Elevance Health(ELV)2024-04-18 16:19Financial Data and Key Metrics - Adjusted EPS for Q1 2024 came in slightly better than seasonal expectations, with an increase of $0.10 to be greater than $37.20 [2] - Operating revenue for Q1 2024 was $42.3 billion, in line with expectations, with a consolidated benefit expense ratio of 85.6%, improving by 20 basis points year-over-year [40] - Operating cash flow in Q1 was $2 billion, or approximately 0.9 times net income, with a debt to capital ratio of 39.4% [51] - Days in claims payable stood at 49 days as of March 31st, up three days from the prior year quarter, primarily due to higher reserves associated with slower claims receipts [51] Business Line Performance - Health benefits and Carelon divisions saw operating margin increases of 30 basis points and 20 basis points respectively, driven by disciplined execution and recovery of commercial margins from pandemic lows [2] - Carelon Services had a strong start to the year with revenue and operating earnings growth driven by risk-based service line expansions and effective cost management, particularly in Carelon Insights and Carelon Behavioral Health [56] - Medicaid business performed in line with expectations, with nearly 90% of members having their eligibility redetermined, and the team working to maximize access to care for Medicaid members [38] Market Performance - Medicare Advantage membership declined slightly due to select market exits, but the company remains focused on profitable and sustainable growth [55] - Medicaid attrition was partially offset by ongoing momentum in the commercial business, with nearly 400,000 commercial fee-based members and over 200,000 individual ACA members added during the quarter [55] - The company was selected in Florida and Virginia to serve beneficiaries across traditional and complex populations, including those with serious mental illness and sole source foster care [37] Strategic Direction and Industry Competition - The company is focused on accelerating capabilities and services, investing in high-growth opportunities, and optimizing the health benefits business [31] - A strategic partnership with Clayton, Dubilier & Rice was formed to build a payer-agnostic advanced primary care and physician-enablement business, serving consumers across commercial, Medicare, and Medicaid health plans [44] - The company is expanding its specialty pharmacy capabilities through acquisitions, including Kroger's Specialty Pharmacy business, to increase access to limited distribution drugs and strengthen relationships with manufacturers [46] Management Commentary on Operating Environment and Future Outlook - Management remains confident in delivering another year of growth in adjusted diluted earnings per share, consistent with a long-term compound annual growth rate of at least 12% [31] - The company is navigating a dynamic operating environment, with disciplined premium rate adjustments reflecting medical cost trends and ongoing recovery of commercial margins [40] - Management is focused on balancing growth and margins in the Medicare Advantage business, particularly in light of CMS's decision to cut Medicare Advantage rates for the second consecutive year [39] Other Important Information - The company was named to Fortune magazine's 100 Best Companies to Work for list for the fourth year in a row and included in their World's Most Admired Companies and America's Most Innovative Companies list [29] - The company is working on significant risk arrangements in oncology and for the seriously mentally ill, with a methodical state-by-state rollout planned for 2024 and 2025 [26] Q&A Session Summary Question: Utilization trends by line of business in Q1 [89] - Utilization in the health benefits business was in line with expectations, with a reported benefit expense ratio of approximately 85.6% [3] - Commercial business saw inpatient and outpatient authorization levels aligned with expectations, while Medicare utilization was as expected, with trends broadly planned for in cost trend assumptions [3] - Medicaid experienced increased state-specific utilization due to redetermination and mix impacts, but the company remains comfortable with the trends [3] Question: Medicaid redetermination and rate adequacy [72] - Approximately 90% of Medicaid members have had their eligibility redetermined, with the process expected to taper down by June [73] - The company has visibility into 75% of Medicaid rates and premiums for 2024, with the majority actuarially sound and ongoing constructive dialogues with state partners [73] Question: Carelon Services margins and full-year guidance [24] - Carelon Services margins expanded by 90 basis points in Q1, driven by strong revenue growth and new internal risk deals [25] - Full-year guidance remains unchanged, with expected transitory quarterly volatility due to the seasonality of the business and timing of new product launches [25] Question: Medicare Advantage rate cuts and 2025 strategy [103] - The company is disappointed with CMS's decision to cut Medicare Advantage rates for the second consecutive year, which will negatively impact seniors [39] - The focus for 2025 is on balancing growth and margins, with a disciplined approach to Medicare Advantage bids and a focus on high-value competitive benefits [80] Question: Kroger Specialty Pharmacy acquisition and script transition [93] - The acquisition of Kroger Specialty Pharmacy is expected to close in Q3 and Q4 2024, adding meaningful scale and access to limited distribution drugs [15] - The company feels confident about the stickiness of scripts and the straightforward integration and transition process [15] Question: Long-term EPS growth expectations [104] - The company remains committed to achieving a long-term adjusted EPS CAGR of 12% to 15% through 2027, with confidence in sustaining at least a 12% CAGR over time [105]