Centene Corporation (CNC) Earnings Call Transcript & Summary

Looks like we're ready to go. So again, for anybody who's just joined us, Lance Wilkes, healthcare services analyst for Bernstein. Really excited to -- I'll have Sarah introduce herself and the like, when we do the housekeeping. We will be taking questions so you can submit things via pigeonhole, and we'll pop those through. We'll go through kind of a fireside chat here. And just on the front end, I did pitch Centene as our top idea and our best idea yesterday for us, and I think it was one of the 6 for the firm yesterday. So to me, a tremendous amount of upside, not just on a 1-year basis, but on a multiyear basis. So looking forward to the conversation. And Sarah, I really appreciate you coming in. And do you want to introduce yourself and just a little bit about the company? And I'll take you through our questions.

Absolutely. So I have been in the CEO role at Centene for just over a year now. I joined the company about 2.5 years ago, initially in a technology strategy role and also sitting over the diversified businesses that the company owned, actually, many of which we've divested in the last 1.5 years. So for folks who are newer to the Centene story, we are one of the largest managed care organizations in the country. So that means we provide health insurance and we enable health care services for more than 26 million Americans. What's unique about Centene is that our focus is predominantly on lower income, complex population. So we are the #1 provider in Medicaid. We operate in 30 states for Medicaid. We're the #1 coverage provider on the exchanges. And we have a pretty unique position in Medicare that, again, is focused on lower income, medically complex populations, so dual and partially dual-eligible members. And we think that's a pretty powerful platform for growth in the long term and also relative to where we think the market is going. But we have been on a journey over the last 18 months, a multiyear journey, to really streamline the organization, to strengthen it and sort of build the right foundation because of the extreme growth that the organization has seen over the last 2 decades, really trying to rightsize the organization overall and then align the right operating model that we think is going to make sense in order to tackle the growth and scale that we foresee in the back half of the decade. So we've talked about that as our value creation plan. We're about halfway through that. It's been going really well. And we set out long-term strategy for the company in December. So thinking about what's that post-2024 vision and the ability to really build on the foundation that we have, deliver long-term 12% to 15% EPS growth, so value for our shareholders. And also, I think, as I said, uniquely positioned to move where we think the market is moving and actually lean in as an incumbent to help push some of that movement as well. So I certainly think it's an exciting story.

Great. Great. Yes, obviously, I do, too. So let's talk a little bit maybe initially framing kind of the long-term vision and how investors should think about where it is you ultimately want to chart. Maybe we'll hit real quick on your recent updates, '24 outlook and things like that after that and then walk through the underlying businesses. But what do you see as kind of a guiding principle or the long-term vision for Centene? And what are the biggest opportunities over a longer term, like a 5- and 10-year sort of horizon?

Yes. So we are -- today, we think of ourselves as a leader in government-sponsored health care. I think long-term vision is to maintain and grow that position, but also leverage the platform that we have to move again where we think the market is moving and I'll talk a little bit more about that. But part of the long-term strategy and sort of the declaration that we made in December was to say, we are going to focus on our core business lines, Medicaid, Medicare and Marketplace. We are not going to get into other diversified businesses, particularly with providers. We want to be more of an enabler. We see the size and scale we have as a leverage point to use partnership as a strategy. And so first, streamline and focus, fortify those core businesses. And that, we think, is a really powerful platform, partly because there is synergy in that platform. If you look across those 3 lines of business, the member base that we serve is all lower-income complex populations. And so we're able to create more of a life cycle for those members through those product lines as they move from Medicaid into employed state, but in more of a Marketplace disposition and then aging into Medicare. We feel like we can carry members through that entire life cycle in a specific socioeconomic strata and one that, quite frankly, is growing in the United States. So we think that is really exciting place to start from. And then when you look at those 3 lines of business, there is great organic growth in each of them. So Medicaid still has -- there's still 20 states that Centene does not operate in. We're starting to see movement. I was just in North Carolina yesterday. They are on the verge of passing the budget that will formalize Medicaid expansion. There's some really interesting dynamics around the states that have not yet expanded. We think there may be some momentum there. that sort of catches with what happens in North Carolina and then moving more high-acuity populations like aged, blind, disabled, severe mental illness, foster care, complex populations into a managed care model. So there's actually a lot of runway in Medicaid that we think we're really well positioned for. In Medicare, as we talked about before, we're actually trimming and rightsizing that book to return to the focus that WellCare originally had on more of the lower-income population. And that then will create a really valuable growth driver for the company in the back half of the decade. And then Marketplace, we've seen tremendous growth this year, partially because of the investments that CMS made in awareness overall as well as affordability that came through the extension of the enhanced APTCs. But that -- so great growth there. We grew really nicely in open enrollment, continue to see growth in the -- throughout 2023 and sort of the SEP population. But that market is particularly interesting because of what we're seeing in terms of individual and family products. And the idea that defined contribution products that ICRA is starting to catch some momentum, the disruption of the small group market. And generally, a hypothesis that there is going to be more demand for individual choice and shopping in insurance and the need for more individualized products and sitting as the leader in that space with the highest degree of brand recognition with the strongest broker network, that becomes a really interesting disruptive opportunity as we look to the back half of the decade. So lots of good growth in the core lines of business, I think, an opportunity for the market to move in a place that we're perfectly positioned. And then the discipline that we've tried to instill in the business over the last 1.5 years, and we'll continue to do relative to our value creation plan is really meant to be sort of run rate discipline in the business around how we manage our cost structure and how we look at opportunities to deliver margin expansion. And so if you sort of roll that up, you've got growth in Medicaid, growth in Marketplace, and growth in Medicare as they exist today, market expansion and margin expansion. And you put that together, that's where you get to the 12% to 15% EPS growth in the long term. And like I said, I think the opportunity to kind of redefine what the individual market looks like.

Yes. That's really interesting. And I guess one follow-up question would be, you guys as a firm always have been really well plugged in, in D.C. and at the state level from a policy perspective. One of the things that -- I think I mentioned this in our pitch yesterday about the company, historically, I think observers never assume that Medicaid and safety net will grow very fast. And yet, historically, like the 30 years pre-COVID, population grew 1%, Medicare grew 2% in enrollment. CAGR in Medicaid and safety net grew 4%. And it's because of continued policy eligibility expansions. And so just interested in your perspective, whether it's ICRA -- and I'm thinking broadly, like not just Medicaid, but any sort of subsidized products, where do you see the opportunities for kind of future growth and kind of TAM expansion for what you're focused on?

Yes. So I think going back to the comment about North Carolina, it was very interesting to -- that's a state where you have a Democratic governor and a Republican super majority in the legislature, which means that to get to Medicaid expansion, you had to have really nonpartisan or certainly bipartisan coalition to make the case for why that was the right thing and to make the space for it in the budget, which is what they're working on right now. And so to me, that's a perfect example of, not just in Medicaid, but in general, where there is more bipartisan alignment on policy around health care and the application may be a little bit different, but -- and the argument for it may be a little bit different, but ultimately, I think we're seeing more alignment than we are less alignment. So whether you just believe that health care is a right and should be provided by the government or you look at the math and say, it's not efficient if I'm managing the largest section of my state budget, which is almost always Medicaid is not efficient to have people going and getting care in the ED, right, or I have county sheriffs who keep picking up citizens and taking them to the hospital because we're not actually providing the right mental health benefits. And ultimately, that costs us more money than if we actually put in the right model for preventive services, you can make -- it's different words and you're sort of leaning into or hitting on different motivating factors, but it ends up in the same place, right, which is creating sort of base access to care is ultimately something that improves the economics of a community and a state. So I think we're seeing really interesting tailwinds there on the Medicaid side. And then to your point, I was in D.C. I had a sort of unique experience. Last fall, I went to D.C. and met with leaders one after the other on each side of the aisle, right? And we were talking about the Marketplace, we were talking about exchanges. It was right after they had extended the enhanced APTCs, and so the Democrats were really excited about that extension and the Republicans were like, "okay, I guess Obamacare is here to stay." But let's talk about HRAs, and let's talk about a different way to create access opportunities into a population that maybe doesn't feel like it's a handout. And so there's really interesting momentum around how the party is coming together to drive expanded access into populations that historically have not had the kind of support and choice. So to us, that just feels from a policy standpoint, more like a tailwind across those lines of business.

Got you. And then -- and so that kind of paints the long-term picture. You did just recently come out with updated '24 guidance. And obviously, you've got the value creation plan that is underway and intend to deliver in '24. Any further updates on kind of '24? And kind of what makes you feel confident in the numbers you're putting out there right now?

Yes. So part of what we talked about on the Q1 call when we reset '24 was the fact that we had gotten a lot of new data from the states as they prepared for redeterminations to actually start. And we put together a really complex model that layered in what we were seeing in terms of projections and populations, what we were hearing from the states, the fact that we actually started to get files of members for the states that we could then run historical utilization on and sort of project forward. The conversations with the actuaries, the rate calendar, the risk quarters that we have in states will absorb some of that. So that whole sort of multivariate view. And then we also pulled forward our 2024 planning earlier than we've ever done it in order to try to create as much visibility as we could around what levers we could pull in '24 or even pull into 2023. And then there was, 1.5 years into the value creation plan, a cumulative view of what are those places that we actually need to invest in, in order to be set up for coming out of 2024 and into the back half of the decade story. So things like quality that are going to accrue to -- and it's clear and clear as we talk to all of our state partners and even the federal regulators, that quality outcomes are going to be really, really important -- increasingly important. And STAR is very important at the state level. Our underlying infrastructure and making sure that, that's prepared to scale with us for the growth that we want to see in the back half of the decade. And then this idea that as we have been honing the right operating model for Centene, which was -- grew up for 25 years as a very distributed, localized organization partly because of the Medicaid routes. But the idea that community involvement and that having our team members living and working in the communities they serve is a competitive advantage. How do you actually leverage the size and the scale of the organization to support that? And the answer in terms of what's the right operating model is anchoring on the customer experience. And so making the right investments to improve being easy to do business with and the experience that our providers, members and regulators have. So those 3 pieces together gave us a view of 2024, and I think led us to build in more prudence around the redetermination potential disconnect and timing that may happen between rate and acuity as we look across the aggregated portfolio of states. And then also understanding the pressure that we have in 2024 around Medicare because of Stars. And so we were able to actually absorb some of that into 2023 because we're going to book a PDR in Q4, which speaks to the strength of 2023 because we raised guidance at the same time for 2023, inclusive of a $200 million PDR. But understanding that, that eats up a lot of the good guys in '24, we felt it was more prudent to set that greater than $6.60 view of 2024, given where we are today.

Got you. And kind of pivoting to the fundamentals within some of the businesses. So what are you seeing so far in redetermination? Obviously, it's very early days, but interested in any perspectives with respect to either interesting enrollment trends, subpopulations and/or what you're seeing as far as profitability of the types of numbers that will be redetermined?

It is still very, very early. So that is my huge caveat to all of this. So far, it is in -- we're seeing -- what we're seeing is in line with our expectations. We had 11 states that started between April and May. We have another 10 states that are kicking off today. We -- I think the other thing I would note is we have 10 states in our portfolio that have [ 7/1 ] as their normal rate reset calendar. And so we've seen initial rates from a number of those and are pleased with what we've seen in terms of the states sort of recognizing and accounting for the idea that there are going to be acuity shifts, which I think is consistent with what we were hearing and seeing as we moved into this launch period in terms of states having conversations. Our actuaries are very closely tied into the state actuaries and looking at data together and really trying to understand in real time what the impacts are. The one other thing I would say is that -- and again, we saw this as we moved into this window and some states sort of pushing start dates for different populations. This is a process that these states are undertaking at unprecedented scale relative to anything they've done in the past. And so we're also seeing states as they fully digest that in the tactical reality, leaning in more to places that we can support them. And interestingly, even some states where as they're starting to think through the mechanics of how do we prioritize coverage continuity, can we just move members who are rolling off and are eligible for Marketplace directly on to plans that are in our state? We had a conversation with one of our governors literally just last week, and he said is that possible? We've been talking about this for a while, and he went back and said, we got to make this as easy as possible for members. So that is a positive from our standpoint because we do have those resources that have been preparing to help the states to make it easier for members to end up where they're supposed to end up.

Yes. Kind of broadening out a little bit on Medicaid, and one of the things about our conferences is a lot of portfolio managers and the like here, and so you can have some people who are more generalists. Can you talk a little bit about -- and we'll do Medicaid and then we'll get to the other businesses as well. For the Medicaid business, what does it really take to be successful in that business? And I guess a corollary question I frequently get is, oh, well, couldn't they just lose a bunch of contracts because other people are going to come in and outbid them? But -- so maybe if you can just kind of give a little color on what you view as the critical success factors and the most important thing is to be successful today in that business. And then what's the kind of retention levels that one can look at for a business like that?

Yes. So it's interesting. I was -- literally yesterday, I think I probably said this in North Carolina. And in midst of this exact conversation, which is what are the things that the states are looking for from partners. And so -- and it's obviously consistent with what we see across our portfolio and across our partnerships. So the first thing is delivering quality outcomes at lower cost, which happens to be the mission statement of Centene. And that is because states that have decided to go into a managed Medicaid model are doing so in order to have a higher degree of budget certainty and because they believe that it will deliver better outcomes for members and for voters, and create, again, sort of economic wealth and health in the community. And so really hard outcomes and then figuring out what are sort of the unique opportunities in each state. And so North Carolina has not unlike other states, but has a huge issue around maternal and infant mortality. So how do we think about bringing the right programs into each state that will deliver the quality outcomes that matter to that state. Increasingly, every state is talking about health equity and social determinants of health, which sounds buzzy and kind of new and innovative, but the reality is that's something that Centene has been doing since the very beginning. And it's just acknowledging the fact that when you have low-income patients who are making trade-offs every single day between what to -- how to allocate time and resource to manage health versus scarce economic resources. You don't always get the best health outcome. And so how do we think about getting healthy food to our members? How do we think about providing transportation so they can actually get to the doctor? How do we think about what we can do to create stability elsewhere in their lives around housing and jobs so that the health care actually gets taken care of and it can have an impact. And so I tell a story all the time. My sort of beginning in the health care sector was working at a safety net hospital in Boston in the pediatric emergency department. And there were physicians there who had the same patients, young patients coming in again and again and again with asthma attacks, life-threatening asthma attacks. And they would give them the inhaler, they would teach mom how to do it, they would teach the kid how to do it. It didn't matter. He kept coming back, and it's because he was going home to live in a car or to live in an apartment that had mold and cockroaches, which are the 2 greatest exacerbators for asthma. It didn't matter that he was getting the right medical treatment and that he was getting the right training because the doctors couldn't do anything about the fact that he was going home to the wrong place. And many of them got to the point where they would literally like take $20 bills out of their wallet and hand it to the mom and say, get -- the kid needs food, right? There's nothing I can -- as a doctor can actually do to solve this problem. So it's cool actually, is that states and the federal government are starting to recognize this and you're seeing the 1115 waivers and the idea of in lieu of services, which basically means that the governments are saying, "Hey, we've got these dollars that are allocated for health care. If you can put them to the right resources that drive health outcomes, we care less about exactly how you spend it. We just want you to spend it in a way that gets to the best outcome." And so that's another major opportunity that the states are all calling out and really thinking about. And then there's just operating well, right? I mean there's paying claims on time, picking up the phone, customer service, working really closely with providers who are a key partner, leveraging the partnership with the state to understand what are your priorities, right? Every administration comes in with a different health care platform, what do they want to actually accomplish around health care, how can we step up and support that. And so those become kind of the key pillars. And I would say that Centene has steadily grown our footprint over 25 years because we have anchored locally. We have focused primarily on building those relationships and not just for the purposes of relationship, but really having that dialogue. And now we're in an interesting position of being the incumbent, right? So to your point about can't you just lose contracts, moving incumbents out in any industry, you can look at what the election results say in general about incumbents, they don't move very much if they're doing the right things. And the value that we have as an incumbent is that we can be in those Medicaid offices and with those providers every single day and getting feedback and figuring out how we can be better at what we're doing. But it also creates huge disruption when you move incumbents around. And actually, in California, where we went -- we lost the bid in August of last year and then were reinstated as the primary in L.A. County, the level of noise and reaction from the provider community in L.A. was overwhelming to the legislature because they had built and we had built relationships with those key partners over decades. And they saw firsthand that, that was not going to be the right thing for their members. So that creates an advocacy layer that's really important in terms of bolstering sort of the long-term stickiness of those relationships.

Makes a lot of sense. Could you talk about recent operating leadership changes that you've had? So obviously, you just announced that Jim Murray, who's going to ultimately be retiring. Before that, Brent. As you just kind of like, obviously, are turning over the team a little bit. So just talk about kind of what you've got from a talent standpoint and, maybe for the folks here, giving a little bit of a perspective of maybe a level deeper in the organization, what the talent is like?

Yes. So we've been moving the management team, sort of evolving that forward over the last year or so -- we're good. Okay. Everyone can hear me? Okay, all right.

I can hear me.

Good. That's all that matters. I can hear you too. So part of this is evolving the management team and also involving the culture of the organization. And so Centene grew up under Michael Neidorff for 25 years, an unbelievable leader and visionary. And the organization relied on him a lot for strategy and decision-making. And this management team believes more in that team-based approach to leadership and sort of distributing strategy and decision-making and making sure that we have really strong leaders in each of our seats. Jim came over to us through the Magellan acquisition, and has been instrumental in holding a lot of the -- he actually -- he was our Value Creation Officer for the first year, but actually held most of our core operations because what was sitting in the value creation mandate was restructuring our operating model. And so he did a lot of work to take us through the first wave of those changes and to build a really strong operating bench, which he has a history of doing. He is also a huge believer in sustainable organizations and the idea that we were not going to build an organization around him because believe it or not, he's turning 70 years old this year. And I think at some point, he will actually have to take his wife on a vacation past Sandusky, Ohio. But he actually -- he and I sat down and talked about how to do this transition with him sort of in the seat with us and making sure that, that goes seamlessly. But we also have a lot of work to do, as we've talked about in terms of rebuilding the Medicare business, which is an area of expertise for him. So to me, this is really about getting the right people into the right seats in the first phase of value creation and then also thinking about what's the leadership team that we need to have as we go forward into the back half of the decade. And do we have the right people? And so we've also brought in some terrific new talent, Alice Chen has started as our new Chief Health Officer. She has a background serving as a physician in the safety net and was the CMO of Covered California. So she's been on the purchaser side. She's also a total data geek and health equity leader. And so she is just a phenomenal add. And then sitting within the Medicaid book, which is obviously almost 70% of our revenue, we have 31 phenomenal health plan CEOs. And so the beauty of the talent bench is because we have this empowered local model, we have really, really good talent and a really strong talent pool that is very, very wide from a Medicaid perspective. And so that's a place where we train up new talent. It's actually a source of great talent as we think about leadership. So Dave Thomas, who is the CEO of Medicaid was the CEO of Fidelis Care here in New York, which we acquired. He moved from that role into a leadership role over the markets and now the CEO of Medicaid. And so creates this incredible pipeline of people who've actually lived it at the local level and sort of a durable talent pool as we move forward.

Great. Okay. See if this works. So -- could we talk a little bit about the value creation plan and maybe starting off with the -- like, my favorite thing, the pharmacy savings. And so how is the PBM migration coming? And what's your sense of the sort of size and opportunity of savings that you could generate from that?

So far, that's been going really well. We've hit all of our internal milestones, and the teams have been working very collaboratively together. We have transparency and dialogue all the way to the top levels of both organizations and feeling really good so far in terms of what we assessed in an RFP process relative to what it would feel like to work together and the level of transparency and problem solving. So far, so good on that front. We had -- Drew has been through this a few times. So we had pretty strong economics coming into it, but this will create sort of a step function benefit for us in 2024. And I think we talked about the fact that in that middle gross margin bucket of the value creation plan, this was a major contributor to that. So that whole bucket, I think, was $500 million, and this is a big piece of that. And so feeling really good so far.

That's great. And then thinking of those 3 buckets, you have the kind of SG&A savings and noncore operating or your noncore assets. For the SG&A savings, are there additional opportunities that exist in that? I know you've talked a little bit about what you kind of view as post-'24 opportunities. So kind of the question would be, are there opportunities that could contribute to helping you get to '24? And then could you talk a little bit about the post-'24 opportunities?

So far, we're doing really well on those SG&A opportunities. We talked about the fact on the Q1 call that we're even a little bit ahead that we talked in December about the $300 million post '24 that we had targeted. And part of the planning that we did leading up to the Q1 call in terms of pulling forward the 2024 planning was to ask what are the levers that we might be able to pull from post-'24 into '24? And then just being realistic about the fact that Medicare is shrinking from a membership standpoint, which we've talked about. And then Medicaid is shrinking because of redeterminations. There's a real SG&A opportunity there to rightsize the business to think about having a very streamlined operating model as we go forward. So we're looking hard at SG&A, but so far, that's going really well.

Okay. And then noncore asset sales has been an area that you've been very active with this whole process. Obviously, Apixio, I think you just sold but you've had a number of substantial size sales as well. Can you talk a little bit about the outlook? Are you done with that? Do you have more assets that would be kind of putting in your definition of noncore assets? I'm thinking maybe like U.K. market or things like that.

Yes. I think I described it earlier this year as being sort of in the seventh inning stretch, but the most of the larger assets are done and gone. We obviously said that we're looking at strategic alternatives for the U.K. assets. So that's still out there. And then there are still some opportunities, but I think they're on the smaller side. And Apixio is actually a good example of where, for some of these assets, it's a question of who's the right strategic partner. So we kept a piece of Apixio because we believe that, that -- the same reason we bought it. The technology there and that platform, especially in a world where AI is now sort of hitting an AI summer, if you will, as opposed to AI winter that having technology that was trained in a highly regulated environment with a high degree of accuracy is a value to us, but we are not the best owner of it as it goes to the next phase of growth. So how do we keep a seat at the table so that we can influence the road map and codevelop things, but really let it flourish in terms of the innovation it can drive as a more independent entity. So I think some of the things that sit in the tail are more in that bucket where we think the capability is really valuable, but the way we want to grow it requires a different partner.

Talk a little bit about Medicare. Could you talk about kind of the outlook for improvement in Stars and margins in Medicare, kind of the processes you're looking at what maybe the impacts would be for '24, but then kind of the road map beyond '24?

Yes. So we've talked about having a sort of the 5-point plan for Medicare and Stars is #1 on that plan. And we, I think, have seen really good trajectory over the last year in terms of looking at things like reductions in CTMs and voluntary disenrollments, fundamentally different call center stats and service levels, which are going to contribute to sort of those core calculations, contribute to caps. And then thinking about that investment in quality being really important, especially as CMS has started to change the rules for the Stars program and focus much more on HEDIS and sort of the measure outcomes for members versus the pure administration or even the customer service element. So we watch those metrics very closely. We talked to some of them on the Q1 call. But I think from a trajectory, we're seeing good progress. Again, we talked about this as well, but we may not see the 4-Star progress that we want in October, but the underlying movement of contracts up from 2.5 to 3, 3 to 3.5, which also creates the economic lift, we feel good about what we're seeing there. So that's a critical component that needs to keep moving and keep going well, and we committed to creating sort of transparency under the hood about some of those metrics so folks can track that with us. The second one is distribution. And we shifted our distribution strategy coming into this enrollment period and focus a little bit more on proprietary channels particularly because we felt like those channels performed better with the members that we are focused on and increasingly focused on. Duals, and a very specific dual strategy is important, particularly, again, as we're thinking about how some of the policy changes and sort of the alignment of Medicare and Medicaid are going to happen at the state level. And what that means in terms of having a strong state Medicaid footprint that gives us sort of a competitive advantage in that space. Value-based contracting, which is something that Centene did not aggressively embrace in the past is something that we are much more focused on. We have a new leader who's come in to help with that effort, very experienced in that space. And then the last, as I mentioned before, is sort of investing in the customer experience and making sure that we're enabling providers the way that we need to with data. We're making it really easy for our members to find us, choose us, do business with us, get the care that they need. And so that's how we're tracking kind of the refactoring of that business. And I think good progress so far. I feel really good about the fact that we're going to have Jim laser focused on that for the next year or more.

Okay. Great. So the next question is -- as you think of long-term value creation for Centene overall, how do you balance and what's your process for looking at the growth contribution from the Medicare business as contrasted with other options like selling parts of it or things like that?

Are we going to sell the Medicare business?

Yes...

So here's what I would say. I think -- this -- and my hope at this point -- we have proven that this management team is not overly wed to past decisions. I think that Medicare is -- has the potential to be a really valuable growth engine for the business. I think that it is fixable. I think that we are fixing it. And so we're pretty bullish on that business. We also, because we are disciplined about these things, have a set of internal benchmarks that we need to hit in order to keep ourselves honest about whether it is going to contribute the way that we are planning for it to contribute. And if we don't hit those, then we are sort of -- if nothing else, our fiduciary responsibility to shareholders would make us ask a different question. But I think that business has really strong contribution potential in the back half of the decade. And when you think about that idea of the 3-legged stool in the government-sponsored space and the ability to leverage that to help shape policy in sort of -- in the right direction. I would not walk away from that quickly.

Got you. Okay. That's really helpful, thanks. So we've got a number of questions that are coming in. I appreciate anybody else submitting questions here. I've got a few more. So I'll start to pepper in some of the ones that are coming in from pigeonhole here. and they tend to gravitate around redetermination. So the first one, and I think this is more of a theme, and this is less maybe what you're observing right now, but more you're planning is -- has to do with profitability of the membership. And the particular question is, what percent of the membership do you believe is kind of dually insured with employer and with Medicaid coverage? And that could be broadly, it could be across your book or things like that. And then what do you think might be the consequence of that? This is one of the things I'll frequently talk about because if somebody were dually insured, then it's a question of where are the medical costs going, like which insurance is being used.

And are you thinking about in this moment, so folks who are going to drop off...

Yes, for the people who...

So we obviously had the CBO report that came out and people are seeing what that looks like. So we've shared -- Drew shared a lot of data. There's a certain level of kind of dual coverage and COB that happens just regularly in our business. And we've obviously then been tracking sort of the zero utilizers to try and figure out how many folks we think are going to -- are ultimately going to roll off. And we kept coming back to the 2.2 million members. But where I think this comes into play more is around 2 things. One, this obviously plays into why we're tracking and expecting the dialogue around acuity adjustment because just intuitively, the idea that you're going to have folks who roll off who are probably healthier. And so the risk pool will degrade to some degree. But we've gotten a lot of pressure around the fact that we continue to say that we think that there's only about 200,000 to 300,000 member recapture opportunity in the marketplace. And that is because we think that the vast majority of members who are coming off probably already have commercial insurance that's where the biggest bolus of members will go in the process.

And when you say have commercial insurance, would you stay currently are insured with both Medicaid and commercial? Or is it that they have access to commercial insurance?

It's hard to say depending on the transition period. So -- but that's why we've been looking at that -- at zero utilizers bucket.

And I think just from memory, I think you guys have previously mentioned like percentages of zero MLR sorts of patients and maybe some contrast to historic levels. Do you happen to -- is that something that you guys track actively? And is that different than it was in sort of like a pre-COVID environment?

So we did -- we tracked that pretty closely over the last 1.5 years as we were anticipating redeterminations. And what we saw in that progression was the sort of overarching takeaway was that we weren't alarmed relative to what we think is going to happen with the membership that is left and the idea that we're going to need the states to make adjustments for that membership and then it falls within sort of the rational range of how the states will look at data and relative to their budgets, be able to kind of make the right correction. So the big takeaway was, is there some huge [ gotcha ] in there, and that's not what we've seen as we continue to refresh that data. And now we're getting to a point where we're actually getting lists form the state. So it stops being a theoretical exercise and starts being about let's actually look at the numbers that they think are going to be redetermined. Let's look at their historical utilization. Let's pull them out and sort of compare them to what the pool is going to look like. And those have been really productive conversations with the states, again, even the intellectual exercise of it, right? So there was a -- we went to Florida and said, "if you actually pull out who you say you're going to pull out, this is what that difference is. And it's like, okay, I see that there's going to -- we're going to need to do something about that." So that's been helpful to be more sort of real database, but we were tracking it as much as we could from our own data as we prepared.

Is the real data kind of consistent with the more hypothetical work that you'd naturally do in advance?

So far, what we're seeing is consistent with what we put into our model based on that combination of the hypothetical work, and then, again, where we had real data from states, being able to bake that in and adjust expectations as well.

Got you. So another question that's come online here and is similar to a question I've got here. As you're looking at just kind of medical costs in general, not just for the redetermined population, what are you noticing in terms of utilization, I guess, across your various populations relative to your expectations and relative to kind of historic growth levels? And then do you see any issues with that as it progresses into '24?

So far through Q1, we've seen -- and this is true trending through last year as well, sort of generally a return to kind of expected levels of utilization across lines of business and across domains. The one place that I think is interesting -- continues to be interesting to watch is the non-emergent Medicaid adult ED, which seems very specific. But it's an interesting sort of harbinger of whether there was a structural change in how Medicaid recipients receive care during COVID and whether we were able, in fact, to get them more connected to PCPs and to virtual care and things that would change the ED as sort of that default mechanism. Obviously, there was noise in that because of the flu season, but that's an interesting one to watch to see if that holds. But in general, we've seen preventive screenings return to normal. We haven't seen any jump in like acuity of cancer after first diagnosis, general sort of utilization as expected. And then to your point about sort of what are the things that we're watching, and I think consistent with what everyone is paying attention to and very relevant in all of the state conversations that we've been having is that there is a focus on behavioral health. And the idea that we knew that, that was an issue. And increasingly, we were able to talk about it as an issue coming into COVID. COVID made that worse for a number of people. And what's interesting to me is the fact that it's -- the pendulum swings back and forth on behavioral health and whether you should carve it in or carve it out. But I think folks are now understanding the degree to which it's such a prevalent influencer of the ultimate medical journey that you need to have those things tied together. And so a different appetite in terms of how do we invest in behavioral health to drive medical outcomes. So that's a hot topic, I would say, not necessarily a utilization trend, but I think the idea that there's going to be innovation and spending in the behavioral health space to then -- which you will see a sort of reduction in spend in medical because it drives the medical outcome.

One more question here, and this is actually an echo of a number of questions that I get from people who tend to be a bit more bearish on the name. And the question is around, okay, when you go through this process and you're going to need to seek rate increases because of the change in the risk pool, the basis of the question is really, well, could the states just think you're making enough money? And so they're not responsive to rate increases. And I guess this is a little bit of what's your experience with kind of rate increases generally? And then what's your outlook right now for rate increases given slightly different situation?

So the benefit, I think, of being in the managed Medicaid business for 25 years is that we can probably uniquely say with credibility that rate equals acuity over the long term in Medicaid. And so while you may have temporal detachment, right, which is what we're thinking about in '24, why we put sort of a prudent provision in there relative to timing of rate and acuity. All of the conversations that we've had with the states regardless of where they sit from a from a financial standpoint or from a political standpoint, they have all been receptive to understanding this dynamic. And there's nothing that suggests that this is going to create some structural change in Medicaid because at the end of the day, that is a program that doesn't work if it's underfunded. And we've seen that time and time again. You see that in the outcomes. You see that in the provider abrasion. You see that in the member experience. And so there is a certain level of funding that makes the Medicaid program work that is -- I don't want to say it has nothing to do with our advocacy, but it's like data based, right? There is like actuarial soundness to how you have to run the program. And so that's what we rely on is the fact that the data tells the story for you. And then you have different administrations that want to invest in innovation differentially in different places, great. But the sort of core Medicaid book we have seen, rate always equals acuity in the long term. And like I said, that's what we're seeing in our short-term conversations, too.

Okay. That's -- it looks like we're right up at the end. I don't think I can sneak in one more question. So I really appreciate you taking the time today. And I hope all the meetings go great. And thanks a lot.

Yes. No, thanks for having us. This is great. And I hope folks sort of took away the fact that we're doing all the right things. We have really good momentum in '23 that we're going to carry into '24, and I think some exciting things to come. So, thanks for the time.

Thanks.