variety of capabilities and services that support those members, that can also allow for some of that margin expansion over time as well. In terms of the references we made to value creation, what that's recognizing is that over the last number of years, we've made meaningful investment in a variety of areas, things like consumer experience, technology platforms, digital and analytic capabilities as well as on the Healthcare Services side within primary care in the home as well as pharmacy. And what we're going to ask the enterprise to do is rather than embark on additional investment in some of those capabilities, rather focus all of our resources on maximizing value creation out of those investments we've already made. And we believe that will lead to opportunities accelerate value creation for the enterprise that can then be reinvested into all of those things I just mentioned. And one example of that is the introduction of our value-based home health model. While we envision a comprehensive model that Bruce described in his remarks, there are also opportunities to deploy discrete elements of that, whether that's stand-alone DME or utilization management in markets that maybe don't have the density to support the full model and that we can accelerate some of that to generate additional value for the enterprise. So those are things that we'll ask the team to focus on and just maximize return off the investments we've made to date rather than continue to invest incrementally more in the current time frame. On the margin question, so again, we remain committed to our long-term individual MA margin. We're pleased to announce that we'll see some progress, positive progress this year as we mentioned in my remarks. We expect expansion of about 50 basis points in 2022. We think that, again, over time, as we return to an industry-leading position and scale some of our other businesses, that does allow us to continue to expand margin long term discretely within the health plan. But also, as we've said before, we think it is important that everyone continue to focus on the broader enterprise margin potential off of our Healthcare Services capabilities which as we continue to expand the coverage of primary care and the home and increased penetration in pharmacy, those discrete contributions allow us to add significantly more value to the enterprise off of that base individual MA membership long term, such that we should be able to see even greater enterprise margin expansion over time. And as we continue to grow those businesses that will just become an increasingly important part of our value creation story and support our long-term sustainable EPS growth target. Josh Raskin: Perfect, thanks. Operator: Our next question comes from Scott Fidel with Stephens. Scott Fidel: Hi, thanks. Good morning. Two just quick numbers questions, if I could. The first is just if you could update us on for the MRA headwinds related to the pandemic where that ultimately came in for 2021? And then it sounds like are you assuming that you're going to fully normalize on the risk scores in 2022? Or maybe if you could just talk to specifically how much improvement you expect on that? And then just a second one, if I could, just as it relates to HH&H and as we think about what you had previously told us you're planning to do with hospice, I remember that when you had initially gave us the presentation on the acquisition, there was a 50-50 split that you talked about between home health EBITDA versus hospice EBITDA. Still just interested if that's where it's tracking heading into 2022 as well. Thanks. Susan Diamond: Great. Thanks, Scott. So for the first question related to premium. So yes, we gave disclosures throughout 2021 as we continue to track the submission of diagnosis codes, which obviously, was important into returning to more normalized premium levels for 2022. So we did continue to see diagnosis code submissions track as we expected. It’s important to consider that the January premium overall is also going to reflect the impact of members newly enrolled or disenrolled. It also now reflects the impact of the higher mortality that we experienced as a result of COVID. We’ve mentioned that we’ve been studying those impacts for some time, recognizing that the members who passed away as a result of COVID had higher than average risk scores as well as higher-than-average claims, recognizing that individuals with multiple chronic conditions were the most susceptible to severe COVID complications. So you will certainly see that reflected in our premium yield for the year, which all other things being equal, will be a little bit lower than we otherwise would have expected because of that higher mortality due to COVID. Again, the claims also run higher for that population and the results of both of those dynamics are reflected in our estimates. So we do expect our individual MA, P&P [ph] and yield to be in the high single-digit range for 2022. Scott Fidel: And then, Susan, just on the HH&H [ph] EBITDA? Susan Diamond: Yes. And then yes, on your question, yes, as you mentioned, when we disclosed the transaction, it was roughly 50-50 split. Hospice had slightly higher margins than the home health business, and those trends continue. So that’s a reasonable assumption. Scott Fidel: Okay. Thank you. Operator: Our next question comes from Kevin Caliendo with UBS. Kevin Caliendo: Hi, thanks for taking my question. So I wanted to just talk about the third – you talked about extra training for third-party sales. I just want to get to the bottom of this whole disclosure situation. Do you expect the market to sort of move in your direction? Or can you talk a little bit about how you’re going to change or what exactly the training might be to sort of fix the messaging in that channel? Bruce Broussard: Yes. Let me start, and I’ll look to Susan to add. We’ll continue to work with our external partners on being able to ensure that our customers and, frankly, the industry customers are properly – have the proper understanding of what they’re buying. At the end of the day, that’s what we’re trying to ensure. Our disclosures are not much different than others in the marketplace. And the time that people spend on our members throughout the industry, I think, are about the same. But we do believe, considering just the sales channel itself continuing to reemphasize to our – to the members, Medicare members in totality and understanding what they’re buying is very important. We are seeing increasing interest by CMS around this particular matter. And in fact, you saw it in some other regulations that came out in the early part of January that they continue to be oriented to this particular area here. Kevin Caliendo: Great. That’s very helpful. Thank you very much. Operator: Our next question comes from Ben Flox with Jefferies. Dave Windley: Is that Dave Windley that you were trying – is it me? Susan Diamond: Hey Ben. Operator: Your line is open. Dave Windley: Hi, so Dave Windley here. Sorry for the confusion on that. But my question would be how synergistic, Bruce, are your primary care in the home, your home health initiatives and your primary care clinic initiatives? And to what extent – I’ve noticed in some of your releases, some of the same states. But to what extent are you focusing your efforts in those two areas on the same local markets to drive kind of duplicative impact? Bruce Broussard: Yes. That’s great question, David. We actually refer to that internally as the flywheel and the ability for us to leverage the touch points with our members in the various different providers, and that would also include the pharmacy side. And we’re seeing great benefit from that all the way from obviously driving more volume, better clinical outcomes as a result of the coordination that’s there and then, in addition, driving higher satisfaction. So it’s really touching all parts. What I would say is what you see, we started – primary care is much more focused in the markets they’re in, while Kindred has a much broader platform that can be wrapped around the primary care side. And so in a few markets this year, we’re actually going to work on the integration of that together. That’s one of the reasons why you also see a consistent brand around CenterWell, where we’re beginning to start to integrate that. So I would say 2022 is a year of beginning that process. But I would say subsequent to 2022, you’ll see a lot more activity in the local market of much more integration around the care model. And in addition, we see significant benefit from that. Dave Windley: Is it too – if I could ask, is it too early to know numbers of like how much you bend to trend or cost savings from that flywheel? Do you have any... Bruce Broussard: Yes. We usually see between two to 4x better outcomes when I say that both financially and clinically as a result of the ability to bring this in. Dave Windley: Got it. Thanks. Operator: Our next question comes from Ricky Goldwasser with Morgan Stanley. Ricky Goldwasser: Yes. Hi, good morning. Staying on the primary care, 206 centers now expanding throughout the year. What percent of Humana’s MA members overlap with your primary care centers? And what type of retention right you see with these members versus the rest of the book? And then secondly, just to clarify, we talked about the $1 billion in value creation. But as you think about that value creation, how much should we assume is going to come from gross cost cutting initiatives? Susan Diamond: Sure. Hey, Ricky. So on the first question, I’d actually have to get back to you on the actual technical coverage in terms of our CenterWell clinics overlay to our Medicare membership. So we can get back to you with that number. I don’t believe we’ve ever disclosed anything specific to retention related to Humana members in those clinics. I will just point out that our clinics do provide care agnostically. So they have many other health plans that they serve. And so even if a Humana member should choose to enroll in another plan, they have an opportunity to preserve that member should they participate in those networks as well. As those centers continue to expand, that is an area that we are very focused on and really understanding sort of the experience that they’re providing to patients and working to ensure that those – that they have industry-leading retention within those clinics as well. And they do have very high NPS and patient satisfaction as a result of the high quality and comprehensive care that they provide. On the $1 billion of value creation, as I mentioned, the four categories that Bruce described, we think will contribute roughly equally to our overall goal. And so as he described, there are – there is a component that is related to value acceleration, which we think can impact a variety of top line growth opportunities or trend savings, et cetera. But the other categories do involve really taking costs out of the system by working more efficiently and effectively, eliminating sort of lower value work as a way to get more streamlined and focus our associates on the most important work in front of us. Ricky Goldwasser: So should we just interpret it as you said equally? So do we just take the $1 billion and saying $250 million in gross cost savings? Just trying to think about how should we flow that through the P&L? Susan Diamond: Yes. So as you think about the – Bruce laid out four categories. There’s the supply chain, which, again, that is savings as well. So I’d say, really, it’s more like three quarters of the total is probably going to come from various savings initiatives and then about 1/4 from other value acceleration opportunities. Ricky Goldwasser: Thank you. Operator: Our next question comes from Whit Mayo with SVB Leerink. Whit Mayo: Hey, thanks. I wanted to go back to Kevin’s question on third-party marketing for a second. Maybe just ask this a different way. I think there’s still some confusion. When CMS issued their October memo last year around compliance and your oversight of first tier and third marketing organizations, did you pull back materials in the market? Did the actual compliance requirements have an impact on you? I’m just trying to understand if you were out of the market and if you think you have a better view on how to course correct this. Joe Ventura: This is Joe Ventura. I’ll maybe handle that one. We’ve done a variety of channel checks with our partners to make sure that we were not an outlier when you look at the compliance requirements that came out of CMS. I think as you all know, it was a recognition of responsibility for third-party marketing on behalf of all of the payers. And so our channel checks confirm that we were not an outlier. Our partners are working in this way with other large payers as well. As Bruce mentioned, to make sure that our members when they call and they purchase a plan, they know what they are purchasing and that they’re aware and that it’s a good quality sale for them. Whit Mayo: Okay. Thanks a lot. Bruce Broussard: Just – I know there’s a lot of interest in this. So maybe just to provide little more clarity here. What we find in this channel is there is a high degree of confusion that is with the members and what they buy. That’s one of the reasons why you see the high churn. And it has created a number of downstream issues, both confused and – members. And then in addition, just some compliance issues. And that’s why you see the efforts by us and other organizations to ensure that we ensure that the individual is properly purchasing the plan that they choose. Operator: Our next question comes from Nathan Rich with Goldman Sachs. Nathan Rich: Hi, good morning. Thanks for the question. Maybe just trying to pull together the commentary on the value creation program. I guess do you envision it allowing you to return to market growth in individual MA kind of while maintaining the target margins that you have for that business by leveraging those savings? And I guess the follow-on to that would be the $1 billion would give you over 100 basis points of margin to kind of reinvest in that business. Can you maybe talk about where those investments would be focused? And then a quick follow-up, if I could. With the 2023 rate notice coming imminently, do you have any expectations that you can share? And how significant of a swing factor do you feel that is for next year given that you are making kind of significant organic investments in the MA product for 2023? Thank you. Susan Diamond: Sure. So as with respect to value creation goal that we’ve set, that is with the intent of allowing us to invest in the Medicare business as well as health care services and return to industry-leading growth not at the expense of margin. So the intent is that, that will be reinvested such that we don’t deteriorate margins but rather maintain and then over time, continue to expand MA margins toward our long-term goal. And we believe that target savings and value creation opportunity will allow us to do that. In terms of where we’ll focus those investments, I think within the Medicare business, as I said, there’s a lot of additional work to be done. But certainly, we will make product investments. As we analyze our results in the D-SNP space, while we continue to grow nicely, we’re not growing as much as we had last year. And there are certainly opportunities to enhance that product offering that we think will allow us to get back to a leading position in D-SNP. And we’ll look at other opportunities by product as well as geographically to do that and be really thoughtful in the way we optimize any investments that we’re going to make. We also are looking at distribution as we’ve been discussing and what opportunities there may be there in terms of further investment in incentives to encourage retention and other things to optimize those channels as well as marketing. We’ll continue to look for ways to increase our share of voice, as Bruce described, but also ensure we’re getting the highest return on that investment. And there’s likely some opportunities to do more there. In terms of the rate notice, we’re as anxious as everyone to see that. That should come out soon. Based on the strong bipartisan support of the program and the strong enrollment and continued enrollment by Medicare beneficiaries as they choose MA, given the value that it provides to consumers, we would expect that, that would be more moderate. Our expectation is that it may not be quite as favorable as we’ve seen in recent years, but our expectation is not that it’s negative either. But certainly, this is – we recognize it’s the first rate notice. We’ll see how the Biden administration and look forward to seeing that and hope that it continues to support the program and all the beneficiaries that it serves. Operator: Our next question comes from Gary Taylor with Cowen. Gary Taylor: Hi, good morning. I just want to ask a little bit about value-based care center well. Conviva noted your announcement about the center expansion expectations for continued tuck-ins. It does look like at least there’s a modest increase investment that you’re making there for all the reasons that you’ve highlighted historically. What I wanted to ask about was what is your appetite to do something beyond just tuck-in? I think you said last year, 15 centers acquired at nine different transactions. We’ve seen in the public market an enormous valuation correction, which presumably ultimately flows through the private market as well. And we know there’s a number of private companies with much larger center counts that have pretty significant overlap with your MA penetration. So just wondering if there’s an appetite on the tuck-in side to do something larger in an environment where valuations seem more reasonable? Bruce Broussard: Gary, just a few things. On the tuck-in ones, we see those as just great opportunities because we can buy them at a fairly low multiple as a result of the synergies that we get in the marketplace there. So they are very – they’re great deals for us overall. So we want to continue to do those. And as you have seen over the years, we have been very sensitive to how we utilize our capital and sensitive to valuations because we do believe over time, the ability to drive value we see greater in the organic side and just densification in the markets that we’re in. That being said, I mean, we would – we obviously would look at those companies there. We still think the valuations, albeit they’ve come down quite a bit, we continue to look at them and say, are they at a level that would make sense today. I just question a little bit of that. But that being said, we would continue to look at them. But I just – we just feel what we’re doing in the organic side, combined with tuck-ins, is really driving – will drive significant amount of value for the shareholders over a longer period of time and can continue to advance our strategic positioning. Gary Taylor: Thank you. Operator: Our next question comes from Lisa Gill with JPMorgan. Lisa Gill: Thanks very much. Good morning. I want to go back, Susan, to your comments on the PBM side of the business. You talked about Rx being up 8%. What’s your expectations going into 2022 around script growth? And then secondly, what are some of the opportunities you see when we think about specialty and biosimilars for your PBM for 2022? Susan Diamond: Hi, Lisa. So with respect to pharmacy business, as we look at our 2022 expectation, certainly with the lower-than-expected MA growth, that will have some impact to the PBM year-over-year. But we also had outperformance in the stand-alone Part D space, which to some degree offset, although our PDP members don’t use mail quite the same rate as our individual MA. So a little bit of a negative relative to what we would have expected. But otherwise, we’ll continue to work to drive mail order penetration and then certainly utilization trends are expected to continue to increase as you would expect and consistent with historical trends. On the specialty side, the team does continue to look at opportunities in the specialty space and evaluate ways to both provide services agnostically but also continue to drive their ability to participate in distribution of various specialty-related drugs. So they continue to look for ways to expand that business. The other thing that they do is they work very closely with our health plans. What we like about our own specialty business is they are really working towards the health plan goals, which is to reduce waste and ensure that we’re reducing the cost of those high-cost specialty drugs where and when possible. And we think that’s a real advantage to having our own specialty pharmacy, which is very focused and oriented to the health plan goals. Lisa Gill: And when I was asking about biosimilars, I think I’m thinking specifically to something like Humira that will lose patent protection in 2023. Is that – it’s a delivered product to the home. Is this something that will be beneficial to Humana? Bruce Broussard: It could be. I mean, again, as what we’ve seen as they enter generic status, it is a great opportunity for the PBM to drive value. What ultimately happens is we do drive those rebates back to our customer and lower the Part D costs. So as you think about just the opportunity here, it’s always around how do you create a competitive product in the marketplace. But it is an opportunity for us. Lisa Gill: Great. Thank you. Operator: Our next question comes from George Hill with Deutsche Bank. George Hill: Yes, good morning guys. And thanks for taking the question. Bruce and Susan, I want to give you a chance to kind of clarify something on the $1 billion in value creation given the questions that I’ve already gotten this morning, which I guess is, can you talk about how much of the $1 billion we should think about as cost savings or initiatives that flow to the bottom line versus initiatives that are taken to accelerate revenue growth or growth in the services segment? And then my follow-up to that would be, can you talk about the incremental spend that will be required to achieve the $1 billion kind of above and beyond what was previously planned? Just I’m getting this – some analysts and investors are already reading that $1 billion through to $1 billion and operating line savings, which I don’t think seems to be the case. Bruce Broussard: Yes. Let me try to clarify that. I think our intention is really to reinvest it in the customer value to be – I think ultimately, it will show back up in the bottom line through higher growth. And as you all know, right, we all are focused on how do we continue to grow our customer line. And we feel today we have the opportunity to find – to invest in both the channel, the marketing and, in addition, the product itself to drive that value. So from an investor’s point of view, I would look at more of the top line benefit from comes from that than the bottom line, just the margin itself. So it’s a much harder math to do, but it is something that’s very oriented to top line growth. In regards to just the structure of the cost savings of it, as we’ve talked about on a few occasions, it is a combination of cost savings, taking costs out of the system, being both efficient and eliminating things that lower value and, at the same time, improving revenue but mostly clinical cost as a result of it. So there will be – when you think about the income statement line item primarily, it will show up in the operating expenses with a little bit showing up in the area of the administrative – the clinical piece. George Hill: That’s helpful. Maybe anything on the incremental spend? Bruce Broussard: Incremental, that’s a net number. As we look at that $1 billion, it is a net number for us. Susan Diamond: Yes. The only thing, George, as we acknowledged in the release is there may be onetime charges related to some things that we do like real estate, getting out of certain real estate. And so those we would intend to non-GAAP related to any onetime charges in order to realize some of those run rate savings. George Hill: That's helpful. Thank you guys. Operator: Our next question comes from Rob Cottrell with Cleveland Research. Rob Cottrell: Just quickly, curious if you can comment on your expectation for additional individual membership, individual MA lives throughout the course of 2022, given you’re already 80% of the way towards your full year guidance? And then within that, I think, Susan, you commented that you expected to convert 80,000 PDP members to MA in 2022. How many of those have already been converted as of January? Thank you. Susan Diamond: Sure. Thanks, Rob. On individual MA growth, we continue to monitor our trends both sales in terms into the open enrollment period that runs through March. And I would say that generally speaking, those trends continue to track consistent with our full year guide – adjusted full year guide. So we continue to feel good about that. On the PDP, I would say the seasonality of the PDP looks similar to overall sort of growth seasonality where you do see a disproportionate amount in January. But we do have an opportunity in PDP conversions in particular with low-income members who do have the opportunity to move throughout the year. So it’s not quite as weighted to January as overall growth but still more than 50% certainly is realized in the month of January. Rob Cottrell: Got it. Thank you. Operator: Our next question comes from Steven Valiquette with Barclays. Steven Valiquette: Great. Thanks. Good morning, everybody. So I think you touched on this maybe a little bit, but just wanted to come back on the topic of commissions into the individual MA market. I guess if we go back two years ago, my sense was that Humana and other major carriers were more than happy to pay full commissions in all distribution channels and would actually be willing to pay more if not for the regulated caps on the commissions. But obviously, in some of your commentary from early January, sounded as if Humana was perhaps not paying maximum commissions in certain channels. So really a couple of questions around that. I guess, with hindsight, do you think you were alone among major carriers on not paying maximum commissions, particularly in the telephonic channel that is kind of at the epicenter of all the recent discussion? And also with better hindsight with a little more passage of time, how big of a role did this particular variable ultimately play in the somewhat disappointing AEP? And then just remind us on your commission strategy around that going forward from here, just to kind of round out this part of the conversation. Thanks. Bruce Broussard: Yes. Let me start here. I think, first, just to remind the investors are actually we will be close on our sales this year. So it was more of a retention issue as opposed to sales issues. So I just want to put that in some context as we think about commissions. We, today, pay the market value, the maximum commission on the sale itself according to the regulations that are out there. There are a number of other dollars that are invested in the external channel, the telephonic channel. That includes marketing, includes some additional incentives that are more oriented to the company as opposed to the salesperson itself. How the company distributes those and does that, we really don’t get into – involved in that. So when we talk about commissions in total, we talk about there’s different levels that are invested with the partner. We have been more reserved in where we spend those dollars just because we also find there are more effective ways to do that in other channels over the past number of years. And when you look at our sales success even this year, you see that the commission side is an area there. But it does motivate churn in the marketplace. That’s really what we are communicating to. And that does hurt us this year. And I would say so as others sort of ramped up the payments, it did hurt us on the churn side as opposed to the sales side. Going forward, I don’t think we’re going to provide that kind of detail today. Obviously, it’s early, but it’s also a competitive market out there. And we want to make sure when we do something that it is done more proprietary in the way we approach it. Steven Valiquette: Okay, got it. Okay. Thanks. Operator: That concludes today’s question-and-answer session. I’d like to turn the call back to Bruce Broussard for closing remarks. Bruce Broussard: Well, thank you, and thank you for your continued interest in the company and investing the time today. I hope our comments were put that Humana is in a great position. I think we will continue to lead the industry both in the ability to drive membership growth, and at the same time, improve the health outcomes for the people we serve. And obviously, I want to thank our 90,000 associates and teammates that make this happen every day because without their work, we would not be as successful as we are. So thank you. And again, thank you for your support. Operator: This concludes today’s conference call. Thank you for participating. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Humana Incorporated Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Lisa Stoner, Vice President of Investor Relations, please go ahead. Lisa Stoner: Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our third quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public, and media to. Listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K and other filings with the Securities and Exchange Commission. In our Third Quarter 2021 earnings press release, as they relate to forward-looking statements and to note in particular that forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in line of these additional uncertainties and risks along with other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our Investor Relations website. All participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliation of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Lisa. And good morning and thank you for joining us. Today we reported adjusted earnings per share of $4.83 for the third quarter of 2021, slightly above consensus estimates. Our year-to-date results reflect the strength of our core operations. As we continue to see strong underlying fundamentals across all lines of business, and have remained focused on ensuring our members received the right care at the right time despite the continued disruption caused by the pandemic. While our underlying fundamentals are strong, 2021 financial results have been impacted by the ongoing pandemic, which has resulted in an adjustment to our full-year adjusted EPS guidance. As detailed in our earnings press release, we have updated our guidance to approximately $20.50 from our previous guidance of 2125 to 2175. As Susan will share in more detail, this reduction of approximately $1 and adjusted EPS as a direct result of COVID and corresponds to our current expectation that the total Medicare Advantage utilization, inclusive of COVID costs or run 1% below baseline in the fourth quarter, which is 150 basis points less than our previous assumption of 2.5% below baseline. This update reflects a more conservative posture going into the final months of the year and notably, 2,150 remains the baseline of which to grow for 2022. As a reminder, prior to this guidance update, we had not recognized a COVID headwind in our 21 [Indiscernible] guidance as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target as the [Indiscernible] point throughout the year, at 16% growth. This update results in an expected adjusted EPS growth at the lower end of our long-term range and importantly, is not reflective of any concerns with our core operations. I will now turn to our operational and strategic update. Our Medicare Advantage, individual above market growth in 2021 of 11% can be in part attributed to our industry-leading quality and consumer satisfaction scores. We are pleased to be recognized by CMS for having 97% of our members in 4-star or higher rated contracts for 2022. We also increased the number of contracts that received a 5-star rating from 1 contract in 2021 to 4 contracts in 2022, the most in our history. [Indiscernible] make adjustments to -- Operator: Excuse me, participants. This is the Operator; the conference will begin momentarily. Please stay on hold until the conference begins. Bruce Broussard: Well, welcome back. When we started, sorry for the technical glitch there. Let me maybe just go back to our guidance update here and re-ensure that the investors understand the guidance and in addition, how it reflects in the -- as we looked at the future year. First, the guidance reflects a much more conservative posture going into the final months of the year and notably, 2,150 remains the baseline of which to grow for 2022. As a reminder prior to the guidance update, we had not recognized the COVID headwind in our 2021 guidance as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target at the midpoint throughout the year at 16% growth. This update results an expected adjusted EPS growth at the lower end of our long-term range and as importantly, is -- does not reflect any concern with our core operations. I will now turn to our operational and strategic update. Our Medicare advantage individual above-market growth in 2021 of 11% can be in part attributed to our industry-leading quality and consumer satisfaction stores scores. We are pleased to be recognized by CMS for having 97% of our members in four-star or higher contract for 2022, we also increased the number of contracts that received a five-star rating from 1 contract in 2021 to 4 contracts in 2022, the most in our history. And while CMS did make adjustments to the 2022-star ratings due to the possible impact of the COVID-19 pandemic, These adjustments had minimal impact on our ratings. This further demonstrates our enterprise-wide focus on quality, clinical outcomes, and best-in-class customer service, which has been recognized from notable organizations such as Forester, JD Power, and USAA. Importantly, the stars bonus allows us to maintain a strong value proposition for our members and provided value plus supplemental benefits that address social determinants of health and other barriers not addressed by fee-for-service Medicare. Looking ahead to 2022, we are pleased to be able to provide stable or enhanced benefits for the majority of our Medicare Advantage members, offering plans that support members whole health needs, while continuing to deliver the human care, our members have come to expect from us. Our strong clinical and quality programs drive improved clinical outcomes and cost savings that allow our Medicare Advantage plans to continue to expand member benefits on those covered by fee-for-service Medicare. Our plans include highly valuable extra benefits, including dental, vision, hearing, an over-the-counter medication allowance, transportation support, fitness program memberships, and home delivered meals founding following an in-patient hospital stay. Over the last few years, we've made great progress in addressing social determinants of health and health equity by expanding our Medicare Advantage benefits. Examples of those impactful areas include, Respite Care, distributing 1.5 million meals during COVID, sending fans to seniors with COPD during a heat wave, and providing support for financial need, impacting a senior’s health and well-being. Giving the increasing demand for health equity across America, we have aggressively expanded our efforts to address it. We continue to advance our consumer segmentation efforts, developing plans that are tailored to the unique needs of specific member populations. This has allowed us to provide benefits that enhance and complement an individual's existing coverage through programs like Medicaid or entities such as Veterans Affairs. This approach leads to disproportionate growth. As you've seen in our D-SNP plans designed for dual eligible members, where we have grown our membership approximately 40% in both 2022 and 2021. We've expanded our D-SNP offerings for 2022 to cover nearly 65% of the dual eligible population nationally. To reduce food and security, 97% of our members enrolled in our decent plans, and will have a healthy foods cart, which provides a monthly allowance to purchase approved food and beverages at various national chains. New for 2022, many of our D-SNP members will have reduced Part D drug co-pays as a result of the D-SNP prescription drug savings benefit, which will help address the financial barriers some members face when accessing needed prescriptions, leading to better medication adherence, an important driver of members health -- overall health outcomes. As previously shared, we took a more conservative approach to our 2022 bids, recognizing the continued uncertainty associated with COVID-19 and potential impacts to premium and claims assumption, allowing us to prioritize long-term benefits stability for our members. While it is early in the selling season, we believe we struck the right balance and are competitively positioned for our continued growth in Medicare Advantage. Our brand promise to deliver human care resonates with seniors given our comprehensive set of offerings and focus on providing a patient - centric experience based on their specific needs. Susan will provide more detailed 2022 commentary in our remarks, including high-level EPS and membership guidance. I now would like to highlight the continued progress of our strategy through the build-out of our healthcare service platform, starting with primary care business and then moving to our growing home solutions offerings. We have the largest senior-focused, value-based primary care organization in the country, which by year-end will include approximately 200 clinics serving 300 thousand patients across 24 markets in 9 states. We are accelerating organic and inorganic growth nationally and plan to open a total of 30 DeNova senior-focused centers in 2022, up from 24 in 2021. This will include launching in 2 new major metropolitan areas, Dallas and Phoenix next year. This faster pace expansion comes as we continue to gain conviction in our DeNova's center model with panel growth in centers launched in '20 and 2021, exceeding plan. And clinical performance in our more mature markets continuing to improve. And our more mature centers, hospitalizations, and ER visits are down 12% year-to-date versus 2019 pre - COVID level. With stars performance tracking to 4.5 stars. An NPS score of 90. We will also continue to expand through inorganic growth, completing seven acquisitions through the third quarter of this year, bringing 21 newly wholly-owned centers to our portfolio. We plan to continue this pace of acquisitions focused on the markets where we have established presence to provide more access and high-quality care to our patients. Turning to the home, we completed the acquisition of Kindred at Home in the third quarter, and now the largest home health and hospice organization in the nation. As previously shared, we will be migrating Kindred at Home to Humana's payer agnostic health care service brand CenterWell. Our efforts to transform home-health to a value-based model come at a pivotal time for the industry, seniors increasingly choose Medicare Advantage, there is a meaningful opportunity for home health organizations to engage differently with patients in Medicare Advantage payers, to more holistically address patient needs and improve health outcomes, reduce the total cost of care for health plans, and share appropriately in this value creation. We've made substantial progress towards our goal of scaling on maturing a risk-bearing, value-based model that manages the provision of home-health, durable medical equipment and home infusion services. With the acquisition of One Home earlier in 2021, a delegated post-acute management services organization for the home. We have the capabilities to be a value-based convener, providing risk-based contracting and referral management, and continue to develop technology enabling us to coordinate with other adjacent services. These services include gap-in-care, closure, primary or emerging care in the home, as well as coordination of meals, transportation, and other services to positively support social determinants of health. We currently care for approximately 270,000 Humana members on your value-based home care models in South Florida and South East Texas, where we have seen improved outcomes, including emergency room usage, being a 100 basis points better than Humana's national average. We now are focused on expanding to select markets in North Carolina and Virginia, which we've chosen based on multiple criteria, including market density, opportunity to significantly reduce homecare expense, and a robust Kindred at Home footprint. We expect to begin the roll out in the second quarter of 2022 with the goal of covering nearly 50% of Humana Medicare Advantage members, under this value-based home health model within the next 5 years. We are excited about the continued progress of our strategy in the home. But consistent with our home-health peers, we recognize that the national nursing labor shortage poses a significant risk to the industry. And we are taking proactive steps to address it as part of our well-developed integration process with Kindred at Home. In some markets, the nursing shortages resulting in adequate capacity to meet demand negatively impacting our ability to grow the top line. We believe that Humana's Center Well brands supported by our patient - centric culture will bolster recruiting and retention efforts for nurses. We've seen increased nurse satisfaction and engagement in pilot markets, where we have deployed value-based concepts with voluntary and nursing turnover, improving nearly 10% among home health nurses in 2021. In addition to [Indiscernible] sufficient capacity to meet our growth goals, we are implementing broader operational improvements and benefit enhancements, while also making targeted investments in capacity constrained areas to enhance nurse recruiting and retention. With respect to hospice, our intent remains to ultimately divest a majority interest in this portion of the asset. As our experience has demonstrated, we can deliver desired experiences and outcomes for patients transitioning from restorative care to hospice through partnership models. Since we closed the transaction in August, we have continued to explore alternatives for the long-term ownership structure for the business, and have initiated steps to reorganize the hospice business for standalone operations, also ensuring business continuity and monitoring underlying trends. We do not have a further update on the specific transaction structure, or expected transaction timing, but we will provide additional updates as appropriate moving forward. Given the continued expansion of interest in our healthcare service platform, we are committed to providing additional disclosure to give further transparency into the performance of these businesses, beginning with our first quarter 2022 reporting. Before closing, I want to touch on the current regulatory and legislative landscape. As you know, last week the White House and congressional leaders released their plan, known as Build Back Better, which includes several proposed changes to the Medicare program, including establishing a hearing benefits starting in calendar year 2024, which will be included in the Medicare Advantage benchmark. Given that today more than 40% of Medicare beneficiaries, over 27 million seniors, and those with disabilities are enrolled in Medicare Advantage, we were encouraged to see that the package did not include any payment reductions to the program. As this legislation continues to advance and likely be modified, and as we look ahead to the annual CMS call letter and rate notice period, we will continue to work with policymakers and the Biden administration to further improve Medicare Advantage. Building on the programs, innovation, and significant progress in areas like value-based care, social determinants of health, affordability, and financial protection for beneficiaries, as well as reducing the total cost of care. These attributes, along with the deep consumer popularity of Medicare Advantage, are what have enabled it to have a strong bipartisan support with hundreds of members of Congress on record supporting the program. As Medicare Advantage serving as a leading example of a successful private public partnership, I am optimistic we can continue to lead on important healthcare issues facing both individuals and society, including addressing health and equities and proving held outcomes, and expanding value-based care. With that, I will turn the call over to Susan. Susan Diamond : Thank you, Bruce. And good morning, everyone. Today, we reported adjusted EPS of $4.83 for the third quarter and updated full-year 2021 adjusted EPS guidance to approximately $20.50 to reflect a net unmitigated COVID headwind resulting from our current view of utilization levels for the balance of the year. Before beginning, I would point you to Page 4 of our earnings press release for details of our previous assumptions for Medicare Advantage utilization in the second half of the year, actual third quarter utilization results, as well as current projections for the fourth quarter. I will now walk you through this details, starting with a reminder of our previous commentary. And to our second quarter call, full-year guidance has seen non-COVID Medicare Advantage utilization was run 2.5% below baseline in the second half of the year, with a further assumption of minimal COVID testing and treatment costs for the same period. In September 2021 as a result of the surgeon COVID cases due to the Delta variant, we updated our commentary on full-year guidance to indicate we expected non COVID Medicare Advantage utilization to be 5.5% below baseline in the back half of the year, while being partially [Indiscernible] by 3% of COVID costs. Therefore, again assuming total utilization would be 2.5% below baseline in the back half of 2021. What we've seen develop for the third quarter is that total utilization is running 1% below baseline versus the previously anticipated 2.5%. COVID costs have been higher than initially anticipated as the Delta variant resulted in hospitalization levels on par with what we experienced in January of 2021, and we're overwhelmingly driven by the 20% of our Medicare Advantage members believed to be unvaccinated. These higher-than-expected COVID costs were fully offset by the press non - COVID utilization in the quarter. As COVID hospitalizations increased or decreased, we continue to see an approximate one-to-one offset and non-covalent hospitalization levels. We also continue to see significantly reduced non-inpatient utilization when surges occur, offsetting the higher average cost of a COVID admission. However, for the third quarter, in total, we saw 1% incremental reduction and utilization beyond the level needed to offset COVID costs versus a 2.5% contemplated in our previous guide. As a result, we have adjusted our full-year guide to now reflect the fourth quarter running similarly with total Medicare Advantage utilization running 1% below baseline, inclusive of estimated COVID costs, consistent with what we experienced in the third quarter. We realized higher than expected positive current period claims development and Medicare advantage in the third quarter, as well as other operating outperformance, largely mitigating the lower than anticipated depressed Medicare Advantage utilization, allowing us to report results that were slightly favorable to the street estimates. Our revised guidance does not assume that the higher levels of favorable current period development seen in the third quarter will continue. Taken together, our updated full-year 2021 adjusted EPS guidance takes a more conservative posture going into the final months of 2021. And it's important to note, as we consistently shared throughout the year the midpoint of our original guidance range of $21.50 remains the correct baseline for 2022, given our approach to pricing. I will now briefly touch on operating results across our segments before sharing early thoughts on 2022 performance. Our Medicare Advantage growth remains on track and consistent with previous expectations. We have refined our full year individual Medicare Advantage membership guidance to up approximately 450,000 members consistent with the midpoint of our previous guidance of up 425,000 to 475,000 members. This outlook represents above-market growth with an increase of 11.4% year-over-year. Our Medicaid results continued to exceed initial expectations due to higher than anticipated membership increases, largely attributable to the extension of the public health emergency. We now expect to add 125,000 to 150,000 Medicaid members in 2021 up from our previous expectation above 100,000 to 125,000 members. Utilization trends continue to be favorable to initial expectations and the Medicaid team is working diligently toward a successful implementation in Ohio with go-live anticipated in July. In our Group and Specialty segment, fully insured medical results were impacted by higher-than-expected COVID costs in the quarter, while our Specialty business results continued to exceed expectations as utilization, particularly for dental services remain lower than previously anticipated. Recall that our guidance as of the second quarter did not contemplate significant COVID costs in the back half of the year. And the commercial business is not seeing the same level of utilization offset experienced in Medicare Advantage. From a membership perspective, we have increased our expected group medical membership losses from 100,000 to 125,000, reflecting the expectation of additional losses in the fourth quarter and the result of rating actions taken to account for the expected impact of COVID in 2022. Finally, within our Healthcare Services Operations, the pharmacy and provider businesses continue to perform slightly better than expected, with pharmacy benefiting from increased mail order penetration as a result of customer experience improvements and marketing campaigns. And the provider business seeing continued operating improvements in our more mature centers, which are now aligned under the same leadership in our DeNova centers. As Bruce mentioned in his remarks, we are actively integrating the Kindred at Home operations and results post integration have largely been in line with expectations. Similar to home health and hospice peers, the business is being impacted by COVID and labor shortages. For the third quarter, home health admissions grew low single-digits year-over-year, while hospice experienced a low single-digit decline year-over-year. We will continue to closely monitor trends as we make targeted investments to sustainably improve the recruitment and retention of nurses. Now let me take a few moments to share an early outlook for 2022, starting with membership. As you're aware, the overall PDT market continues to decline as more and more beneficiaries, including dual eligible to Medicare Advantage. In addition, as we have discussed previously, PDT plans to become a commodity, with the low-price leader capturing disproportionate growth. Consistent with 2021, the Walmart value plan will offer competitive benefits that will not be the low premium leader in 2022.As a result, we expect a net decline in PDT memberships of a few, 100,000 members in 2022, we continue to focus on creating enterprise value for our PDT plans by driving increased mail-order penetration and conversions to Medicare Advantage. With respect to Group Medicare Advantage, we expect membership to be generally flat for 2022 as we do not anticipate any large accounts will be gained or lost as we continue to maintain pricing discipline in a highly competitive market. Moving to individual Medicare Advantage as previously shared, we took a more conservative approach to our 2022 bids, reflecting the continued uncertainty associated with the pandemic. We expect to grow our individual Medicare Advantage membership in a range of 325,000 to 375,000 members in 2022 or approximately 8% year-over-year. Reflective of our prudent approach, we took the pricing for 2022 and a competitive nature of the market. It is early in the AEP selling season and the outlook we're providing today could change depending on how sales and voluntary dis-enrollment ultimately come in. And consistent with prior years, we have very little member dis-enrollment data at this point in the AEP cycle. I will now turn to our expected 2022 financial performance. As previously mentioned, I want to reiterate that the $21.50 midpoint of our original 2021 guidance continues to be the appropriate jumping off-point for 2022 adjusted EPS growth, given our approach to pricing. In addition, we feel comfortable that the risk adjustment assumptions in our 2022 pricing are appropriate, as providers have been actively engaging with our members to ensure their conditions are fully documented and that care plans are established to address [Indiscernible] and care. Provider interactions and documentation of clinical diagnoses that we anticipate will impact 2022 revenue are approximately 92% complete to-date in line with both our expectations for 2021, as well as the estimated completion rate for the same time period in 2019. We also assumed it's medical costs would return to baseline levels reflective of pre - COVID historical trending. From an earnings perspective, we believe the conservative approach we took in 2022 pricing strip the appropriate balance between membership and earnings growth. Given the ongoing uncertainty surrounding the COVID-19 pandemic, we expect to enter the year with an appropriately conservative view of our initial 2022 financial outlook. Accordingly, we anticipate that our initial EPS guidance will target the low end of our long-term growth range of 11% to 15%. We expect that COVID will be neutral to the Medicare business in 2022, as we do not anticipate a risk-adjustment headwinds and expect COVID utilization to be offset by reduction in non - COVID utilization. However, our initial guide will allow for an explicit COVID -related headwind that we can tolerate should it emerge similar to the approach some of our peers took in 2021. We believe entering the year with this more conservative approach is prudent in the current environment and sets the Company up for success in 2022. We look forward to providing more specific guidance on our first -- fourth quarter earnings call in early February. With that, we will open the lines up for your questions. In fairness to those waiting in the queue, we ask that you limit yourselves to one question. Operator, please introduce the first caller. Operator: Thank you. And again, participants, [Operator Instructions]. Your first question comes from the line of Kevin Fischbeck from Bank of America. Your line is now open. Kevin Fischbeck : Alright, great. Thank you. I appreciate all the color on the 2022 guidance, I think a lot of people are just wondering. The Company had a hard time forecasting where costs are going to be on the upcoming quarter for the last few quarters, obviously, to some degree understandable during the pandemic. But just wanted to see how you felt about your visibility into costs and how good of a handle you feel like that cost trend as you develop your pricing for next year has come in. How do you think about that visibility into the costs as you thought about next year. Susan Diamond : Sure, Kevin. I'm happy to take that one. To your point, estimating the impact of COVID has proven to be more challenging, particularly given the environment that we were in 2020 is quite different than what we're experiencing obviously in 2021. In 2020, no one was vaccinated, various taste of lockdowns throughout the year, and as we acknowledged in our Q2 call, anticipating how behavior might emerge in an environment where largely people were back to normal and a large percentage of our Medicare population are vaccinated, it is recognized that it was difficult to anticipate whether we see the same level of offset through the surge. The good news is, as we saw the surge emerge in the third quarter despite it being just as high as what we experienced the last time, we did continue to see a full offset. The hospitalization offsets have been pretty consistent throughout 2020 and 2021, is on the non-inpatient side where we tend to see more variation. And as we explained in the second quarter, that claims service category is one where we don't have the same level of near-term visibility. Having said that, we've studied all of historical patterns based on what we saw in the third quarter and our estimates of the continued decline in the COVID curve in the fourth quarter, we feel very comfortable with the assumptions underlying our revised guide and feel like we have sufficient visibility to feel confident we can deliver against that. Your question about 2022 is a good one as we've explained in all of our calls, given this late surge in 2021, getting visibility to where baseline trend is actually running, obviously, will be more challenging. However, given how we approach the pricing for 2022, meaning that we've started with pre - COVID historical levels and assumed historical trending factors, not anticipating any ongoing depressed utilization into 2022, we feel confident that that's an appropriate baseline expectation. So, we'll continue to watch it. And certainly. if we see something different emerge, if any of the depression continues, that would be positive for us, but we are not contemplating it. Which is what gives us confidence about our approach to 2022. Kevin Fischbeck : Okay. Thanks. Operator: Your next question comes from the line of Matt Borsch from BMO Capital Markets. Your line is now open. Matthew Borsch : Yeah, so I was just hoping that you could maybe comment on the competition in Medicare Advantage. I know you said it's competitive but, just relatively speaking, we've seen geographic expansions by really almost all of the major public companies over the last few years and a number of new entrants and yet it doesn't seem like it's had a noticeable impact in profit margins. I guess I'm just wondering how you see the dynamic, is the greater availability of products actually, in essence, expanding the Medicare advantage market more than it's necessarily leading to competition that would push down margins? Thank you. Bruce Broussard : Yeah Matt, think I'll take that. The -- what we see as a few things, I mean, first we do see more and more intensity in the local markets. And similar to -- in the past, we see some players being more aggressive to try to gain market share while others are a little more aligned with the pricing that -- and a little more stability in the market quest. So, we do see a bell curve in just how people are approaching it as their strategic plan is pushing them to make those decisions. We are seeing more awareness in the marketplace as a result of the amount of education that's going on through marketing and through the sales efforts that are going on. And I think that is a positive for the industry because it really brings a live all the benefits that members receive. It creates more competitive major for that for those members, but it does create, I think more growth industry-wide. For us, as an organization, we were one of the early adopters of the telemarket market in the tail of sales ever area and we have benefited from that, I think in multiple different ways, benefited from it in the way of both our market growth, and in addition, our ability to reach a population that we haven't been able to reach in the past, so I do think it's a benefit for us. But to answer your question, more competitive in the local market, more awareness as in the industry, that is a good thing in the industry, and I could I feel that we have been a beneficiary of that. Susan Diamond : One thing I would add to that is well, and our focus on increase mentioned any comments or consumer segmentation efforts by designing products that more specifically addressing consumer needs, you've seen in our duals offerings as well as our veteran offerings that we can direct it proportionate growth. If you think that's a differentiator, something you'll see us continue to focus on. Matthew Borsch : Thank you. Operator: Your next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open. Stephen Baxter : Yeah. Hi, thanks for the question. Was hoping to come back to the commentary on assuming baseline utilization in 2022. Just to clarify, it seems pretty clear that there will be some level of ongoing COVID costs into 2022, so does that mean you're continuing to assume non-COVID costs will be below baseline in 2022? And then just any color or context you can provide on the magnitude of this EPS hedge that you're talking about in relation to baseline would be appreciated. Thanks. Susan Diamond : Sure. Great question. Just to be clear, what we -- right now, all of our experience we would expect that to the degree we experienced additional COVID costs in 2022 that we would see an offsetting depression and non-COVID utilization, but the net of that would be neutral. We're not expecting net favorability like we've seen this year. That 1% we're projecting for the fourth quarter, consistent with these on the other quarter. So, what we would say is we are expecting the -- if the off-COVID costs would be offset and that we would still be at baseline. But as I mentioned in my comments, what we intend to do with our initial guide though, is despite the belief that that's a reasonable assumption, we will allow for unexplicit that net COVID headwind shouldn't emerge such that it is then we would run actually above baseline levels, should that emerge, then our guide will contemplate and allow for some of that, if it should emerge. And while not giving a specific amount obviously today, when we do give a specific guidance on our fourth quarter call, we will be explicit about how much of a COVID headwind we can tolerate within the guide. So, we will be explicit about that at that time. Operator: Your next question comes from the line of Ricky Goldwasser of Morgan Stanley. Your line is now open. Ricky Goldwasser : Yeah, Hi. Good morning. So, one follow-up and then longer-term question. Just to understand, Susan, if we think about 80% of your MA members are vaccinated based on your estimate, I just feel like it’s trying to reconcile what you're saying versus what some of your peers are saying. What do you think happened that drove COVID hospitalization to the levels experienced back in January, was that sort of a specific geography or anything else that you can explain it? And then the longer-term question is really around sort of virtual. Many of your peer’s launch ed a virtual first offering on the commercial side for 2022. Do you see room for some virtual first type offering in the Medicare population, especially when you consider the Kindred capabilities? Susan Diamond : Okay, great. So, to take your question, so with respect to the high COVID levels and you're right and honestly, this was something that was a bit surprising to us as well, and we did see levels on par with what we experienced in the last surge despite the high vaccination rates. And what we learned, and to your point, some of that was a reflection of our geographic mix. States like Florida, and Texas, and Louisiana did see higher levels than even the previous surge. It represents a new all-time high and we have disproportionate share there. So that was part of it. But the main driver is that if we look at the hospitalization rate between vaccinated and unvaccinated, the unvaccinated fairly consistently saw hospitalization rate that was 10 or more times the vaccinated population. And so that again, as I mentioned in my comments, was the overwhelming driver. And because of the spread of the Delta variant, through that unvaccinated population, and that much higher hospitalization rate, that is what drove the levels on par with what we saw historically. To your second question about Virtual-first and Medicare, we were pleased with the COVID [Indiscernible] and I could see that primary care providers and specialists really did take -- adopt telemedicine at a higher rate to ensure that they could continue to support their patients and their permitted needs. I think as a result of that, frankly providers gained a better appreciation of the range of care and the quality of care that they can provide through virtual, which frankly pre -pandemic they really been appreciate we're adopting. So, I think we will see some continued use of virtual technology to enhance the operating model and allow for more touch points with their patients than we do pre -pandemic. Your question about home health is definitely a good one and something we are looking at, particularly with the challenges we have in terms of nursing labor shortages. Virtual is one strategy we're looking at to see how it can be leveraged so we can create more touch points with the patient and improve the efficiency of the operating model to just create more overall capacity. And so, we'll be testing with Kindred appropriate uses of that, and where we can implement it and still see the high-quality outcomes that we would expect. So, we'll be testing that and I hope would be that you will see expansion of that in the future. Bruce Broussard : Just a few other comments to that. We did a launch a few years ago our virtual first with Doctor On Demand product and that was a success for us on the commercial side. But on the Medicare side, what we do find is that there's a great opportunity to see the patient both to understand the patient in a physical setting. And unlike more episodic of care versus a chronic care management, that there's a good come -- there is an importance of being able to have a physical and encouraging a physical interaction. We see the telehealth as being an opportunity to have a complementary and more interaction. But I don't know if it would be a replacement for or we would want to motivate highway chronic members to have a virtual first interaction for a whole host of reasons, both from a care point-of-view and from the ability for us to establish the proper care plan. Operator: Your next question comes from the line of Joshua Raskin from Nephron Research LLC. Your line is now open. Joshua Raskin : Thank you, guys. Good morning. Wanted to ask about the shorter short-term. So just the assumption that non - COVID utilization will be down in 4Q. I'm just curious, are you seeing script trends, pure authorizations, or anything that would indicate that level of decline, just in light of what seems to be an abatement in COVID cases currently, and then specifically, are you seeing any different trends with members that are in your centers, or with other value-based providers, are the underlying trends underneath that capitation any different? Operator: Excuse me, participants this is -- I'm the Operator. I'll just turn the music on for the speakers, one moment. Bruce Broussard : Go out there and dial [Indiscernible] Susan Diamond : Hi, Josh. Are you there? Joshua Raskin : Yeah. Can you guys hear me okay? Susan Diamond : We can begin airing. Bruce Broussard : Your question must've been so insightful that it just dropped off the line. Joshua Raskin : I thought I was so scary that you ran for it. So, I'll ask my question again, sorry. Just in the very, very short-term. My question is, why are you assuming that non-field utilization will be down as much as 4% in the fourth quarter, especially in light of what we're seeing in terms of the big reduction in COVID costs and COVID director of the cases in the fourth quarter? And is there a script trends, is there pre -authorizations, is there something that would indicate that level of decline that you're seeing today? And then long or sort of adjacent to that, are you seeing different trends with members that are in your centers or even with other value-based providers, the underlying trends underneath the capitation? Susan Diamond : Your questions. So, we'll just take it a fourth-quarter. As we said before, we have really analyzed all the prior surgeons to understand the patterns coming out of a surge. And you might recall from our previous commentary what you typically see is a tale of depressed utilization. Anytime you come of a curve, which is what allows you to fully recapture the cost of that COVID fee. And so, we've -- with this started to take, I was kind of interesting is different states, as I mentioned before have seen different levels of utilization relative to previous surges. Texas, Florida were examples where we saw very high peak and a very rapid decline. There are some other states, like New York and Michigan, where we're actually seeing a much more moderate and sort of gradual increase without further seeing the same sharp peak in decline. So, as we've seen that in total, that on a national basis, what we're seeing in this slow of the downturn from coming off of the peak isn't quite as sharp as what we've seen historically. We've drilled into each of those states and are consistently seeing -- irrespective of that difference in peak level we're still seeing that one-to-one offset regardless. And so, to some degree, we think there's just an overall capacity constraint, particularly on the inpatient side as they come into play and the rest is just that behavior change in terms of providers and patients as they manage through it. So, based on what we've seen emerge and predicting the third quarter with that 1% offset, everything we've seen suggests that assuming the same level of offset as we continue to come off that third quarter peak is reasonable. To your point about early indicators. We do -- as we've said before, having really good real-time information on inpatient activity that continues to hold whereas the COVID utilization comes down, we'll see a bounce back on a one-to-one offset in the non-COVID hospitalization. That has been very consistent. And we'll continue to watch the non-inpatient, but again, based on everything we've seen, we believe that is a reasonable assumption. In terms of your question about buy-in [Indiscernible] providers. Interestingly enough, most of our -- both our own centers and some MLR high-performing partners, they have indicated that they are not seeing the same sort of neutrality-oriented benefit from a COVID event that we do. And the theory there is that in general, they manage the unnecessary hospitalization events as lower value is out of the system more routinely. And so, when you do see a surge, there's not as much utilization to manage -- to be depressed because they've already managed it out on a more run rate basis. And so, we're still frankly trying to assess and use some analytics on that. I think they may take a little bit more time for their claims to fully develop and have a full view of that. But their belief is that they don't see the same level of net benefit that we do on the health plan side, generally. Joshua Raskin : They see COVID costs, but not be offset, you're saying? Susan Diamond : Correct. Now, on the flip side of that, though they tend to do better on a revenue basis than our non-risk spare than they were much better about making sure they got their patients in 2020, got their conditions document. It's on the revenue side, say they would make some of that up. But on the utilization side, the typical way you are saying they're not seeing a benefit. Operator: Your next question comes from the line of Kevin Caliendo of UBS. Your line is now open. Kevin Caliendo : Thanks, and thanks for taking my call. In thinking about 2022, appreciate all the color, but I just wanted to know if there is any other sort of one-time things we should be thinking about, any other headwinds or tailwinds. Whether it comes to investments or benefits that you might be making that could impact the EPS growth for the year. Susan Diamond : So, I would say, obviously as we mentioned, COVID is the main one that we continue to evaluate. We've been clear that based on history, we think it would be an offset, but we will take a more conservative initial approach and allow for a headwind, should it emerge. And that really is reflective of the fact that, again, the environment continues to shift the level of vaccination, and we will continue to increase. But now there's the introduction of the need for boosters and so will people be as compliant with boosters as they were in the initial vaccine? [Indiscernible] to variance and all of those things we'll continue to monitor. As well as the ability for people to have re-infection breakthrough cases. So that's the main one. I would say, obviously with what comes out of the administrative priorities, certainly the tax -- taxes are more than we continue to watch and obviously investment, that something that we'll have to watch if there's any 22 impact. But otherwise, as we said before and Andrew sent in his remarks, we continue to support our Primary Care business. We certainly will continue to look for capital efficient ways to support that business. I would say we aren't expecting anything in 2022 that we can withstand within our guide, so obviously right now there's nothing that I would point to. This [Indiscernible] concern that we have and gives us any concern that we can't manage through in our -- wherever we go out with in terms of our initial guidance. Kevin Caliendo : Can I just maybe follow-up, is the guidance inclusive or exclusive of the incremental headwind that you're discussing here. Meaning like, is this sort of low-end or 11% net of the headwinds or not? I'm a little confused on how I should think about that. Susan Diamond : Yes. With what we go out in our initial guide, it will explicitly contemplate a net headwind, should it emerge, that no net impact then beyond our guide, so it is inclusive of that. So, if it does not emerge, then you would see that conservative and release throughout the year, but it will contemplate a potential headwind within the guidance. Kevin Caliendo : Got it. That's really helpful, thanks so much. Susan Diamond : You're welcome. Operator: Your next question comes from the line of Scott Fidel from Stephens. Your line is now open. Scott Fidel : Hi. Good morning. Just wanted to ask another question just on the Medicare Advantage annual enrollment period and I know you already talked about the competitive dynamics. Just interested in terms of what you're seeing on the consumer behaviors side, and in particular, just whether you're seeing any types of shifts and distribution channels in terms of where more of the sales are occurring or not. I just thinking about, obviously, 2021 was unusual a year for the AEP as it was playing out amidst COVID. So interesting whether -- it should whether you're seeing more of continuation of that 2021 type dynamic, in terms of consumer-buying practices or whether we're seeing more of a blended, post-pandemic and pre -pandemic dynamic more for 2022? Thanks. Bruce Broussard : Yeah, and Scott, thanks for the question. We are continuing to see an increasing use of the telephonic channel external -- our external partners. And as Matt had asked about, just on the competitive side, their marketing and their aggressiveness in the marketing, I think is bringing more individuals to that channel, as I mentioned also, it's also we feel, is a benefit for the industry because the industry is getting significant awareness and education from that. But we're seeing as a continuation of that trend, even pre 2021 AEP. It was also happening in the 2020 AEP. Susan Diamond : Thank you. Next question please. Operator: Your next question comes from the line of Ralph Giacobbe from Citi. Your line is now open. Ralph Giacobbe : Thanks. Morning. Sorry to come back to this, but I guess what does the 2,150 baseline incorporate at this time? Is it what you would've earned with normal utilization and no COVID in it? Is it some level of COVID but lower than normal core? I guess, I'm really just trying to understand what the 2,150 represents. Thanks. Susan Diamond : Yeah, so the 2150 is your [Indiscernible] and midpoint of our original guide. And if you remember the way we approached earnings for that was a bit different than many of our peers in the sense that we did not contemplate a net COVID headwind. And so that initial guide and the midpoint was actually above our more typical long-term growth range, recognizing some of the tailwinds that supported our pricing in -- towards 2021. So, by reaffirming that is the appropriate baseline, really just reinforces that the way we approached our 2022 pricing, acknowledged that despite -- however the results emerged in 2021 that our revenue instances would have seen that Medicare risk-adjustment return to more normalized levels for 2022, and that claims also returned to more normalized levels as if COVID, cannot occur. And so again, for claims we started with pre -pandemic levels in 2019 and using historical trend factors trended that forward. And so that's why we continue to reinforce, given that approach, 2,150 is the appropriate jumping off point, from which we would grow and expect to be in our long-term range than in 2022. Recognizing, however, from an initial guide perspective, we do intend to take a more conservative approach to ensure we're set up for success and target the lower end of that range. Ralph Giacobbe : Okay. All right, fair enough. Thank you. Operator: Your next question comes from the line of Justin Lake of Wolfe Research. Your line is now open. Justin Lake : Thanks. First had a quick numbers question. We're going to next year; Medicare Advantage yields probably be in the high single digits in the individual business. Just given the strong rates in the bounce back and risk scores offset, I guess, by a bit of sequestration. Is that a reasonable number? And then Bruce, can you tell us how to think about where you think the growth opportunity is within your positioning management kind of center business. I know you said you're adding 30. I know also that your [Indiscernible] the oil is up in the end of 2022 and you have to think about how to finance those again going forward, so how many do you think you could add post 2022. And how do you think you've financed these things going forward, post that [Indiscernible] and [Indiscernible] expiry. Thanks. Susan Diamond : Sure. So, I think the first one [Indiscernible] and then Bruce can take the second. So, we obviously haven't given specific detailed guidance points for 2020 yet, so I can't comment specifically. But certainly, as you think about the premium yield in 2022, there are some tailwinds, as you mentioned, there's the favorable rate notice, as well as the events and the expectation that risk-adjusted return to more normal level than the typical dynamics fringes member growth. So, to your point, they should produce tailwinds, but at this point we haven't given specific guidance obviously on premium. Bruce Broussard : And the primary care out of the two questions on the gross side. I think first -- obviously adding the number of organic units in the earlier years creates a drag as they mature. And we're seeing some great maturations in the cohorts that have been opened a year or 2, of both in a memberships side from a point of view on revenue, in addition on the cost side, so we feel very confident that's one of the reasons why we increase the number of cohorts this year as a result of our confidence and conviction in the business outcome. While we see over longer periods of time as we call it the J-curve will start to become into profitability of the ones that we open in the earlier years. And that will start to give us growth, so if you were to shut off the development, or actually we see a pretty quick growth rate within the existing business. We are extending that by two other opportunities for growth. One is the existing operations of the businesses that had been open for a while and mature centers and we're seeing some really great same-store growth in that area and they have done a great turnaround over the last few years and being able to improve that. And although it doesn't show up in the profitability because the J-curve override did a lot. We are seeing some really great improvement there with operationally and that also from a quality and experience point-of-view. And then the third area of growth for us as an organization is really in the NRC Kanik area. As many of you know, we do have a relationships with a number of providers, especially in our more mature markets, that we have the right of first refusal, and then offers us an advantage and being able to continue to densify markets that we're in and add additional sites. And we did that in 2021, and we anticipate doing that in 2022. And those are very synergistic inorganic opportunities from the standpoint that we're able to evolve, the management of it into our existing management team. We are able to in addition, bring some of our operating capabilities to those centers. So really three that continue of advancement of our J-curve and what we see there. The more mature centers continuing to improve that. And then the third, the inorganic growth and being able to leverage in some of the markets we have. I think over a period of time, you're going to see over a 5 to 7 period of time, I think you're going to see a fairly sizable business come out of this as a result of the investments we're making today on both in the organic and inorganic area. Really, today is the leading size clinic or clinics oriented to seeing your business. I think we'll continue to maintain that leadership long term. And relative to financing, we don't have a -- we haven't come to structure yet. And Justin, I think that will be an active conversation with the investors in probably the second quarter of 2022. We will come back to the investors and discuss how we will finance another cohort or number of clinics for the foreseeable future. We today have enough of the capital to invest from our off-balance sheet financing on [Indiscernible] to get us through to the 2022 openings. And so, we -- this doesn't cause any slowdown to our openings, but we do and are looking at all the different alternatives for financing and the most cost-effective for our shareholders as we think about the future. Operator: Your next question comes from the line of Steven Valiquette from Barclays. Your line is now open. Steven Valiquette : Great. Thanks. Good morning. Lot of questions already on Medicare Advantage. Just to maybe throw another one out there, curious to hear more about the pace of your county expansion. And obviously you already have -- you're in more counties than anybody else already. Even some of your larger peers seem to be growing their County footprint by double-digits for '22, I think you guys are somewhere around mid-single digits based on weak calculated, but just curious your more about your thoughts of pace of county expansion for next year, maybe just in general hear your strategy and thoughts around that. Susan Diamond : Sure. As you mentioned Humana really was ahead of many of our peers in terms of the rate of expansion, we had a number of years ago, and so we see from an accounting perspective, the same level of growth for us, as you might see for supports [Indiscernible]. Particularly, there's focus on Medicare Advantage annualized several years. What you'll typically instead see from us is product expansion within our existing geographies. That could be additional -- couple of years ago, when we really focused on our $0 premium LPPO product as an example. You see a continued to expand our dual-eligible SNP footprint and you will see county expansion there in 2022 as well as our veteran offering, both individuals’ innovator and as we said before, are great examples of where we focused on product and consumer segmentation and designing products that uniquely meet the needs of those consumers. And when we do that well, it's an opportunity for disproportionate growth. So, we'll continue to evaluate opportunities to do that. But again, I think you'll see more product expansion from Humana versus county exchange. And just because to your point, we've already got pretty broad coverage with some products. Operator: Your next question comes from the line of AJ Rice from Credit Suisse. Your line is now open. A.J. Rice : Thanks. Hi everybody. Two more, one on perspective and one more on just clarifying what you're saying about 2022. Again, I'm trying to understand, is it fair to say that the MA bids were due early in the summer? A.J. Rice : Obviously, from your perspective, at least the way it's coming across us, there's been a lot of developments from the back half of 2021 that maybe were different than what you would have said when bid would do. Is the right way to interpret what you're saying today is that you were so conservative when you constructed those bids, that even though the second half is turned out worse, you are still comfortable with the outlook? Is that the way to interpret what you're saying and then would you give us something on that Kindred? I had assumed, I think, that was going to be an incremental tailwind for next year. Obviously, home health business seems to have deteriorated a bit. Is that still a tailwind in your mind for next year and any way to size how much that might help you? Susan Diamond : Sure, I'm going to take that. So, for your first question on 2022, we're called that in 2021, when we came out with our second quarter commentary, we acknowledged that we had a net COVID headwind that had emerged that had emerged. And as I mentioned a few minutes ago, we did not contemplate that explicitly in our original guidance for 2021. So, as we found that emerge, as we explained in the second quarter, we were able to mitigate a fair amount of that through other business outperformance since they roll prior period development and other items. But in order to achieve our guide, it did require that base -- utilization continued to run below baseline throughout the year. That is not what we're considering in our 2022 pricing. We assumed that we'd bounced back. And so, it's really just a reflection -- the challenges in 2021 are just acknowledging that while we are seeing net utilization below baseline levels, is running less than we had previously anticipated or needed in order to achieve the guide and overcome that net COVID headwind that we discussed at the second quarter. Again, given the way we approach 22 pricing, well, our pricing didn't explicitly contemplate COVID costs beyond just through vaccination and testing. As we've consistently said, we did take a more overall conservative approach to pricing, recognizing there will be uncertainty that we would need to be want to navigate through. And also recognizing that it wasn't favorable rate environment. We had the Emeril headwinds you wanted to make sure that we can maintain long-term benefits stability for our members, and contemplated or maybe a less favorable rate environment in 2023. So again, those are all the reasons that we approached pricing the way we did, and the reason we continue to have confidence because we did not anticipate any ongoing net benefit as a respects to press utilization into 2022. On Kindred, and we've had this question a couple of times. I think we've addressed it both in the second quarter call and again, maybe in Morgan Stanley, is that we -- that was one of the items that helped us address the net COVID headwind in 2021, the contribution from the full integration. We knew at the time of bids that we would be integrating Kindred, so that was something we were off to consider as we aligned around our targets and our good pricing for 2022. We've always said that capital deployment is one of the leverage we have available and we'll use to sustainably deliver our long-term growth target of 11% to 15%, so that was something we specifically contemplated in pricing, so it wouldn't represent an incremental tailwind for 2022, but certainly expect -- the value that we expect to create from that value-based model and the continued growth of Kindred will certainly continue to contribute in the future to our sustainable ability to deliver against our long term target. A.J. Rice : Okay. Thanks a lot. Lisa Stoner : Thanks, AJ. Next question, please. Operator: Your next question comes from the line of Lisa Gill from JP Morgan. Your line is now open. Lisa Gill : Susan, I just want to go back to your comment around PDP shift to MA. Can you talk about your ability to retain any of those members and bring them over to MA? I think you talked about losing a couple of 100,000 lives. And then secondly, I know it's still fluid of what's going on down in DC around transparency and direct negotiation on the drug pricing side. But just curious if that will have any impact or you anticipate any impact around your PBM business? Susan Diamond : Surely. I think the first one, since PDP M&A, so that is something that we have been focused on for many years. And what we see is we actively work to you. Educate our key team members [Indiscernible] in Medicare advantage. In recent years as we've expanded our dual eligible SIP offerings that increase our ability to drive those conversions because of a large percentage of our peaking members are low-income dual eligible members. And so, what we consistently see is that we will be able to generate a disproportion of share of our PDT members who ultimately choose Medicare Advantage. And so, we will disproportionately capture share within a Humana plan relative to what you would see our share capture and just overall Medicare Advantage. so really pleased with that. And having said that and some of our members do choose other competitor MA plans and so we continue to focus on identifying if there are opportunities to enhance the product, you attract more CDC members who ultimately are likely to migrate to MA? Are there things we can do to enhance the marketing, product segmentation, all of those things we've talked about to continue to drive increased share capture for those PDT members who ultimately determine that MA provides a better value proposition for them? On your second question around some of the regions effective come out. We certainly are watching it closely. We've really represents a framework at this point. We will have to see some of the details texted ultimately comes through. And with the final proposals are and certainly -- certainly supportive of anything. As we done to reduce the cost of prescription drugs for our members. And something we certainly contemplate and take into consideration in our pricing each year. But I think, at this point, it's too early, we'll need to see what comes out of the final SEC. Bruce Broussard : Just on that, from our vantage point we continue to put rebates back into our pricing. So, I guess, back directly to the customer. We do not retain those rebates. So, any kind of opportunity to lower the cost of the drugs will directly benefit our members and not have an impact on us as a result of just -- we pass it through. Lisa Gill : Great. Thank you. Operator: Your next question comes from the line of Lance Wilkes from Bernstein. Your line is now open. Lance Wilkes : Great, thanks. Could you provide a little more color on the Primary Care centers? And what it was interested in is looking at the centers and the patient surge. Can you describe a little bit about the composition of patients, what percent are MA versus Medicare fee-for-service, and then how many of them are employer or other? And what percent of those are in full risk contracts versus maybe stages of that? And then how much of the membership -- or how much of the patient base is Humana membership as opposed with other payers? Thanks. Bruce Broussard : Okay. A few things, I heard that there's a lot in that question, so let me try to provide as much as I can here. They are built really for full risk Medicare advantage members. That's what they are built for. That's how the staffing has constructed. That's out of the recruiting of the physicians. That's out of the business model is built. And so that leads you to the conclusion of the majority of them are going to be MA members. Now, we have some Medicare fee-for-service side members in there. They are really oriented to how over time they can evolve to be a longer-term member for us through our Medicare's Advantage relationship. They are agnostic platforms, and so there's a good composition of medic Humana members, as well as other payers in the credit, that's why it's really called CenterWell, it's to reinforce that agnostic nature and we are very oriented to that being agnostic. In a number of our sites, there's probably more non - Humana members than there are Humana members. So, you do see us oriented to a much broader opportunity in the -- for Medicare Advantage. In addition, in a few of the sites we do have direct contracting members as a result of that, and so we are in the opportunity to take Medicare fee-for-service relationships that then -- that are more oriented to value base. Your last part of your question just was the relationship. over time they will take full risk. Now, there might be an earlier part of the opening that they will take a path to risk orientation where they'll have some upside and downside limits and -- but they will, over time, convert to a full risk model. And that's really just as the panel size gets bigger and bigger, the ability to manage the risk is much easier because of the diversification of the panel size. Lance Wilkes : Great. And what's the trend to breakeven in those DeNova sites for you guys? Bruce Broussard : Breakeven is between 3 to 5 years and fill up. I'd say the earlier a year is probably 3 years is more around profitability and contribution margin. The fifth year is more around a return on capital obtaining the return on capital side. Lance Wilkes : Great. Thanks so much. Operator: Your next question comes from the line of George Hill from Deutsche Bank AG. Your line is now open. George Hill : Good morning, guys. And thanks for squeezing me in. Susan, I was just wondering if you'd be willing to provide a little bit more color on how you're thinking about medical cost trend as it relates to 2022. And I guess to provide some granularity about how I'm thinking about the question is, is 2019 kind of the right baseline number from an MLR perspective? Plus, then adjustments for mix because we've seen so much growth in virtual and retail care clinics. And then if -- you've included some what I'll call some excess COVID headwind. But if we see a continued reversion of utilization, like could we see a number that looks like greater than 100% of that 2019 baseline from an MLR perspective. Are you thinking about utilization being higher offset by changing cost mix? Not asking for the hard number, but just would love how you're thinking about the moving pieces as it really grows in medical costs. Susan Diamond : Okay. Great. Sure. Yes, for last statistics, I'll try to introduce as much as I can, maybe more generally. But as we -- as you said before, right now in our '22 pricing, our approach to baseline trends was to go back to pre -COVID levels, use historical trend factors and roll that forward. Now we certainly, our models have a lot of granularity to them and so certainly they will take into account any cited service jobs that we may be seeing and then our estimate of what those might be going forward. They'd also look at what we've referred to these Healthcare pipeline technologies to anything else that we expect that maybe coming to market that would impact trends differently than what we've seen historically. And that's just part of our consistent process. So, all of that work was done to support our 2022 pricing. We have not changed our view of that currently, although as you can imagine, there is a lot of work being done across the enterprise to study as best we can, what has emerged over the course of 2020 and 2021, how we can decipher COVID impact in utilization. Depression versus what might be just lower baseline trend. I think our view, as you've seen, is consistently [Indiscernible] earnings historically would imply that our core trend forecasting models may have a little bit of conservatism in there. We've not seen that going forward, trending off 19 is certainly more years of trending than we would typically like. And so that's why we're going to do a lot more analysis between now and between our final guidance points for 2022 to see if there's any additional information that would inform our perspective on 2022 baselines. But what we're considering now, we think is an appropriately conservative view. To your point, if the COVID headwind that we will contemplate in that guide does not emerge -- does emerge, then we would be seeing baseline -- utilization above baseline levels. Or I'm sorry, I said that backwards [Indiscernible]. Yeah, but we would be able to tolerate it running above baseline even though we don't expect that to occur. If it does not occur, then that would obviously represent an additional tailwind for us that you should see unwind over the course of the year. George Hill : Okay. And if I could go with a quick call, it does -- Susan Diamond : [Indiscernible] George Hill : I guess my quick follow-up is it just, where do you feel like the flexibility is for your ability to pull levers on the cost side, should costs on the medical side run ahead so that you guys can deliver your earnings targets? Susan Diamond : I think in general; I would say we continue to work on our trend initiatives and various utilization management and other strategies, no different than any other year to continue to work to reduce total cost of care. Some of them work that we're doing with our value-based home-health model, as well as the use of broader homesteaded capabilities or other examples of how we continue to work to see how we can use those capabilities to focus on patients who are disproportionately likely to see, potentially avoidable hospitalization events and use those capabilities to redirection and alternative sites of service. Like the home or an outpatient settings. So, we'll continue to do all of those things in support of not only 2020 to trend mitigation, but then also longer term to support our value proposition in Medicare Advantage broadly. Bruce Broussard : Just asked a question about administrative management. We constantly are managing the investments and our costs trends within the administrative side to ensure that they provide the adequate cushion for us as we think about earnings being said. George Hill : Thank you. Operator: Gary. Next question comes from the line of Whit Mayo from SVB Leerink. Your line is now open. Whit Mayo : Thanks for getting me on. And I hope I'm the last one I had just a quick clarification question Susan, I think you said that you would expect that reserve development in the fourth quarter will come in less favorably than you experienced in the third quarter. I just wanted to make sure that I heard that right. And of the membership growth that you expect in 2022, I think 350 at the midpoint, how much of that is coming from, special needs plans duels, etc.? Thanks. Susan Diamond : Sure. To your first question on current period development. Yes, you heard correctly that, while we did see positive current period development in the third quarter, our guide does not seem that we continue to see this elevated levels. Our guide with already this seems some level of normal quarters CBD. In any given quarter, you can see that 2 declined in year, but we're not assuming currently that that favor -- exit favorability we saw emerge in third quarter will continue. And during the '22 growth, we obviously haven't given detail guidance. But I can tell you though is while it's still early in the AEP, Bruce mentioned we saw 40% growth in 2020 and 2021. We do continue to see strong growth in 2022. So, while we're not prepared to share a specific number, so bargain while its early, even growth is actually coming in better than we had originally expected for '22 [Indiscernible]. Whit Mayo : Okay. Thanks. Operator: Your next question comes from the line of Gary Taylor from Coban. Your line is now open. Gary Taylor : Hi, good morning. Just 2 quick questions I have remaining. In April, you upped your MRA headwind to a billion three for the full year. Just want to make sure, is that still the right '21 headwind and most of that come spec next year and that's part of how you're offsetting the return to baseline utilization? Susan Diamond : That's exactly right. Our estimate is not been changed. Their previous update on the emirate headwind. As we said, we're tracking very closely the diagnosis Income submissions in 2021 that will support our 2022 reimbursement, and those are in line with expectations and more similar to what we thought pre -COVID. So, to your exact point, that headwind we do not expect to recur and does provide mitigation from trend, bouncing back to more normal levels. Gary Taylor : Since -- and just one more quick one. When you talked about -- was just mentioning less development in 4Q. Your third quarter prior year development was very similar to last year, so I presume you were talking about intra -year development from the first half that you recognized in the 3Q that doesn't occur or you're not assuming occurs, is that correct? And could you just give us a little color on where that came from, Inpatient outpatient. Susan Diamond : When you refer to current period development, the development, in the quarter that would refer to the year. Can you hear us? Operator: Speakers you are now live. Susan Diamond : Okay. Hi there, I'm sorry, we dropped again unfortunately, can you hear me? I'm not sure exactly where we dropped, but just to your last point, turning period development does refer to you how planes restated in the first half of the year. And as we say, we did see some favorable restatement. What I can say is, at a high level relative to get them into those Q2 and what we saw in development in third quarter, in the net of the COVID, and COVID costs that we saw positive restatement of about 50 basis points going sort of the first and second quarter of 2021 developed in the third quarter. Operator: And speakers, we don't have any questions on the line. I would like to turn the call to Mr. A - Bruce Broussard for closing remarks. Bruce Broussard : Okay [Indiscernible]. I want to apologize for the technical glitches there, I think we have a problem with our leader line and we will definitely work on that to ensure that the services that we are -- that we subscribe to is capable of keeping a consistent connection. Second, I hope you take away from our conversation today that we have been very thoughtful and conservative as we look into the fourth quarter and as we enter into 2022. As you can see From all the commentary, we do reflect that the uncertainty of COVID and all the aspects of going into 2022. I do want to say thank you for 90,000 associates that make this such a successful organization and their dedication to not only our customer, but also providing our shareholders the adequate return. And I want to thank you for your long-term support for us as an organization. So, thank you and have a great day. Operator: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Humana Second Quarter 2021 Earnings Call. After the speakers’ presentation, there will be a question-and-answer session. [Operator Instructions] Thank you. Now, I would like to welcome Ms. Amy Smith, Vice President of Investor Relations. Ma’am, please go ahead. Amy Smith: Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Susan Diamond, Chief Financial Officer, will discuss our second quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines for question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission, and our second quarter 2021 earnings press release as they relate to forward-looking statements and to note, in particular, that these forward-looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic. Our forward-looking statement should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Amy, thank you. Good morning, everyone, and thank you for joining us. Today we reported adjusted earnings per share of $6.89 for the second quarter of 2021, in line with our previous expectations. We continue to focus on delivering strong operating results while navigating a dynamic environment due to the ongoing COVID-19 pandemic, all while staying true to our commitment to delivering the highest quality healthcare experience for members and patients. Well, we are maintaining our full-year 2021 adjusted EPS guidance of approximately $21.25 to $21.75 at the midpoint, representing full-year adjusted EPS growth of 16% above the 2020 baseline of $18.50 in excess of our long-term growth target, while acknowledging the continued uncertainty driven by COVID-19 hospitalization trends and the rate at which non-COVID cost normalized. As Susan will describe in more detail, our full-year adjusted EPS guidance now assumes a $600 million COVID-19-related headwinds that is expected to be largely offset by favorable operating items. In addition, this guidance assumes non-COVID costs will run approximately 2.5% below baseline in the back half of the year, including an assumption of minimum COVID testing and treatment costs for the remaining of the year. I’d like to reiterate that our core fundamentals are performing well and 2021 is a year of COVID-19 transition with various pandemic-related financial impacts, including reduced Medicare Advantage revenue resulting from the significant temporary deferral of utilization in 2020, as well as the lingering near-term uncertainties regarding the pace and level of the return of utilization for the balance of the year. We also acknowledge that we are seeing increase in COVID utilization in recent weeks, which we will continue to watch closely. While we continue to navigate this pandemic-related uncertainties in 2021, as Susan will lay out in detail, we expect 2022 to be a more normal year. The healthcare system has been open for several months and we have seen vaccination rates in the seniors reach approximately 80% nationally. Accordingly, our members continue to engage in more routine interactions with their providers, which we anticipate will result in more normalized Medicare Advantage revenue next year as providers are able to ensure that our members are receiving appropriate care and that their conditions are being fully documented. I would reiterate our remarks from the last quarter regarding our Medicare Advantage bids for 2022, which reflected the continued uncertainty associated with COVID-19 and our premium and claims assumption with a focus on maintaining benefit stability in 2023. While it is still too early to provide 2022 guidance, we believe our operating discipline in 2021 combined with the depth of our planning for 2022 Medicare Advantage AEP puts us in a strong position for financial growth in 2022. I will now turn to an operational and strategic update. Importantly, our underlying core businesses continue to deliver strong results on solid fundamentals with individual Medicare Advantage membership growth outpacing the industry. As we highlighted at our recent Investor Day, this growth is balanced across various product lines, including HMO, PPO and Dual Special Needs Plans or D-SNPs. Our Medicaid business continues to perform well in 2021 and our South Carolina plan is now operational. We are diligently preparing for the Ohio contract go-live date in early 2022 and are continuing to improve our operating model building off of our core Medicare Advantage capabilities. We also experienced slightly better-than-expected results in our home and provider businesses and increased mail order rates in our pharmacy business. Finally, as announced last quarter, we have entered into an agreement to acquire the remaining 60% interest in Kindred at Home, and we expect the transaction to close mid-August, which we’ve included in our revised estimates for the year. Our strong operating performance this year is in part attributed to our strong partnerships with providers who are delivering high-quality care to our members. We are currently seeing 87% of our provider partners and value-based arrangements and surplus. Further, our relentless focus on consumer centricity has led to an all-time high net promoter scores for our retail organization, contributing to Medicare Advantage membership growth and resulted in an external recognition of Humana as an industry leader in customer satisfaction, including the announcement this morning that we received the highest ranking in mail order pharmacy customer satisfaction for the fourth year in a row in the J.D. Power 2021 U.S. Pharmacy Study. On the public policy front, as policymakers explore changes to Medicare, including adding dental, vision and hearing as part of the Medicare benefit, we stand ready to both innovate for the more than 12 million of our members who already have these benefits, including 7 million dental and vision policies in our MA group, as well as offer ideas of public private collaboration to leverage our deep capabilities in Medicare and specialty markets, so that beneficiaries could quickly see benefits go from a proposed law to a tangible benefit. Before turning the call over to our new Chief Financial Officer, Susan Diamond, I’d like to take a moment to speak about Susan’s experience at Humana over the last 15 years. She has served in various leadership roles across the company during her tenure, spending eight years as part of the Medicare and leadership team with various financial and operational in line of business responsibilities. She also spent two years on the finance team, leading enterprise planning and forecasting and overseeing the company’s line of business, CFOs and controllers. Most recently, she led our home business, growing it to the largest offering of its kind. Her strong financial background and extensive knowledge of our business make her uniquely positioned to step into the CFO role. The Board and I have great confidence in our abilities and the contribution she will make in the next chapter for Humana as we execute on our strategic plan and deliver shareholder value. In addition, during the strategic nature of the CFO role, Susan will continue to contribute in a meaningful way to our home health business. With that, I’ll turn the call over to Susan. Susan Diamond: Thank you, Bruce, and good morning, everyone. Today we reported adjusted EPS of $6.89 for the second quarter in line with our previous expectations. Our underlying core business fundamentals remained strong and we experienced a positive start to the year across our segments with the first quarter coming in modestly ahead of our previous expectations. Our results moderated back to expected levels in the second quarter, albeit with variation in the way specific underlying assumptions emerged, with COVID treatment costs coming in lower than expected, offset by non-inpatient utilization continuing to bounce back faster than originally anticipated. As I will describe in further detail in a moment, uncertainty remains for the balance of the year due to the pandemic, specifically as it respects COVID hospitalizations and the rate at which non-COVID costs normalized inclusive of both volume and unit costs. Recognizing the majority of today’s call will focus on our emerging experience and our 2021 guidance, I want to quickly touch on operating performance across our segments before diving into that detail. Our Medicare Advantage growth remains on track and consistent with our previous expectations with individual MA growing solidly above the market at an expected 11.4% at the midpoint. Our Medicaid business results are exceeding our initial expectations given membership increases largely attributable to the extension of the Public Health Emergency as well as higher than expected favorable prior period development. In our Group and Specialty segment, consistent with our commentary on our last earnings call, medical membership declines are lower than we expected coming into the year. Our Specialty business results are exceeding expectations as utilization, particularly for dental services, has been slower to bounce back than initially expected. Finally, within our Healthcare Services operations, pharmacy continues to see increased mail order penetration as a result of customer experience improvements and additional marketing initiatives. The Home business, CenterWell Senior Primary Care and Conviva are performing slightly ahead of expectations, and we remain on track to open 20 new clinics this year with Welsh, Carson. In addition, as Bruce indicated in his remarks, we now expect the Kindred at Home acquisition to close in mid-August subject to customary state and federal regulatory approvals. Before I go into more detail on our 2021 guide, I want to reiterate that the uncertainty we are seeing in 2021 relates solely to the difficulty estimating the impact of the pandemic and is not expected to carry forward into 2022. We remain comfortable with how we approached 2022 pricing, which I will expand on later in my remarks. Turning to full-year 2021 guidance. I would remind you, our adjusted EPS guidance represents growth at or above the top-end of our long-term target of 11% to 15%. Our philosophy regarding 2021 guidance has been to provide transparency into the uncertainty caused by COVID-19 and the ability to deliver our targeted earnings growth with solid underlying core business performance and largely offsetting COVID-19-related headwinds and tailwinds. We have been consistent in and remain committed to this philosophy. There is a reasonable path to achieving adjusted EPS within our initial guidance range. And accordingly, today we are maintaining our full-year adjusted EPS guidance of $21.25 to $21.75, while acknowledging the continued uncertainty as it respects COVID hospitalization trends as well as the pace at which non-COVID costs bounce back and at what level they ultimately normalize. Additionally, we expect our third quarter adjusted EPS to reflect a low-20s percentage of our full-year adjusted EPS. As Bruce indicated, given our experience to date, together with our current estimates for the back half of 2021, we have effectively recognized a $600 million COVID-related headwind for Medicare Advantage in our full-year guide, offset by favorable operating items. These favorable items include, among others, higher than initially expected prior year development, the previously discussed better-than-expected Specialty and Medicaid results and the expected contribution from Kindred at Home given the transaction is expected to close in the coming weeks. Now let me provide an update on the underlying changes since our initial detailed guide in February, articulate key assumptions regarding utilization in the back half of 2021 and expand on the continued pandemic-related uncertainties I described. I will begin with Medicare Advantage revenue. As discussed last quarter, given our significant exposure to Medicare Advantage, we are disproportionately affected by COVID’s impact on Medicare Risk Adjustment or MRA. Recall, our risk-adjusted revenue for 2021 is determined by 2020 dates of service, medical utilization and resulting documentation, which as previously discussed, was materially depressed in 2020. As we have indicated since the beginning of the year, the MRA headwind we are facing in 2021 is significant, and we have closely monitored it over the course of the year. Our April guide recognized we had $300 million of additional pressure from MRA relative to our initial expectations for the full-year, which was offset by the net benefit of the extension of sequester relief. In July, we received the mid-year MRA payment, and it came in modestly lower than expected. We are however taking operational steps now to be able to recover some of the MRA revenue in the final payment for 2021. Accordingly, our MA premium estimates, net of capitation, remained largely in line with our initial expectations when factoring in the net sequestration benefit. Now turning to benefit expense. At the beginning of the year, we indicated that we expected non-COVID costs for our Medicare business to run 3.6% to 5.5% below baseline. We defined baseline as 2019 experience trended forward based on a normalized trend factor, excluding the effects of COVID. In the first quarter, we acknowledged that non-inpatient costs were bouncing back faster than initially expected. However, that was offset by COVID utilization decelerating faster than expected. We also recognized, however, visibility into non-inpatient claims were significantly less than inpatient. And therefore, we acknowledged that there was more uncertainty around non-inpatient service categories in terms of exactly where we stood. However, at that time, we could still tolerate overall utilization returning to baseline late in the year if the non-inpatient acceleration we were seeing was due to pent-up demand and leveled off in the second and third quarters. In the first and second quarters, non-COVID costs ran approximately 7% and 3% below baseline respectively with the bounce back outpacing expectations in the second quarter. Non-inpatient utilization did not level off and instead continue to increase in the second quarter and was offset by lower than expected COVID costs and other business outperformance. As the healthcare system has been open for several months and a high rate of the senior population has been vaccinated, our current guidance now assumes that non-COVID costs level off and run approximately 2.5% below baseline levels in the back half of the year. Consistent with our original forecast, our current guidance assumes minimal COVID testing and treatment costs in the back half of the year. That said, we do acknowledge that we are seeing increases in COVID admissions in recent weeks, although it is too early to determine if they will be offsetting declines in non-COVID utilization and we will continue to monitor this recent development. Finally, as it respects to our 2021 guide, for our commercial business, we expect all-in utilization for COVID and non-COVID to continue to run above baseline as anticipated. In summary, I want to emphasize that 2021 is a COVID transition year. There is a reasonable path to deliver against our guidance expectations. However, if non-COVID utilization or COVID treatment costs increased beyond our expectations in the back half of the year, it will present a headwind to our guide absent offsetting tailwind. I also want to reiterate that the $21.50 midpoint of our original guide continues to be the right jumping off point for 2022 adjusted EPS growth. Our members continue to engage in routine interactions with their providers, which we anticipate will result in more normalized Medicare Advantage revenue next year as providers are able to ensure that our members are receiving appropriate care and that their conditions are fully documented. During the first half of 2021, provider interactions and documentation of clinical diagnoses that will impact 2022 revenue outpace those experienced in the first half of 2020 and are approximately 80% complete in line with the estimated completion rate for the same time period in 2019. Lastly, I would remind you that our Medicare Advantage bids for 2022 reflected the continued uncertainty associated with COVID-19 as it relates to our premium and baseline non-COVID claims trend assumptions with a focus on maintaining benefit stability into 2023. Before we open up the line for questions, I’m excited to announce two finance leadership changes that will promote the growth and versatility of our finance leadership team. First, with the expected integration of Kindred at Home, our Home business is growing significantly, and Amy has accepted the role of Vice President and CFO of Home Solutions. She will be a key member of the Home Solutions leadership team, responsible for the financial oversight and planning and forecasting for the segment. Lisa Stoner will succeed Amy, accepting the role of Vice President, Investor Relations. Lisa has worked with Amy over the last four years and is well known and respected by our investors. We are excited about the opportunity this affords both Amy and Lisa, and Lisa’s continuity in Investor Relations will allow for a seamless transition. With that, we will open up the lines for your questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Thank you. Your first question is from the line of Justin Lake from Wolfe Research. Your line is now open. Justin Lake: Thanks. Good morning. Obviously, a lot to cover. I'll try to keep it to one question here. But I'm hoping you could give us a few numbers. One is the MRA. Can you tell us what the full-year impact is of the negative MRA? And I think there's a lot of confusion around two things. One, it sounds like the first half or the second quarter, I should say, was worse than expected. And yet you still kind of came in line from an MLR perspective. So you're telling us the back half needs to be more optimistic. So what happened in the second quarter beyond that allowed you to make the MLR, but still had higher medical costs that need the back half? And then I guess around that the $600 million specifically, can you flush that out in as much detail as you can because is that comparable to the old COVID estimate? Or is that a new COVID headwind that you've kind of thrown in there for the back half of the year for us to think about? Susan Diamond: Sure. So I'll take these one at a time. I'll start with your last question around the $600 million. So just to clarify, the $600 million represents our full-year estimate of the Medicare Advantage-only net headwinds and tailwinds related to the COVID pandemic. And if you recall back to our initial guidance earlier this year, we provided a schedule that laid out the specific line items that were considered in that and a range of estimates at the time. So this $600 million represents our current view and what is contemplated in our guide related to those items on a net basis, so the net of all the various headwinds and tailwinds based on our current expectations. As it respects the first half and second half, as we described in the call, what we continue to see throughout the first half of the year was COVID costs coming down faster than initially expected, but non-COVID outpatient in particular rebounding faster than expected, and that continued through the second quarter. And we anticipate that that will extend some into the third quarter before it levels off. In the first half of the year, the benefits we saw from COVID-related costs, as well as some lower non-COVID inpatient costs, we do not expect to continue at the same rate because our expectation had always been that those costs on the COVID side would come down as a result of the rollout of vaccinations and that utilization would rebound to more normal levels, such that there is less positive upside that can offset those costs in the second half of the year, which is why we are now estimating a net 2.5% decline in non-COVID utilization in the back half of the year to meet our guide. As it respects MRA, I think we provided the net detail in terms of what our current estimates really are. I know we provided the line item in the initial guide in terms of the beginning of the year. And what we're saying is on a net basis, net of capitation, there's about a $300 million additional headwind, and in the context of the overall guide that is largely offset or fully offset by the net impact of the positive sequestration benefit. Justin Lake: Okay. And then just the quick follow-up on the $600 million, that was all really helpful. The $600 million, can you just tell us what that compares to specifically because you had like a $400 million to $700 million COVID number thrown into the original schedule. Is that the comparable now? And then have you said that that's all eaten away in the first half of the year, so effectively that updated $600 million is comparable before the $700 million, and it's completely gone effectively so you don't have any – none of that's assumed in the back half. Is that’s the way to read it? Susan Diamond: Yes. So just to be clear, the $600 million and full-year estimate, so inclusive of first half and back half. But I also want to clarify, it is not meant to be specific to the line item, its labeled COVID testing and treatment on that initial schedule. That was one line item. When we refer to this $600 million, it is the net impact of all of the line items that were represented on the schedule. And the other thing I would add as well in terms of your question about how did you offset that, there was a lower COVID and another inpatient costs. But also recall, we had other business outperformance that we mentioned in the discussion around the prior period development, commercial Medicaid that also offset some of that headwind we experienced in the first half of the year as well. Justin Lake: All right. Thank you. Amy Smith: Thank you. Next question, please. Operator: Your next question is from the line of Kevin Fischbeck from Bank of America. Your line is now open. Kevin Fischbeck: Great. Thanks. I wanted to I guess follow-up on the assumption for trends in the back half of the year. I guess you're saying core utilization 2.5% below. I guess, if you could maybe provide a little more color on that? I mean, how do you get there or some things above average or some things below average? If I understood what you were saying, I think you said that when you include COVID costs, total trend is above average. Just want to make sure I heard that, but just color on how you get to the minus 2.5% for the back half of the year and why there isn't more of an assumption of “core back to normal” by the end of the year? Susan Diamond: Sure. So just to provide a little more detail. So as we mentioned, the second quarter ran about 3% below baseline for that non-COVID utilization. Our third and fourth quarter now on average are estimated to run 2.5% below baseline and recall that that's inclusive of both utilization as well as unit costs. So as I mentioned, we do expect given that the country has been largely open, our population is largely vaccinated that we will see those non-COVID utilization start to normalize. And so we've allowed for some additional return to baseline relative to what we've experienced in the second quarter. I would also say that as we see that utilization come back, we also see that the average cost per hospitalization will come down because lower severity cases are reintroduced. And so the combination of leveling off of the utilization and continued reductions in the unit costs contribute to that 2.5% below baseline. I think you suggested that overall utilization might be above the baseline. I think you might be referring to my comments about commercial, where we had planned to see in total COVID – non-COVID to run slightly above baseline as we were beginning to see that at the end of 2020. But for our Medicare business because we're including limited COVID costs in our forecast in the back half of the year, it's not contributing significantly, so that would not take it over baseline. Kevin Fischbeck: Okay. But when you say below baseline inpatient, outpatient, physician, drugs, you get those four categories, are they all kind of there or some above, some below? Susan Diamond: Sure. We are seeing variation in some of the service categories, as you can imagine. One of the reasons we believe that some of the pent-up demand has been worked through the system and the things like surgical procedures, colonoscopies and things like that. We did for a period of time to see it go slightly above the baseline. But other traditional, normal course, ER and observations and other activities continue below baseline. Kevin Fischbeck: Thanks. Amy Smith: Thank you. Next question, please. Operator: Your next question is from the line of Matthew Borsch from BMO Capital Markets. Your line is now open. Matthew Borsch: Yes. Thank you. Maybe I can just continue on this theme. I'm trying to understand with the Medicaid baseline through the end of the year. Do you think that what is sort of thought of is deferred care or the healthcare that didn't happen that would have happened I guess really over the last five quarters? Is a lot of that just not going to cut – that isn't something that is going to flow through as pent-up demand? It's sort of embedded in there is that assumption that seniors, I guess, are going to still have some avoidance of the healthcare system even in the back half of this year? Just trying to understand that. Susan Diamond: Yes. I would say that our view would be given the pace at which the non-inpatient utilization in particular bounce back, which was faster than we anticipated that we are seeing. In a lot of that, you'll see they're re-engaging with their physicians and specialists more than normal rate. And so I think we do believe that some of the pent-up demand is a result of the deferred care in 2020 has been reflected in our first half of the year results. And again, because of the length of time, the country has largely been open that that pent-up demand has worked through, and therefore, we are expecting a little bit more return to baseline relative to our second quarter performance that that will stabilize through the back half of the year. Matthew Borsch: Okay. Thank you. Amy Smith: Okay. Thank you. Next question, please. Operator: Your next question is from the line of A.J. Rice from Credit Suisse. Your line is now open. Albert Rice: Hi, everybody. Just to put a fine point on some of the discussion and then two other data points. The 2.5% for the back half, I think in the beginning guidance, you said that the underutilization for the full-year would be 3.6% to 5.5% deferred relative to baseline. As we get an updated number, how much are you at the lower end of that? Are you even – the overall range when you think about that original number? And then I would also ask you about the operating expense. Obviously, you've updated that. Is that mainly related to Kindred? Are you expecting more investments in the back half of the year in other areas? And then if I could squeeze in one more, your comment about the offset of sequestration versus the MRA headwind this year. Does that in your mind reverse next year? So if we lose sequestration, the MRA catch-up by having fully coded all the people from last year and this year offsets that, is that the way to think about it? Susan Diamond: Sure. So I’ll take these one at a time. So the first to your question, based on our experience for first half of the year and our 2.5% expectation in the back half of the year, if you do all that math, it suggests that for the full-year, our non-COVID utilization will end up at about 3.75% below baseline. So effectively at the low-end of the range we had given you at the start of the year. On OpEx, as you said, you're exactly right. The reason for the change in the guide and the increase that is directly attributable to incorporating the Kindred performance into our guidance points, and so that is largely the reason for that increase. We do, however, I would say in terms of our core business, and even within Kindred anticipate some investment like we would in normal course, Kindred, as you can imagine, by integrating it, there are some investments we might want to make there as a respect to evaluate the operating model that we've described at Investor Day, and so that is contemplated in there as well. On your second question on sequestration, we do expect that to reverse in 2022, that would have been contemplated in our bids and pricing, and our MRA assumptions, as we think about 2022 would not be impacted by that explicitly. They are independently calculating what we believe the risk adjustment will be based on the diagnosis admissions that we would expect in a more normal environment. Albert Rice: Okay. Amy Smith: Thank you. Next question, please. Operator: Your next question is from the line of Ricky Goldwasser from Morgan Stanley. Your line is now open. Ricky Goldwasser: Good morning. So one clarification on utilization and then another question. So just to clarify, Susan, is basically what you're saying is that the 2.5% below baseline really encompasses the fact that care is happening outside the four walls of the hospital. I think you mentioned lower ER visits. You're also mentioning that you don't expect 2022 risk adjusters to be impacted by the lower utilization. So is it that just you're seeing a shift in work here is being provided, i.e. the telehealth, primary care and that's what's impacting that below baseline, that’s a dollar number. And then my second question, if you can give us just some color and context around the announcement that we saw last week on the investment that you're making with Anthem on into a new PBM? Susan Diamond: Okay. So to your first question on the 2.5%, so again, that is related to non-COVID utilization and all inclusive of inpatient and non-inpatient, again, both rate and volume. And so I wouldn't say that we're necessarily seeing shifts in the site of service or the site of care, but rather just as utilization returns to normal, there is some level of utilization that just hasn't come back on an absolute basis. But really we are seeing with the exception of some of those specific service categories, I mentioned like surgical, other categories are largely still running below baseline across the board. As far as MRA impact, as we said, what we are seeing in terms of the normal routine interactions with our providers, our in-home assessment activity and other annual wellness programs, those are all trending exactly as we would expect to see in order to deliver against our 2022 revenue estimates contemplated in pricing. And so we feel really good about our trajectory there. Should we see somewhat depressed utilization in the back half of the year, given the way risk adjustment awards, generally speaking, we feel good that so long as there's not sort of a full shutdown like we saw in 2020, which is not what we anticipate currently. We feel confident that we should be on pace to deliver against what we need for MRA, again, based on what we're currently seeing. And I don’t know Bruce, would you like to address the Anthem partnership? Bruce Broussard: Sure. Similar to what we've done in the past and other more utility oriented areas, I think availability would be an example of that. We've tried to find partners within the industry that can help build a longer-term utility. And we look at the particular partnership with Anthem as the opportunity to update and really give a more both increased productivity and at the same time increase the experience for members in the area of the PBM side. We for a number of years have been using SS&C as a vendor to help with the existing technology, but now I've been able to take it and really enhance it through this partnership with Anthem and SS&C. Amy Smith: Thank you. Next question, please. Operator: Your next question is from the line of Stephen Baxter from Wells Fargo. Your line is now open. Stephen Baxter: Hi. I was hoping that you could talk in a little bit greater detail about why the risk adjustment revenue ended up coming in below where you expected it for this year. I guess you had a lot of visibility into certain inputs and not others to the extent you could flush those out. I think you would help give us a better sense of how comfortable we can be around next years assumptions? Thank you. Susan Diamond: Sure. So as it respects, the $300 million that we referenced that was contemplated in our April guide. So just for context, our January payment in 2021 would reflect claims that were submitted through to September submission deadline. And then that requires us to estimate the submissions that will come in organically as well as a result of our activities around short review and prospective programs for the remainder of the year. At that time, we were not anticipating a significant surge that we saw across the country in the fourth quarter due to COVID and the resulting reduction in non-COVID utilization. What that led to was lower, what we referred to as organic diagnosis submissions. So those are not related to the campaigns that we initiated, but rather organic submissions across the provider community based on the utilization that's happening. And those ultimately proved to come in lower than we had anticipated. And generally speaking, I think we've mentioned before that those organic submissions are more difficult to estimate obviously than the initiatives that we are executing. So that was reflected in our April guide at the time. In terms of the midyear adjustment, as we've said on previous calls, the adjustment there was solely related to new members or members who were only enrolled for a partial year in 2020, where we don't have full visibility to their claims. And so while we made an estimate of what we thought the impact would be based on what we were seeing within our concurrent population, ultimately, if that made your payment came in, it reflected a lower level of contribution for those new members in our estimates had originally anticipated. I would say that going into 2022 because those impacts were directly related to the COVID pandemic and impacts of utilization, I would not expect to see that continued uncertainty carried into 2022 based on what we're seeing so far this year. Amy Smith: Thank you. Next question? Operator: Your next question is from the line of Josh Raskin from Nephron Research. Your line is now open. Joshua Raskin: Good morning. So I understand, we're coming out of the second quarter with non-COVID utilization running 3% below baseline, but how do you see that continuing to run 2.5% baseline for the second half of the year if you're also assuming that you're not going to see any direct COVID costs for testing and treatment. I sort of think of those as related. And then would a rise in direct COVID costs, so if we did see this increase that you guys mentioned that you're seeing in the last couple of weeks. If that did continue, would that end up being a net negative now because you've got all the direct costs, but you're already assuming lower utilization? Susan Diamond: Sure. So I would say that our view of non-COVID is not influenced by what the recent activity and uptick we've seen in COVID cases. That is not why we're assuming that it runs below the baseline. Our view is, again, just based on the trajectory, we've seen that given the level of utilization increase, we've seen that we were at a point where it will be in the plateau and level off and sort of just a new baseline for the back half of the year. As a respect to COVID, as we mentioned, it's just very early in terms of the increase we've seen is literally just in the last couple of weeks. It is still a bit too early to determine whether or not we will see offsetting non-COVID utilization impacts like we have seen in all previous surges. I will say, just this last week, we just began to see some level of reduction in inpatient – non-COVID inpatient as the COVID cases increase. It's simply just too early to really assess the duration that we might see in terms of an uptick and the offsetting utilization. But should we see offsetting utilization in the non-COVID space in order for that not to present a headwind, it would be incremental to the 2.5% that we’re currently forecasting. Joshua Raskin: Got it. Thanks. Amy Smith: Next question, please. Operator: Your next question is from the line of Lance Wilkes from Bernstein. Your line is now open. Lance Wilkes: Yes. Actually my primary question is on the pricing environment. You called out a little bit of pricing environment, I think in group MA. Can you talk a little bit about that pricing environments impacts and magnitude in 2021, outlook for 2022? And then in general for pricing both individual and group, how does this work towards your return to kind of target margins here? And then on the utilization, the one extra thing I’d just ask on that 2.5% below baseline, just if you're getting any indications on impacts of Delta variants on utilization in any of your owned clinics? Thanks. Susan Diamond: Sure. Just to take these one at a time. First is with respect to pricing. You asked an issue about the group MA. And I think as we've said before, the group MA space particularly for larger group accounts continues to be highly competitive and we would expect that to continue and so the margins that we would see on those accounts to continue to be competitive and pressured. I think though, as we think about group MA, there are a lot of other benefits to winning those large accounts in terms of the impact that can have in a local geography on the networks and our ability to work with provider partnerships, et cetera. But we expect that to be continued to be competitive. On the individual side, this is always a process we go through every year to understand sort of the rate environment, the competitive environment, other business performance, we always strive to maintain benefit stability knowing how important that is to our members as well as our sales and distribution channels. So that's always our goal. And there's always a number of puts and takes that we will consider, including the broader enterprise performance as it respects first and foremost, delivering against our overall growth target of 11% to 15% and after considering sort of strategic investments, other business performance and then understanding what's required of our Medicare business and what we're trying to achieve balancing both growth and margin in the long-term. All of those are taken into account. We remain committed to achieving long-term, our targeted individual margin of 4.5% to 5%, and that will vary each year based on those things that I mentioned. But would expect this to continue to progress towards that goal. On utilization, I would say, really it's too early, I think for us to really see anything specific at the clinic level. That information is not as real time available to us as our health plan information. And so to-date, I have not seen anything that would provide us any visibility. I will say, there are some concentrations geographically, as you've seen probably in the press, Florida is a state that is seeing higher rates given we have a concentration of some of our clinics there. I imagine that they would see some, but we actually don't have detailed information on that just yet. Lance Wilkes: Okay. Thanks. Amy Smith: Next question, please. Operator: Your next question is from the line of Ralph Giacobbe from Citi. Your line is now open. Ralph Giacobbe: Thanks. Good morning. I guess going back to the 2.5%, if your assumption is that 2.5% below baseline. I think your original guidance was to run above baseline towards the end of the year. So why wouldn't that represent upside or where is the offset there? And then can you give us how much COVID costs you've seen sort of through the first half against that $600 million full-year estimate? Thanks. Susan Diamond: Okay. As it respect to 2.5%, as you mentioned, I think in earlier calls during the first quarter, we did mention in our original forecast did contemplate over the course of the second half of the year that we would begin to approach baseline and potentially for a short period of time see above baseline utilization related to pent-up demand. So we just projected that to occur later in the year. Our view is that given the rate of which we've seen it bounce back more quickly that we have seen that in the first half of the year instead. And so at the time, I don't think we've given specifics on sort of the monthly trajectory. But in general, our original forecast going into the year did anticipate a slower return to baseline and could tolerate it, getting to baseline by the end of the year. But as I described in my remarks, because we saw the faster bounce back in non-inpatient and in the first half that was again, largely offset by the reductions in COVID and inpatient, those trends will not continue at the same level. And therefore, we will need to see below baseline utilization on the non-COVID side in order to achieve that full-year estimate of 3.75%. And then could you repeat your second question? I'm sorry about the COVID costs? Ralph Giacobbe: Yes. Just trying to get a sense of what it ran in the first half of the year relative to the updated sort of $600 million. Are you fully through the $600 million at this point? Is that what you're trying to imply? And there's nothing baked into the back half. Just trying to get a sense of magnitude there. Susan Diamond: No. So again, that $600 million is a full-year estimate. It does, just to be clear, include the assumption that the non-COVID utilization will run 2.5% in the back half of the year. So that's contemplated in that. But I don't think we had intended to provide any quarterly detail of how that's emerging. But that is a full-year number. It would not represent just the first half of the year. Bruce Broussard: Yes. Just to highlight on the $600 million. That is – if you were to go to the first quarter or the February earnings release for the fourth quarter. We put together some lows and highs all the way from MRA COVID testing that did press utilization and sequestration. And what the $600 million is as if you were to take that and roll that forward now, all the ins and outs from that would be the net number, that’s $600 million. The operational aspects of our business, as Susan has talked about, is offset all of that $600 million. But included in that $600 million net number is an assumption that 2.5% below baseline will be remaining for the remaining part of the year. Ralph Giacobbe: Okay. Thank you. Amy Smith: Next question, please. Operator: Your next question is from the line of Scott Fidel from Stephens. Your line is now open. Scott Fidel: Hi. Thanks. First, I think you just clarified part of the question that I was going to ask, which is just confirming that the net headwind and tailwind that had been zero in that 4Q 2025 deck, that's now $600 million, right. And then also just on the MRA piece, in that same slide deck, you had called that out at $700 million to $1 billion of expected headwind. I guess, given the update that you guys have given us around the $300 million incremental impact a couple of months ago and then how things came out in the midyear claims review, just interested if you have an updated estimate that we can compare now against that $700 million to $1 billion number. And that's sort of, I guess, just putting this all together, just how this sort of nets out for 2021, putting all the pieces together, what that sort of implies and what you're assuming for your MA pretax margin, so we can think about sort of the earnings run rate now relative to the long-term target margin facts. Susan Diamond: So what I would say, we never at the time, as you mentioned, the schedule that we gave you, which provided a range of $700 million to $1 billion. I don't think at that time, we ever said exactly where we were in that range in terms of our internal estimate. And what we just wanted to clarify was that we have seen $300 million of net pressure incremental to that, which is again, in terms of the schedule offset then by the sequestration. And then can you repeat your second question? I'm sorry, I think it was at 2021. What was your 2021 question, I'm sorry. Scott Fidel: Yes. Basically, just trying to take all the different pieces together and what they net out to what sort of the underlying pretax MA margin assumption is for 2021, so we can think about that relative to the long-term target? Susan Diamond: Yes. So what I would say is as you see in our guidance points, our MER target – our MER range hasn't really changed because of the offsets and the nature of those offsets, they were many within the Retail segment and Medicare in particular. So I would say, in general, there's not material movement in the individual MA margin because the net headwind is largely offset by other positivity. And as we mentioned, the positive prior period development, as an example, as well as the sequestration would be attributable to the Retail segment. Scott Fidel: Okay. Amy Smith: Thank you. Next question, please. Operator: Your next question is from the line of George Hill from Deutsche Bank. Your line is now open. George Hill: Good morning, guys, and thanks for taking my question. And I'm going to try to put in two very quick ones. I guess, Bruce, as I think about the JV investment with Anthem, that's much more of an infrastructure and back-end investment as opposed to more of a PBM JV, if I understand that right. And then just kind of net-net of everything, am I hearing things right that the $21.25 to $21.75 is the right jumping off point as we think about fiscal 2022 EPS, inclusive of all the moving pieces, basically that they're all offsetting? Bruce Broussard: Yes. To answer your first question, you're exactly right. It is an infrastructure investment, and again, it's a utility for the industry, and actually we would enjoy others to join that joint venture over a period of time. In regards to your second question, you're exactly right. The midpoint is $21.50, and that is what we would base our 2022 growth. George Hill: Okay. Thank you. Amy Smith: Next question, please. Operator: Your next question is from the line of Dave Windley from Jefferies. Your line is now open. David Windley: Thanks for taking my question. You touched on this a little bit, but I wanted to try to bring a finer point to it. The 2.5% baseline in the second half, would you expect that not sustaining timeframe, but would you expect that to return to baseline? Or are you seeing some permanent shifts, like, ER utilization that would cause you to stay below baseline beyond 2021? And then what are you seeing in terms of member acuity as the bounce back utilization has come? Are you seeing higher acuity as patients represent for services? Thanks. Susan Diamond: Sure. Fair question. So as we said, the 2.5% represents an average for the back half of the year. I think it remains to be seen at what rate it ultimately settles in at if it come in more depressed in the third quarter and then get closer to baseline. There's obviously a range of scenarios that could emerge, some of which could be that by the end of the year, it gets close to baseline. So I think that until we get to the plateau and then – and see that sustain, I think it'll be hard to assess the long-term, whether that's a long-term new normal or not. So we'll continue to watch that. As for acuity, I would say, so far we are not seeing indicators that there is a higher acuity or there's been impacts from the deferred care in 2020. We are continuing to watch it, but so far we have not seen any sort of systemic indicators of that. And in fact, some of the things that we were able to initiate along with our provider partners to ensure members receiving the needed preventative care through telemedicine were quite helpful during the pandemic. And one data point as an example was that we saw higher medication adherence through the pandemic than we actually did pre-pandemic. So a nice indication that members were receiving the needed preventative care, receiving their medications and hopefully staying on top of their conditions. But so far, we're watching it, but we're not seeing any indications of higher acuity. David Windley: Good. Thank you. Amy Smith: Next question, please. Operator: Your next question is from the line of Rob Cottrell from Cleveland Research. Your line is now open. Robert Cottrell: Hi. Good morning. Thank you. I wanted to revisit the operating cost guidance and how should we think about that for future years, absorbing the full-year costs of Kindred, and also any potential synergies that could offset that into 2022 and beyond? Thanks. Susan Diamond: Sure. As I said, the current year guidance revision was a direct – it directly attributable to incorporating Kindred in the guide. To be quite honest, we're going to need to do some work post-closing an integration to revisit our forward – probably more in 2022, what our guidance points look like and whether they need to change. Obviously within Kindred, they have direct cost of care. Those are all – all of their costs are included in that OpEx ratio. It's not showing up anywhere else in the guide. So that's something we'll look at. So we'll need to see whether there's anything we should break out separately specific to the Kindred business. As a respect to synergies, the Kindred transaction was not really a traditional synergy play. We obviously don't have a home-health business to integrate into – the operations will be largely standalone. We are certainly looking at opportunities to see where we can create some synergies based on the capabilities we have and they have, but I would not expect those to be significant. The real value is going to be on the new products and models that we intend to introduce, particularly the value-based model we shared during Investor Day. That will be the source of value creation as a result of that transaction. Bruce Broussard: And just to reemphasize, we don't see net-net our operating costs going up as a result of the transaction outside of some investments we're making in the short-term as a result of the integration. We continue to maintain a long-term orientation to continuing to increase our productivity. You're seeing that over the last number of years and that has not changed. And the investor shouldn't walk away from that. This is an increasing cost. We continue to keep that as a discipline. I think what you do see is it's just sort of taking one organization that has a different margin and different operating structure and bringing it into our operating structure. And as we bring the two together, we'll have that same emphasis of continuing to improve productivity on the organization. Amy Smith: And I think that was our last question. So Bruce, if you have any closing comments. Bruce Broussard: Yes. And we really appreciate everyone's support. We recognized that this quarter as a result of the transition year of COVID is a difficult one. We are very oriented to continuing to have the transparency between what is COVID and what's operational. And I hope you guys can just discern between those two as we continue to have further questions on the operational performance. That being said, I do want to leave the investors with the understanding that we continue to believe that the organization’s operational performance in 2021 has been very strong as a result of what you see and just some of the operational offsets to some of the headwinds from COVID. And then secondarily, as we see 2022, we did take a very conservative view into pricing in our planning for both AEP and as we start to enter the AEP season, I think you guys will see that thoughtfulness and reflect some of the uncertainties that maybe continue into 2022. So as always, we appreciate your support and we also appreciate our teammates continued to drive to both improve our operating performance and serve our customers in the best we can. So thank you. Operator: And with that, this concludes today's conference call. Thank you for attending. You may now disconnect.

Operator: Good day and thank you for standing by. Welcome to the Humana First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] Please be advised that today’s conference is being recorded. [Operator Instructions] With that, I would now like to hand the conference over to your speaker today, Amy Smith, Vice President of Investor Relations. Thank you, and please go ahead. Amy Smith: Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer; and Brian Kane, Chief Financial Officer, will discuss our first quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Brian for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. Additionally, we have posted supporting materials to our Investor Relations page related to the Kindred at Home transaction announced last night. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K, our other filings with the Securities and Exchange Commission, and our first quarter 2021 earnings press release as they relate to forward-looking statements and to note, in particular, that these forward-looking statements could be impacted by risks related to the spread of and response to the COVID-19 pandemic. Our forward-looking statement should therefore be considered in light of these additional uncertainties and risk along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our Investor Relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard. Bruce Broussard: Thank you, Amy, and good morning, and thank you for joining us. Today, we reported adjusted earnings per share of $7.67 for the first quarter of 2921, and reaffirmed our full-year 2021 adjusted EPS guidance of $21.25 to $21.75. Our first quarter results reflect solid performance across each of the company's segments fueled by strong individual Medicare Advantage and state based membership growth and improved profitability in the group and specialty and healthcare services segments. As we continue to navigate the pandemic, we also meaningfully advanced our strategy during the quarter. I want to congratulate our Medicaid organization on this significant contract award in Ohio, which when combined with recent additions of Oklahoma, South Carolina, and Wisconsin brings our Medicaid footprint to seven states. These additions affirm our capital efficient organic growth strategy and further demonstrates the strength of our Medicaid capabilities built on our Medicare Advantage chassis. We also continue to deliver a compelling dual special needs plan membership growth. [This net membership] increased approximately 23% in the quarter, and we now serve more than a half a million [these net members]. We remain committed to proactively addressing disparities in health care for underserved populations, and recognize them Medicare Advantage and Medicaid plans are uniquely positioned to address the needs of these members. Data shows that Medicare Advantage is continuing to grow as the preferred option for those who are low income and for racial and ethnic minorities, with more than 28% of Medicare Advantage beneficiaries being racial and ethnic minorities, as compared to 21% in Traditional Medicare. Currently, 55% of Latino and 39% of African American beneficiaries have actively chosen to enroll in MA, and there is growing diversity in enrollment because of the value provided to beneficiaries. The ability of MA plans to adapt to change and drive innovation and better clinical outcomes is why today nearly 27 million seniors have chosen MA over original Medicare. Our ability to drive innovation and improve clinical outcomes is enabled by our strong integrated care delivery platform. And in recent years, we have significantly expanded our healthcare service capabilities from primary care to pharmacy to home care and more, in order to better serve our medical members and to significantly strengthen our payer agnostic care offerings. These services help deliver on the promise of better quality and health outcomes, lower costs, and a simpler more personalized experience for the people they touch. These advancements also provide a solid foundation to ultimately serve individuals beyond our MA membership base, including original Medicare fee for service members as we continue to evolve and expand beyond managed care to a broader clinical services orientation, but the ability to manage risk and coordinate care outside of MA. During the quarter, we took the next step in this evolution introducing CenterWell as the new brand to unite our broad range of payor-agnostic healthcare service offerings. The CenterWell brand speaks to how we put our members and patients at the center of everything we do. The first Humana owned services to adopt the brand are partners in primary care and family physician group named CenterWell Senior Primary Care. We're also accelerating our strategy around the home. And as I will discuss in a moment, the Home will be the next service to adopt the CenterWell brand. We see the home coupled with our primary care strategy as the next meaningful opportunity to improve access to quality, proactive care for a broader senior population. As such, we continue to invest in assets that allow us to better manage the holistic needs of our members and patients by expanding care in the home, including primary care, telehealth, and emergency room care are also addressing social determinants of health. The home health industry is among the fastest growing healthcare industry in the U.S. as a result of an aging population, the prevalence of chronic disease, and growing physician acceptance of care in the home. This need has only been accelerated by COVID-19. However, we recognize for some time that the current volume based fee for service model has limited the innovation and home health. Accordingly, in 2018, we acquired a 40% interest in Kindred at Home, embarking on a journey to test and learn innovative clinical models in the home with a goal of evolving home health to value based payment models. Today, Kindred at Home employs approximately 43,000 caregivers, providing home health, hospice, and community care services to over 550,000 patients annually. They have locations in 40 states providing extensive geographic coverage, with approximately 65% overlap with Humana’s individual Medicare Advantage membership. Yesterday, we announced that we signed a definitive agreement to acquire the remaining 60% interest in Kindred at Home. As detailed and the press release, we issued last night, the Kindred at Home transaction represents an enterprise value of $8.1 billion, including the value of Humana’s existing 40% equity interests. This acquisition, which is expected to close in the third quarter of this year is the largest in Humana’s history, and comes at a pivotal time in healthcare. When a worldwide epidemic has exasperated the existing disparities in health care for underserved populations and highlighted the power of telehealth and in-home care and addressing those disparities. Further, the pandemic has reinforced patient’s increasing desire for convenient and personalized delivery channels, requiring innovative homecare offerings. The acquisition of Kindred at Home will provide us with an extensive network of nurses, a critical distribution channel for delivering care in the home. However, we recognize the need for innovative home care offering at scale. Through our successful partnership with Kindred’s management team and our Private Equity Partners, over the last few years, we have proved that altering the nurses’ clinical interaction in the home improves care. We've demonstrated that we can reduce the cost of care and provide value to shareholders through additional referrals to Kindred, advancing effective clinical interventions in the home and supporting higher acuity patients by leveraging other home-based assets we've assembled. Humana at Home Health Episodes served by Kindred at Home has increased from 8% to 19% overall in markets with geographic overlap, reaching penetration as high as 49% in certain key markets. In addition, Kindred at Home continues to demonstrate superior patient outcomes, including reduced hospitalizations, admissions, and ER utilization, management’s successful transition of Kindred at Home to an independent home health and hospice company. The strong and growing core business is reflected in Kindred’s solid historical EBITDA compounded annual growth rate of approximately 20% since 2017. Our demonstrated ability to deliver savings to health plans through reduced hospitalizations, and the ability to drive increased referrals to Kindred at Home provides us the confidence to accelerate our 100% ownership of Kindred. Full ownership allows us to move from market testing to full scale implementation over time. We recognize the significant value we can deliver to members and patients by integrating this asset into our holistic approach to care. Fully integrating at home, Kindred at Home will enable us to more closely align incentives to focus on improving patient outcomes, and on reducing the total cost of care. This is critical to deploying at scale, a value-based advanced home health model that makes it easier for patients and providers to benefit from our full continuum of home-based capabilities. By leveraging the best channel to deliver the right care needed at the right time, we believe we can deliver outcomes and value beyond what isn't possible on traditional fees for service models. As shown on the slide deck that we posted to our Investor Relations website this morning, Home health utilizers are 5 times more likely to have an inpatient admission within 120 days of the start of their home health episode, as compared to an individual MA member that does not utilize home health. This speaks to the significant opportunity we have to continue to improve outcomes and lower costs for this population. We look forward to sharing additional details about the value creation we plan to drive with our home health strategy at our Investor Day in June. While the acquisition includes the operations of Kindred’s hospice and community care operations, our intent is to ultimately only maintain a minority interest in this portion of the asset. Our experience with hospice demonstrates the integration of palliative and traditional hospice care improves the quality of life for patients transitioning from restorative care to hospice. However, we have been successful delivering the desired patient experience and outcomes through partnership models, demonstrating we do not need to own a majority interest in the hospice asset long-term. Kindred at Home will be integrated into Humana’s Home Solutions business under the leadership of Susan Diamond. When combined our Home Solutions geographic scale, a clinical breath will provide the opportunity to offer care beyond Humana members. And as a result, we will transition to our CenterWell brand as CenterWell Home Health. Luckily, kindred care services will be integrated and coordinated with other care offerings, including CenterWell’s senior primary care, and Conviva, as well as our primary care and emerging care offerings in the home via our investment in Heal and Dispatch Health. Before turning the call over to Brian, I want to acknowledge that this will be his last earnings call at Humana and thank him for his valuable contribution to Humana over the last several years. Among his many contributions, Brian brought rigor to his role in the creation of a strong financial capability not only through sophisticated physical and ongoing operational discipline, but also by developing a deep bench of talent within our finance organization to drive this discipline forward. We wish Brian the very best in his next chapter. As previously announced, Brian will remain in his current role through June 1, and then serve in an advisory role through the end of the year. On June 1, Susan Diamond will assume the role of Interim CFO, while we complete our search for a permanent replacement. Given Susan's strong knowledge of our business and financial expertise, I have great confidence in her ability to lead the finance team as we recruit a new CFO. Susan will also continue to lead the Home Solutions Business. With that, I'll turn the call over to Brian. Brian Kane: Thank you Bruce and good morning everyone. Today we reported adjusted EPS of $7.67, reflecting a positive start to the year across our segments, particularly in light of the impact that the pandemic has had on our results, which we outlined on our fourth quarter 2020 earnings call in February. While the first quarter came in modestly ahead of our previous expectations, it is early, and we are continuing to work through uncertainty related both to our revenue and claims due to the pandemic. Specifically as it relates to revenue, given our significant exposure to Medicare Advantage, we are disproportionately affected by COVID’s impact on Medicare Risk Adjustment or MRA. Our risk adjusted revenue is determined by 2020 [dates of service], medical utilization, and resulting documentation, which as previously discussed was materially depressed last year. In particular, we were focused on monitoring the impacts on utilization from the late surge of COVID cases in 4Q, which occurred following the communication of high level 2021 guidance on our third quarter earnings call. While the extension of sequestration helps mitigate any potential pressure against our estimates, I would remind investors that a critical indicator of 2021 revenue relative to our initial expectations will be the mid-year MRA payment, which we expect from CMS anytime in the next one to three months. The major payment, which effectively rolls forward the dates of service used for 2021 payment to year-end 2020, for mid-year 2020 and incorporates the impact on risk adjusted revenue of our new members is meaningfully more uncertain this year given the 4Q dynamics I mentioned, as this payment requires significant estimation, even in normal times. As it relates to benefits expense, non-COVID utilization is running largely in-line with our previous expectations, and as anticipated, is still depressed relative to baseline. The first three months of inpatient admissions were down approximately 20%, 15%, and 10% in January, February, and March respectively relative to baseline, with the first few weeks of April, seeing non-COVID inpatient trends moderate to around 5% depressed. Separately, non-inpatient spend is also depressed. Although it appears to be rebounding a bit faster than previously expected, with the caveat that the completion on non-inflation claims is much slower, and therefore there were significantly more uncertainty around these service categories in terms of exactly where we stand. Finally, COVID emissions, which tend to have higher unit costs and those of non-COVID came down more quickly than expected in the quarter. The COVID case deceleration moderated in late March, and seems to be holding flat in early April as certain geographic locations have become hotspots. We expect utilization to continue to rebound to par as we move through the second quarter, and to slightly exceed baseline towards the end of the year. Given that we remain in a period of heightened uncertainty, we are reaffirming our full-year 2021 adjusted EPS guide of $21.25 to $21.75, as well as the benefit expense and operating cost ratios, notwithstanding the favorable first quarter results. This represents adjusted EPS growth of 16% above the 2020 baseline of $18.50 at the midpoint of our guide, nicely above the high-end of our long-term EPS growth target of 11% to 15%. I would note that we have been consistent in our expectation of adjusted EPS growth above our long-term target, since we provided our initial 2021 commentary on our third quarter 2020 earnings call in November. Additionally, we expect our second quarter adjusted EPS to reflect a low 30s percentage of our full-year adjusted EPS. As we look ahead to 2022, we are pleased that our members appear to be engaging in more routine interactions with their providers, which we anticipate will result in more normalized Medicare Advantage revenue next year, as providers are able to ensure that our members are receiving an appropriate level of care and that their conditions are being documented. While it is of course too early to provide 2022 guidance, I would note that as we think about our Medicare Advantage for 2022, our intention is to reflect the continued uncertainty associated with COVID-19 in our premium and claims assumptions. In addition, I would like to reiterate that the appropriate baseline for calculating 2022 adjusted EPS growth is $21.50 the midpoint of our 2021 guidance range. I will now briefly discuss each of our segments performance in the quarter. In the retail segment, in addition to the revenue and claims dynamics I discussed, our Medicare Advantage growth remains comfortably on track and consistent with our previous expectations, with individual MA growing solidly above the market and an expected 11% to 12% increase. As Bruce indicated in his remarks, we experienced robust growth and decent membership added 95,000 members in the first quarter with an additional 12,400 added effective April 1. I also want to Bruce’s congratulations to our Medicaid team on their State Contract Awards in Ohio and Oklahoma, along with our application approval in South Carolina during the quarter, an incredible achievement, demonstrating the strength of our Medicaid capabilities. In our Group and Specialty segment, consistent with our commentary on our last earnings call in February, medical membership declines on account of COVID were less severe than initially expected coming into the year. The segment performance continues to improve. And we continue to execute on the first phase of a multi-year plan to grow our group commercial and specialty products, bringing in strong new talent, increasing our local presence in certain key markets, and deepening our partnerships with innovative companies. Our dental network expansion is proceeding ahead of plan. Our small group commercial medical pipeline volume is back in-line with pre-COVID levels, and our net promoter scores for our large group medical accounts were at a record high for first quarter performance. Finally, our healthcare services operations remain on track with our previous expectations. In our pharmacy operations, we continue to pursue pharmacy initiatives that we expect to further increased mail order penetration as the year progresses. I would note that this anticipated spend to accelerate growth coupled with labor related over time and shipping costs due to weather related disruptions in February, did modestly impact the pharmacy business results in the court. CenterWell senior primary care and Conviva are performing well and we continue to execute on our clinic expansion with Welsh, Carson. Kindred at Home is also delivering solid results, and as Bruce indicated in his remarks, we are accelerating our full acquisition of Kindred at Home. With respect to Kindred, last night we announced that we signed a definitive agreement to acquire the remaining 60% interest in Kindred at Home for a total enterprise value of $8.1 billion, including $2.4 billion associated with our current 40% equity interest. We do not anticipate the material impact to non-GAAP or adjusted earnings in 2021. We expect the transaction to provide modest additional financial flexibility as we set targets for 2022 earnings. Although I would note that binding Kindred has long been a part of our financial planning process, which is included providing capability to build on our clinical capabilities and value-based care model. In addition, we intend to exclude one-time transaction and integrated costs related to the acquisition from non-GAAP earnings. Key financial terms are outlined in the slides available on our website accompanying today's earnings call. The innovative partnership we created with Welsh, Carson, and TPG will deliver significant strategic and financial value to Humana. Executing on the Kindred at Home transaction now, versus waiting for the contracted sponsor put option that would likely not be exercised until mid-2022 given the assets strong EBITDA growth not only accelerates the strategic benefits as Bruce described, but importantly allows us to acquire the nation's largest home health and hospice company for a multiple meaningfully lower than where comparable public companies are trading today. Additionally, we expect that we will be able to capitalize on the robust market for hospice assets by diversity a majority stake in that portion of the business and what we anticipate will be an attractive valuation. As to the EBITDA multiple we're paying for Kindred at Home, investors should consider the $5.7 billion purchase price for the remaining 60% interest, plus our initial investment of $1.1 billion for our 40% stake in 2018, which went grown at a reasonable 8% weighted average cost of capital for a present value of $1.4 billion equates to a total cash purchase price of approximately $7.1 billion all in. When using a normalized full-year 2021 estimated EBITDA for Kindred at Home, inclusive of hospice and community care, the transaction EBITDA multiple is approximately 11 times. It is important to note that the normalized EBITDA excludes expected home care and hospice investments and clinical capabilities and value-based care models, one-time costs, including transaction and integration expenses, and any potential synergies. Expected synergies will primarily result from the meaningfully enhanced clinical capabilities Bruce has described, which will materialize over time in addition to the EBITDA benefit of in-sourcing further Home Health Episodes from other home health providers. One other important note regarding the financial value created that I would mention, after adjusting for our intended divestiture of a majority interest in the hospice and community care assets at a reasonable market valuation, the implied transaction EBITDA multiple for acquiring nation's largest home health business would be in the mid-to-high single-digits based on the roughly 50/50 split of the EBITDA between the home and hospice community care segments. As far as the transaction financing is concerned, we expect to fund the $5.7 billion purchase price, which again is net of our existing equity interests with a mix of parent company cash and debt financing. The transaction is expected to close in the third quarter of 2021, subject to customary state and federal regulatory approvals. Immediately following the closing of the transaction, we expect our consolidated debt-to-capital ratio to be in the low-40s with significant de-leveraging expected post divestiture of the majority stake in hospice and community care. We expect the debt-to-capital ratio, including assuming a customary level of share repurchase to return to a more normalized target leverage level during 2022 freeing up the balance sheet for further capital deployment. We anticipate maintaining our investment grade credit rating as a result of this transaction. Before we open the line up for questions, I want to take a moment to thank our associates, shareholders, and sell-side analysts for their support over the last seven years as this will be my final Humana earnings call. I'm very proud of what the company has accomplished in a period of rapid transformation. And I know that under Bruce’s leadership, and with the support of the outstanding team across the organization, the company is well-positioned to [keying to] execute on its strategic plan and deliver significant shareholder value in the years ahead. It's been a true honor to serve the millions of Humana members, and I'm grateful to have worked with so many talented colleagues. I remain fully committed to a seamless transition in the coming weeks and months. And I'm very excited that Susan Diamond will serve as Interim CFO. Susan is someone I've worked with extensively over the last seven years and is one of the most talented people I know. With that, we will open the lines up for questions. In fairness to those waiting in the queue, we ask that you limit yourself to one question. Operator, please introduce the first caller. Operator: Thank you. [Operator Instructions] We have our first question come from the line of Matthew Borsch from BMO Capital Markets. Your line is open. Please ask your question. Matthew Borsch: Yes. Good morning. I was hoping maybe you could elaborate a bit on the increased competition that you're seeing in the group Medicare Advantage area, what you think is driving that and how you think that might settle out? Bruce Broussard: Sure, I'll take that. Good morning, Matthew. Matthew Borsch: Good morning. Brian Kane: Well, as we mentioned, it really – several calls, the group MA market, particularly on the large scale accounts has continually become more competitive. There are several players who you know well who are pursuing these accounts. And, you know, they're obviously attractive pieces of business, their large membership, significant revenue. And you know, there are positive knock on effects as well to winning these accounts, in the local markets in which we operate with respect to providers, etcetera and visibility. And so, there's a lot of competition for these accounts. We remain very well positioned there. Our Group MA team has really been very smart about how they've underwritten these accounts. We're not going to chase accounts down to profitability levels that we don't think are sustainable. And so, we're being prudent and thoughtful as we pursue these opportunities, but again, feel very good about how we're positioned in Group MA notwithstanding the competition there. I would note one thing though, that at the smaller group account size or mid level accounts and small level accounts, the profit margins are better, and more attractive from a profitability perspective. Bruce Broussard: We are trying to – just to add to Brian's comment, we are trying to differentiate through the service component of that and we do find as a result of employers being responsible for the selection of this. That's an important differentiation. It’s not always going to win over price, but we've found a number of accounts that has won over price. Matthew Borsch: Thank you. Operator: We have our next question come from the line of Robert Jones from Goldman Sachs. Your line is open. Please go ahead. Robert Jones: Great, thanks for the question. I guess, maybe just one on the headwinds and tailwind and appreciate the qualitative commentary around utilization and COVID testing and treatment. Just wanted to see if those ranges you had laid out last quarter around those headwinds are still, kind of how you're seeing the world one quarter in? And then on the tailwind side, I know you were looking at the sequestration relief of I think just one quarter, last quarter, and now with it being pushed out to the end of the year, just wanted to get your latest thoughts on how that’s being contemplated within the updated guide? Thanks. Brian Kane: Well, I would say that the ranges that we laid out in the fourth quarter call are consistent with what we're seeing today. And so we remain within those ranges. And again, that's, you know, I think, why we're comfortable, obviously reiterating the guide that we've put forward today. The sequestration clearly is positive from an earnings perspective. But I think we have to consider that in the context of the overall headwinds and tailwind that we see over the coming nine months. And so while that certainly, as we mentioned in our remarks, is a positive tailwind to offset any potential pressure that we might see over the coming months. You know, it's still very early. And so that's why we reaffirm today. Robert Jones: Got it. Appreciate it. Best of luck, Brian. Brian Kane: You bet. Operator: Our next question comes from the line of Justin Lake from Wolfe Research. Your line is open. Please go ahead. Justin Lake: Thanks. Good morning. First, let me wish Brian, good luck as he moves on. And thanks for everything over the last seven years Brian. It's been a pleasure. And then my – I wanted to follow-up based on Bob's question here, just, kind of to narrow it down a little bit, you know, my read of, kind of your updated view on 2021, is that, you know, you feel more comfortable about offsetting the headwinds that you kind of lined out in January given where trends coming in, plus that benefit of sequestration and that the remaining swing factor here, is that risk adjustment true up in June? Am I thinking about that correctly first? And then if so, any thoughts on how wide the outcome could be on that true up? And then lastly, can you tell us how you're doing with recapturing risk scores for 2022? Thanks. Brian Kane: First of all, Justin, thank you for the comments. You know, with respect to – we'll start with risk adjustment. You know, obviously, there are ranges of outcomes, and you know, it could be material, and so, you know, I would say as we think about, you know, potential headwinds and tailwinds that is one that we're very mindful of. And it's something that, you know, as I said to the last question, the sequestration is helpful, but it's still early. And so, you know, I would say that we're sort of in similar posture as we were last quarter at this time. There are headwinds and tailwinds that we that we look at. And we want to be, I think, pretty cautious as we head into the last five months of the year, because there's still a lot of uncertainty. And clearly, MRA is an important element of that, but there's also the claim side, which we have to see unfold over the next nine months. And we obviously have assumptions about how claims are reverting to baseline levels, which they seem to be doing, sort of in-line with largely as we expected. I would say, you know, non-patient, maybe a little bit faster, but you know, sort of in the range and inpatient in-line COVID coming down faster. So that's obviously a positive. So, there are a few puts and takes in those numbers, but I think there's a bit of a ways to go before obviously, we're fully comfortable there. As it relates to the documentation for 2022, as I mentioned, we are feeling reasonably good about what we're seeing so far. It still is early, but the documentation codes do seem to be coming in, in a way that makes us feel good about 2022. We've been effective in getting into the home through our in-home assessments program. We ramped those up pretty meaningfully and so that I think is a positive sign for 2022, but we also will be cautious as we price 2022 and run, you know range of scenarios to understand what the various eventualities may be on both revenue and claims as a result of the pandemic. Bruce Broussard: Yeah, Justin, maybe I can just reiterate what Brian is saying. You know, we obviously had a good quarter and I would say that we, as Brian has said, as we’re early into this we’re looking at the assumptions we made in setting out the year. And this is, you know this is a good growth year for us, which can be in excess of 15%. And we just want to make sure that we see how the rest of the year plays out more before we adjust any of our estimates there. And I think that's probably the best thing that investors should take away from, is that we still are confident in what we've put out there as an assumption side, but it's the first quarter of four quarters here. Justin Lake: Thanks for the color. Operator: We have our next question come from the line of A.J. Rice from Credit Suisse. Your line is open. Please go ahead. A.J. Rice: Hi, everybody and best wishes, Brian as well. It's been great working with you. Just maybe I'll go and ask about the Kindred asset. You know, as you describe the way you're calculating that 11 times purchase price, I may not be thinking about it rightly, but if it's 3.2 billion of revenues, and 11 multiple that you pay, given your purchase price, it was implied, sort of operating EBITDA of about 645 million. I wondered if that was the right way to think about it. And then if you got clarity on how you're going to get rid of the hospice businesses that had open for sale, is it a spin off? And will that hospice business then be able to get back into adult home care and compete with Kindred or is there limitations on that hospice business? Bruce Broussard: A.J., I'll take the latter question and then Brian can just verify the multiple side. We are in the early stages of spinning it off. So there is definitely a commitment of us to spin it off. Our intentions would be to move down the road of possibly an IPO, but there's long ways between here and there and we understand that this is a great asset. As an asset it is a leading hospice asset in the marketplace. It is, you know, it's got great operations from an operating point of view, strong management team. And so, I think it is going to be an asset that is going to have a lot of interest from multiple different buyers so to speak. We haven't worked out the contractual terms of can they re-enter into the home, home business, I think even if they were to do that, it is a fragmented industry, but it is also an industry that, as you all know, because of the legalities of licensure issues and being able to get a home health license isn't the easiest thing in the world, especially both in [CLN states] and to get a Medicare reimbursement side. So, we do believe that there's various entry and just getting into the business. So, we're less worried about that. Brian Kane: Yeah, I would say A.J. on the EBITDA that's, you're broadly thinking about it right, in terms of the numbers. A.J. Rice: Okay. Okay, thanks a lot. Operator: We have our next question come from the line of Kevin Fischbeck from Bank of America. Your line is open. Please go ahead. Kevin Fischbeck: Okay, great. Thanks and thanks, Brian, for all your help over the years. But I guess, I still struggle a little bit with this guidance number. You know, we were coming up with the sequestration benefit being, you know maybe as much as [$1.5 or so]. And so, I guess, this lower visibility, I guess, today than when you had, you know, last year, or we provided guidance for Q4 is a little surprising to me, it's not necessarily something that I'm hearing from the other managed care companies. I just want to hear a little bit more about why you think there is still so much, you know, lack of visibility in that number at this point, even though Q1 came in better where there was good PPD and now you've got a big sequestration tailwind, it seems like that uncertainty would have to be significant. And then if it is significant, you're still reaffirming this number as your base for thinking about 2022, you know, how can you feel comfortable that you would be able to fully reprice that into next year? Bruce Broussard: Well, I guess there's a lot in that question. I would say first of all, in terms of our confidence for pricing next year, I mean we, as I said in my remarks, we're going to reflect any uncertainty that we see in [our bids] to ensure that there are, you know, any issues that we can contemplate here with respect to various scenarios that may play out, we would have considered in our bid. So, I think that's the first thing. So $21.50 you know, from a pricing perspective we feel very good about. We also feel good about the reiterating guidance that we provided today. I would say, relative to perhaps some of our peers, we have a much higher concentration of Medicare revenue. And Medicare claims, which I think in many respects, particularly in the revenue side have more volatility, but on the claim side as well, you're making assumptions about how seniors who have not used the health care system for a long time, how they're going to respond to the next, you know, call back half of the year. And in that regard, we just want to, we think it's appropriate to be cautious about how they might use the system in the back half of the year, especially as we saw, again, the depressed utilization in the fourth quarter, how does that all play through. And so that's, I think, appropriate caution. As we said, the sequester benefit is beneficial for obvious reasons. So, that is clearly a tailwind by understanding how impactful on our revenue numbers, the last fourth quarter was is still out there, in particular, because the way the mid-year payment works is it rolls forward, for the last six months of the year, in terms of how we get paid, and understanding of the documentation codes that were collected is something that we really need to understand, you know, both on existing members, as well as, frankly, new members. We get a lot of new members every year. Remember, it's not just the net growth, but it's just the number of new sales that we have. And so from that perspective, there's uncertainty there. Again, I feel pretty good about where we are today, but we don't think it would be appropriate to change our guide. The last point I'd make is, we came into the year committed to our 16% growth rate, which was above our target. And that's, you know, that's where we continue to be. We, you know versus perhaps some of our other peers, those numbers have not modified. And we obviously put out a number of ranges on a number of variables here, which, you know, are a reasonable amount of uncertainty starting from the fourth quarter. And as I mentioned that continues, but again, I think the first quarter is a good quarter, but there’s still ways to go. Kevin Fischbeck: Okay great. I assume, just real quick, when you say that you'll know the number when you get the payment from CMS mid-year, does that mean with Q2 results, but you kind of have the answer, you know, the coding benefit will be know and then sequestration will come in and we would expect an updated guidance for Q2 event, is that how to think about it? Bruce Broussard: Well, depends, I mean, possibly, I mean CMS changes, you know, each year exactly when they give the mid-year payment. My guess is, we will have visibility by the second quarter call, but there's no guarantees, but I would say most likely by the second quarter call, we will have some visibility into our mid-year MRA payment. Yes. Kevin Fischbeck: Okay. Thank you. Operator: We have our next question come from the line of Josh Raskin from Nephron. Your line is open. Please go ahead. Josh Raskin: Thanks. Good morning. I'll echo the congratulations as well as the thanks for Brian as well. So my question is just on the segmentation, and what does it look like? What does the, you know, the segments for Humana look like if we think, you know, sort of three years out, I'm interested in both, sort of organizational operational structure of a company, but also reporting and I’m really concentrating on, kind of what businesses you are going to be included in? I don't know what you'll call, sort of a non-insurance segment, it sounds like most of the branding is going towards care well, and sort of, what sort of disclosures and thoughts you guys have on that? Bruce Broussard: Let me start and I’ll ask Brian to add. You know as we are building a healthcare services division, I think [indiscernible] component, which will, you know will have – start out with our pharmacy business, which is the largest part of the business, our primary care business will be part of that. And our home health business will be part of that and then we'll have some other health care services area there over time. Those would be the three primarily large driving profitable arms of the organization there. They will serve multiple different markets. They will serve our existing members and be integrated with our existing members through technology and the service component of that. They will also serve in when in the appropriate area. Medicare fee for service areas such as direct contracting would be an example of that. And they will serve other providers, I mean, other payers, as we do today in value based payment models, and we'll take full risk. So, the opportunity we have is to take advantage of the – in the organic growth of each of those markets, to be able to then integrate those together and take advantage of offering a value-based offering two different payment mechanisms whether it's within MA to other payers or within a direct contracting area. And then in addition, it's also the opportunity for us to serve our existing members there. And so, I think you'll see the CenterWell segment the just evolving to be the – our healthcare service segment. Josh Raskin: And are there short-term thoughts on increased disclosures or rebranding or re-segmentation? Bruce Broussard: I think with the entree onto with Kindred, I think we will have to bring in other discussions there. And I think that probably as we close on Kindred, you'll probably see enter the 2022 you'll probably see more enhanced statistical side of the operational aspects of our healthcare service division. Brian Kane: Yeah, and I would just add that just in terms of what we disclose today on the healthcare services side, as Bruce said, you know a lot of our revenue today is in our company because of the pharmacy segment. And obviously, CenterWell primary care has, it is a payor-agnostic business and has external revenue, which we'll see in Kindred though, because it's not like payor-agnostic, but also, obviously serves the fee-for-service program, it will be a lot of, you know, that $3.2 billion of revenue, you know a good proportion of that is obviously non- Humana’s. So, you'll see more disclosures there and we’ll provide more, you know, operating metrics around that as well. So, I think you will get enhanced disclosure. We try to be very transparent with investors in our various businesses and I think you'll continue to see that going forward. Josh Raskin: Perfect, thanks. Operator: We have our next question come from the line of Dave Windley from Jefferies. Your line is open. Please go ahead. Dave Windley: First I wanted to focus on utilization, looking specifically in the retail segment we're estimating that maybe the impact of the HIF and the net increase in [PYD] this year or maybe about the same size. And so, if I neutralize those out, your MLR on, kind of an apples to apples basis for the first quarter would have also been up about 100 basis points, is that right? And then as you think across the balance of the year, how are you thinking about utilization coming back in terms of acuity and then any permanency in terms of [sight of service] shifts and things like that that would impact intensity in medical costs as the year progresses? Thanks. Brian Kane: Yes. So let me start with the MER question. The way I would think about it year-over-year is, we were about 110 basis points above last year. The difference in PYD was about [110 million]. Coincidentally, also 110 basis points, so call that 220. The HIF and memory, you have to tax affect it because we did give some of that back to members, it composes a good portion of that 220. And I would say, the group phenomena that we call about and the PDP mix is not insignificant in terms of impacting the MER. So I would, if you want to do an apples to apples incurred basis, I would actually say, the MER got better year-over-year if you exclude prior periods, and you just do it on an incurred basis, other than, like I said, you know, the group MER, as we expected, and as we price for it, you know, I think that does have an impact on the overall margin in the retail segment, as I think we've discussed on the last call. With respect to your utilization bouncing back, we do assume as we mentioned that there will be – we expect to bounce back utilization, we are starting to see that, again, in-line with what we've expected, particularly on the inpatient side as more people are using the hospital facilities in particular, but they are still below par. We do expect the utilization of the system to run at or perhaps a little bit above par as the year continues. We're not seeing increased acuity as yet, although, as I mentioned, with respect to both 2021, but also 2022, we just want to be mindful of how acuity or “long haulers” might play into our cost base, particularly for later this year, or next year. And so, we're definitely mindful of that, as well as any just general bounce back and utilization in the system. And then on the side of service side, we'll see where it goes. We have seen a decline in SNF usage, and that's moved into the home, which I think also, frankly, helps validate the thesis behind the Kindred transaction, just as more and more cares is taking place into the home and as Bruce outlined in his remarks, doing everything we can to make the home a much more comprehensive setting where care can be delivered. And so, I think our belief is that will continue whether members are more shy or shy away from the institutional setting, or [Technical Difficulty] I would say that [Technical Difficulty]. Operator: Excuse me. This is the operator. I apologize, but there will be a slight delay in today’s conference. Please hold and the conference will resume shortly. Thank you for your patience. [Operator Instructions] Brian Kane: Okay. David, are you still there? We are on the call. Dave Windley: Yes, I am still here. Brian Kane: Sorry about that. We’re in a conference room here and something just happened. We don’t know what it is. So, I'm not sure where I got cut off. I heard a little beep. I think it was right around where we're talking about site of service, site of care, is that where we got cut off? Dave Windley: Site of service. Yes, you were. Brian Kane: Okay. I tell you, when I said it was actually very profound, so I’m going to see if I can repeat it again this type with feeling. So… Dave Windley: You were on a role. Brian Kane: Okay. I’m going out with a bang here. So, on the site of service side, it's, we will see what happens in terms of whether seniors are less comfortable about using the institutional setting. We think it's possible that that could happen. It's certainly not something that we're going to underwrite in our – either assumptions this year or bid assumptions next year, but it's possible. Amy Smith: Did you hear this missed comment? I want to make sure that when that cut off. Dave Windley: I’m sorry, what [indiscernible]? Brian Kane: We are seeing, I think you went for the SNF comment [indiscernible] we are seeing lower skilled nursing claims and that people are using the home in that regard that validated – one of the validation points of the Kindred transaction. Hopefully you heard that part as well. Dave Windley: Got it. Very good. Thank you. And best of luck, Brian. Thanks. Brian Kane: Thanks, Dave. Appreciate it. Amy Smith: Next question, please. Operator, are you on the line? Operator: Yes. Your next question comes from the line of Scott Fidel from Stephens. Your line is open. Please go ahead. Scott Fidel: Hi, thanks. Good morning. And I'll just echo my best wishes, and thanks to Brian as well. And question – I know, it's been a theme throughout the call just around some of the trends that you saw in the first quarter and then keeping the guidance unchanged, but did want to just throw in a bit to group in specialties and looks like you actually achieved considerably more earnings in the segment in the first quarter relative to the full-year, reaffirmed guidance for that segment. So, I think that in particular looks just pretty conservative right now. So, and obviously that's a segment that's not really exposed to this uncertainty around the risk adjusted dynamic in Medicare. So, just maybe a little insight into that in terms of, still just wanting to see how utilization ultimately develops or are you planning on, sort of leading into that tailwind to increase your investments within that sector? Brian Kane: Well, thanks for the question Scott. Thanks for the comments. I mean, I think you're reading it, right. I mean, we're very, you know, pretty bullish on how group and specialty is doing this year. It is early. They do not have the same types of, you know, headwinds that Medicare does, certainly on the revenue side, but it is early. The prior year development was a positive note. The incurred results that we've seen, we feel good about. The specialty results are also doing well, specialty, meaning dental. And I think the military business is having a good start to the year. So, really all elements of our strategy are on course, and the financial performance, I think is showing, but as you rightly point out, it's still very, very early. And so we want to see a few more quarters develop. Scott Fidel: Got it? And Brian, just are there targeted investments that you would look to lean in on that, or is the scenario where the trends continue to look like that’s where you could ultimately revise the guidance around that for the year? Brian Kane: You know, I would say that that you're probably more leaning towards more earnings in this segment than investments. We've built in investments into our guide already. And then there are things around the edges that we would always do in a good year just to shore up the segment for future success and something that we really want to do because we think there's, we think there's really a lot of growth in this segment potential and really an opportunity to disrupt the current market as it exists. There's a lot of appetite to do that among our customer base and so we will be prudent as we look to make investments, but I think if you said there are meaningful outperformance on the earnings side, we would imagine that that would flow through. Scott Fidel: Okay. Thank you. Operator: We have our next question come from the line of Ralph Giacobbe from Citi. Your line is open. Please go ahead. Ralph Giacobbe: Thanks. Good morning. I was hoping to just flesh out the group MA commentary a little bit more hoping you could frame the magnitude of the pressure from that alone. Because if I heard right, Brian, I think you said that [core-MLR] was actually better year-over-year, so pretty sizable jump in group MA, and then it sounds like that's more of a premium issue than a cost issue. So, I guess how does that get fixed at this point? Thanks. Brian Kane: Okay, I wouldn't have characterized it as a problem. I would just say to Matt’s initial question that the market is more competitive at the high-end of the range, and these are large accounts. So – and just given the high PMPM premiums, you could have pretty significant revenue dollars here at lower margins. And so, I wouldn't call it a problem. I would just say, when you look at the overall retail segment MER, I think it's important to normalize for some of the impacts there. And so, if you sort of strip that out and you look at, sort of year-over-year, I think we're – from an MER perspective in a pretty good position. And so, I wouldn't want to quantify it specifically or meant to say, I think, you know, anything not made up by the sort of HIF, including the tax benefits, some of which we pass through, with the group MER impact because of the lower, bidding on the lower margin levels for these large accounts, as well as frankly, the continued decline of PDP, which also, as we've talked about has, you know, the way the MER dynamics works with, I think you know impacts the first quarter in a way that would also effectively more [indiscernible] to year-over-year. So, we feel good about the year-over-year comparison, but again, I wouldn't get too, too caught off in the in the group MA, MER specifically, but rather just an overall commentary on the competitiveness in that one segment of the market. And so it's just something that we're mindful of, and we continue to be very thoughtful about how we price there. Ralph Giacobbe: Okay, fair enough. Thank you. Operator: We have our next question come from the line Ricky Goldwasser from Morgan Stanley. Your line is open. Please go ahead. Ricky Goldwasser: Yeah, hi. Good morning. So question around, sort of how you think about build versus partner, you know, at home is clearly closely aligned with telehealth and remote monitoring. So when you step back and you think about company investment that you need to make in that area, do you think that telehealth is an asset that you should buy or that's sort of something that you can partner with someone on? Bruce Broussard: On the telehealth side, first we will [buy technology]. I think the technology side we would be leasing it or via someone who would lend it to us. We feel that that technology is frankly will be a commodity over time, so that I just want to break down the different parts of telehealth. The second aspect is from who the providers are in there and we always see there is different channels there, one of the partners and our provider value based relationships that we have. Most of them already have telehealth and so we don't need to provide that to them. In our clinics, we today have telehealth and we are utilizing a few different technology platforms and so we are offering that and that's, you know, so we are in that business, but it's through our provider businesses. And then providers that are needing telehealth, we will partner on a [vended basis] with some technology company to offer that that's probably less than a minority part of our telehealth business. The first two will be the majority. And so, I would answer the question, that we don't need a partner. It would be more of a vended solution to offer the technology where we will offer or our partners will offer through our contractual relationships on the provider side. Ricky Goldwasser: And my second follow-up question is on the synergies for the acquisition, I think you talked to one of the areas is the in-sourcing, the home health episodes from other providers, I know that in a deck, you talk about 1.1 billion in spend for Humana [MA members] ended overall it’s kind of 19% of episodes are currently managed by Kindred and then 45% in some select market, so should we think about the opportunity of in-sourcing kind of going from 19% overall to 45%? Is that sort of a good proxy to think about that? Bruce Broussard: I mean, that could be a proxy. I would say that we're not putting any estimates out there, but our intention is to continue to penetrate in the markets, in the markets that we operate and the nice thing about the Kindred asset is it has 65% overlap with for the organization. So, we have a lot of markets that we can go into, but your math is an estimate, but I would also just like I think – our capacity to cover that, because we're not in 100% of our markets. Ricky Goldwasser: Thank you. Amy Smith: Thank you. Next question please. Operator: We have our next question come from the line of George Hill from Deutsche Bank. Your line is open. Please go ahead. George Hill: Yeah. Good morning, guys. And Brian, I'm excited to see where you pop-up in your next endeavor, and I want to wish you well. I guess just as we think about the Kindred and CenterWell initiative stepping back, can you guys talk about your outlook for the regulatory environment and provider risk hearing? And simplistically speaking, it seems to be a more benevolent regulatory environment than the core MA business and should create a better opportunity for returns in the [near-to-medium term method]? Bruce Broussard : I would say from a customer point of view, the regulatory side, because just there's a significant amount of regulation around how we approach the customer and certain rules and compliance around how we service the customer. So, I would say from the insurance component, you would be right. But within each of the care models there is regulatory. I mean there is compliance regulatory, there's, you know, there's obviously licensure requirements, billing and etcetera. So, I would say and it follows a more traditional provider oriented fashion, regulatory environment. But I wouldn't say it’s a free reign here, I would say that it has the proper caveat around it. George Hill: Okay. Amy Smith: Next question, please. Operator: Our next question comes from the line of Lance Wilkes from Bernstein. Your line is open. Please go ahead. Lance Wilkes: Yeah. I certainly wanted to thank Brian as well. And on the Home Health business, could you just talk a little bit about how you're looking at the home care delivery models with physicians like the Heal and Dispatch sorts of models? And would that be the sort of thing if you expanded into that that would be integrated into that business or would it be separate? And I guess, similarly, this frail, elderly, and programs like pace, kind of something you contemplate within this home health segment are those other sorts of business ones? Bruce Broussard: The nice thing about the home channel that we're developing, they have multiple different markets to go into. They're just so – if at the appropriate time pace makes sense, and we can make that market. I think going to that market, our big focus was how do we get geographic coverage? And obviously the Kindred distribution of nurses really provides us that opportunity as serving in different markets. Where they reside in the organization today, Heal and Dispatch relationship resides within our Home Solutions Group, but it is closely aligned with both of the plan and closely aligned with our primary care strategy. Because what we find is the best solution are the ones that are integrated together where the plan is integrated with the provider side, the provider, the primary care is integrated with both going into the home, the clinics, and the home care offerings that we have. So, I would say that it does reside in the Home Solutions area, but the way we operate it is really and the goal is to have it integrated in the markets that we serve. Lance Wilkes: Great, thanks. Operator: Our next question comes from the line of Frank Morgan from RBC. Your line is open. Please go ahead. Frank Morgan: Good morning. Just curious, as part of your capital strategy around this spin off, would you contemplate placing leverage on the spin? I mean, it looks like if you're 300 and some odd million of EBITFA in the hospice side of the business, you could put quite a bit of debt or a couple of terms of debt. So, just curious your philosophy about how you would capitalize the SpinCo? And then secondly, what is it about the hospice and personal care business that makes it more suitable for a partnership arrangement as opposed to ownership, is it just geographic overlap, is it just valuation, what specifically could you say about the reason for that? Thanks. Bruce Broussard: While I take the first one, Brian can talk about the capitalization side. What we find is the palliative – the integration on palliative and hospice is very powerful and being able to offer both of those in an integrated fashion really creates the opportunity for us to partner across the hospice business as opposed to having one vendor so to speak in that. The second thing, hospice is much more fragmented than Home Health, although Home Health is quite fragmented, hospice is much more fragmented. So, our ability to offer hospice in multiple markets, you're going to have to partner anyway. And so what we we've – I think we found a very dangerous solution here where we can still be have a significant relationship with Kindred hospice through a minority ownership, and be able to then utilize that as a opportunity to integrate in the markets that they're at and integrate palliative as part of that, but still have the flexibility to offer it in a broader fashion. Obviously, as we think about where our priorities of capital and where we put capital, you know we were going to put it in the areas that had the most impact and where we can have the most opportunity for growth and we see home having a platform that has multiple different platforms to grow. And so when we think about capital deployment and efficiency of capital, I know, Frank, you've been following us a long time. I think you can say that that is a area that we're constantly looking at as not only the businesses we're in, but also how do we continue to generate above average returns, and the way where we deploy that capital as important to that. Brian Kane: And just to add on the capital question, there's no doubt that hospice is a company that we can leverage. And so it's not something we'll disclose today, but we do intend to put that on the [hospice before] we spend it. And so stay tuned for that. You are correct. Frank Morgan: Thank you very much and congratulations. Brian Kane: Thank you. Operator: And there are no further questions at this time. I'll turn back the call over to Bruce Broussard. Sir, please continue. Bruce Broussard: Thank you. Just to conclude the call, I’d like to just make a few comments. I think first, there's been a consistent question around, you know, basically, why didn't we raise earnings to be completely honest with you, be direct here. We have had a strong first quarter, but we are early in the year. I just want to re-emphasize that we continue to see the trends that we put in the first quarter as being continuing, but we want to make sure that we are able to see those trends through a longer timeframe before we make any kind of adjustments in our estimates there. And I hope the investors take that away. It's much more around – it’s just earlier, as Brian has said early in the game here. The second thing as many of you have said, I thank Brian for his just wonderful contribution over the seven years he's been here and I know he'll show up some place in healthcare and I think you'll – I'm sure that each one of you will invest in what he does on his next goal there. So, because he has delivered a lot of value to our shareholders and to our members and to our associates there. And then third, the quality of our earnings, our strategic advancement this quarter and over the many quarters previous to this couldn't have been accomplished without our 50,000 associates that are working every day on behalf of each one of you, and our providers and our customers there, and I want to thank them for that. So thank you and I hope everyone has a great day. Operator: This concludes today's conference call. Thank you all for participating and you may now disconnect. Have a great day.