Centene Corporation (CNC) Earnings Call Transcript & Summary

Thank you all for everyone in person who could join us today and everyone on the webcast. It's my pleasure to host Sarah London, the CEO of Centene; and Drew Asher, the CFO. For those of you who don't know, they're a managed care company, which in the U.S. is our term for health insurance. And Centene is one of the largest managed care organization focused specifically on the low-income population.

But I'll give you a chance to kind of level set for us like why is Medicaid -- sorry, why is Centene focused on the low-income population? What is the opportunity in that market? And what gives Centene the right to win?

Sure. So as Adam said, we're one of the largest MCOs in the U.S., serving roughly 28 million Americans, and we are solely focused on government programs. So we're the leader in providing Medicaid insurance, which really is a support system for the poorest, sickest members of our communities, but we also are the leader in supporting the individual market. So those who seek out health insurance as part of what was established through the Affordable Care Act. And then we have a unique focus in our Medicare book. So supporting seniors, 65 and over really, again, looking at the lower income, more complex seniors as kind of a larger portion of our book than our peer set. And to your point, it really goes back to the roots of the company growing up as a Medicaid organization, taking a uniquely local approach to that market and deeply understanding what it means to serve underserved communities. And I think that has allowed us to become the leader in Medicaid. We hire folks on the team who live and work in the communities we serve. We build out networks that are beyond sort of traditional provider networks, but think about who are those community providers, the social services, the resources, the drivers of health beyond traditional medical services that actually yield health outcomes for our members. So those routes allowed us to, again, build a base in Medicaid. And then as the Marketplace came into being over the last decade, it actually allowed Centene to succeed in that market segment in a way that our peers were at least initially unsuccessful. And because we recognize that the Marketplace, the individual market as it has grown up, is really a sister population to Medicaid. It's largely the working poor. And so we leveraged the Medicaid network and chassis and that know-how to, I think, serve that population in a way that has created a durable connection and continued to yield market-leading results in the Marketplace. And then if you look at where the senior population in the U.S. is heading, how that aligns with our strength and what we're seeing from a policy standpoint in the U.S. in terms of increasingly linking Medicaid and Medicare for what we call dual eligible members who are both over 65 and low income. We're seeing policy actually more formally require that in order to serve that dual eligible population, you have to have the Medicaid background. So that was a bet we made 2 years ago in terms of continuing to focus that book on low income. Ultimately, it is where the growth is in the market. And so we think that provides both a compelling long-term prospect, but then a compelling mission because we are a very mission-driven organization.

Okay. Great. And I think prior to this year, more of the story was kind of revolved around the turnaround plan that really started like 2 years ago. And can you give a brief summary of like how you got to the point of needing a turnaround plan or how the company got to that point? And like what needs fixing? And what is the line of sight to kind of get to target margins?

Sure. So this management team has been in place for roughly 2.5 years. And to your point, we have been on a journey of a bit of a turnaround for the organization, recognizing that the footprint that we had in the three core markets we thought was unique and powerful for the long term, but there was focus needed and investment needed in to really fortify that base to be a foundation for growth. We got there I think with all -- with actually unbelievable growth and good intention around the fact that being able to lead in government programs, you get great benefit from scale. And so the growth of the organization over the 25 years before this management team stepped in, I think, was impressive. The last 10 years of that growth was largely driven through inorganic growth and acquisitions. And so on balance, not the level of investment in rationalizing the technology portfolio, modernizing underlying operations, making sure that we were where we wanted to be relative to leveraging data. And so really saying, let's focus on the core. We've divested 11 businesses that were subscale and not core over the last 2 years. We've invested in data and technology. We've invested in quality, performance across all 3 lines of business. We've invested in talent and underlying operations. And I think what you're seeing, not just in things like improvement in SG&A, which you're seeing this year as a result of 2 years of continued focus on that, but also the fact that we've been able to weather some pretty significant industry dynamics over the last year or 2 is a result of a lot of that work that we've done in the last 2.5 years. So we're not done yet. There's still opportunity ahead of us. I think there's frankly, operating margin opportunity in terms of where we see additional efficiencies that we can drive in the business, but we've instilled that now is a discipline. So instead of talking about the value creation plan, we just talk about how Centene does business in terms of being focused on the basics, focus on quality and leveraging that incumbent status we have in those 3 lines of business to drive growth.

Okay. Great. And yes, one last big picture question before we get a little more in the weeds. So one of the big themes in managed care, at least over the last couple of years has been vertical integration. But as far as your turnaround, you've been exiting kind of like the more vertical assets. And so does this put you at a strategic disadvantage over time? Like how are you thinking about kind of like vertical integration overall?

So we believe in the power of focus and the fact that embedded in the three lines of business that we are in, there is tremendous organic growth. So I'm sure we'll get into this. But in Medicaid, there's still roughly 45% of the dollars that are not in Managed Medicaid. Medicare so is 50% of the market penetration in Medicare Advantage, and that doesn't even get into sort of market share opportunity relative to duals. And we think there's a really interesting opportunity in the individual market. So the idea that we have that sitting in our base and focusing on that and really harvesting that organic opportunity was priority one. The other piece of it is that our view is it's not the highest and best use of capital to go out and try to diversify. Can you diversify at scale? We've got, I think, individual views on the degree to which you can run those assets to be best in class. And really, we are stewards largely in our business of taxpayer dollars. And so we have to make sure that we're leveraging the purchasing power of the organization. So a good example of that was our PBM contract. We've got what was $40 billion, now $50 billion in pharmacy spend. We can get the economics that we need by virtue of being the largest out in the market and leveraging that purchasing power and then really executing on the focus relative to the long-term growth algorithm.

Great. So I wouldn't be doing my job if I didn't ask about cost trend. And so, so far this year, it seems like with Medicaid, in particular, not just you guys, but like the whole industry has seen kind of like underperformance relative to initial expectations. And there were a couple of big pieces that you called out. So like the PBM contract, renegotiation was a positive, but then Medicaid redeterminations had an acuity shift, which was a negative. And then I think, most recently, you mentioned like home health or other areas of cost pressure. And so could you bridge for us those pieces and level set like what the new Medicaid MLR expectation is and how those individual pieces contribute.

Yes. So at a high level, the pressure that we're seeing in Medicaid is driven by redeterminations, but maybe you want to go into sort of the subcomponents.

Yes. So Sarah, you're right. Redeterminations, think of that as the umbrella over Medicaid this year, pressuring the HBR. So the acuity of the stayers versus the leavers and then we have rejoiners, those that left maybe largely from administrative terminations by the states that realize they're still eligible and they seek health care, so they're called rejoiners. And we can isolate those cohorts and look at the variation in HBRs by those cohorts and conclude that really, the pressure on the HBR this year which, by the way, we've been able to manage as the portfolio of the enterprise as a whole. We just reaffirmed this morning and a couple of weeks ago. But underneath that reaffirmation, as we said 2 weeks ago at a conference, there's still that -- as we exit the Medicaid redetermination process, sort of pegging that medical expense PMPM as we exit in terms of what's redetermination driven. We look at -- if you look at the stayers, you can go deeper into the stayers and look for continuous members over the last 2 years as we look for trend pressure, like just systemic trend pressure. And quite frankly, we don't see a whole lot there other than behavioral health, which we've called out for the last 1.5 years exiting the pandemic, a little bit of an uptick in behavioral health. That continues to be the case. Sometimes that's driven by program changes at states where they ask the payers to back off on prior authorization or they're inviting more access and more providers into the state to serve members that seek behavioral health care. So there's a little bit there. And then home health, we mentioned also really just as a matter to demonstrate that we can isolate the impact of redeterminations. And that's really what's pressuring the HBRs. It's the -- basically, the net expense PMPM run rate of what's left in the post redetermination environment with the 13 -- approximately 13 million members, that -- now that has stabilized as we look ahead and try to get the rate to match that acuity.

If I could ask it sort of another way. In Q2, you had an expectation where MLR would be in Medicaid, and then it sounds like it came in a little bit worse in the last few weeks. And at the time in Q2, you said that in the second half of the year, the states were giving you like a roughly 4% composite rate update and then things came in a little worse. So does that mean that in the first half of next year, we would need to see better than 4% in order to feel like we would get MLR improvement? Or does it not necessarily bridge that way?

Yes. So we can -- we're continuing to get to 4% plus in the back half of the year. So that hasn't changed. Really, it's our view of, okay, what's that exit medical expense PMPM going to be. And we think we've gotten that settled as we as we reaffirm this whole year company as a whole. And yes, 4% plus is a good step forward for the cohort of rates that came due and just about -- just under half of our rates would be the normal process between 7/1 and 10/1 each year. And then when you get to the 1/1 rates, which we'll start getting visibility on shortly here. . That's about 30%, 35% of our portfolio and 4/1 would be the cohort that's about a little over 15%. And so think about taking the data that we now have every month that goes by has more complete run out on those incurred months towards the end of redeterminations and working with our state partners in conjunction with our peers also, we're not doing this in a vacuum with our peers through associations to get the data in front of the states. The states have been very receptive to those conversations, examining the data and making adjustments in the rates. We just need to get to the point where they're sufficient relative to where redeterminations ended. And that will take place. Each of those rate cycles will make more progress. And we expect as we get through '25 and maybe into '26, the goal is to get back to that ballpark, 90% Medicaid HBR. And as you know, we are sitting in Q2 at 92.8%. We expect that to be a little bit higher in Q3 and then subside from that point going forward.

The only thing I would add is more emphasis than anything is, as you said, the degree at which the states are really being constructed. They are being open to the data that we're able to share almost in real time. And while we're obviously focused on gearing up for the rate cycle, we're not sort of just relying on the rate cycle in terms of advocating for retro rates, for retro acuity adjustments for in-year program changes to the extent that we can, and again, the level of attention and acknowledgment from the states that we are in sort of an unprecedented time. It is very important for them from a program integrity standpoint to make sure that rates match acuity for the sustainability and performance of the program. So again, constructive dialogue, and we're pushing all of that back by data as aggressively as we can.

Okay. The last Medicaid MLR question I'll ask is one of your competitors has been a little bit more insulated from Medicaid trend, it seems because that they claim that they're in risk corridors that have been protecting them. And so that they have seen absolute margin compression, but that it doesn't flow through to the bottom line because they have so many risk corridors. Do you have any states left where you're still in a risk order position and just, I guess, how much of a buffer does that provide?

We're expecting this year probably to be just under $0.5 billion in payback position. Now it's program-specific, not just state specific, but program-specific. So to your point, to the extent you have some trend pressure or redetermination fall out, particularly in those programs where you're going to pay back, you chew into that payback, that run rate payback position. But the states have largely, they calibrate that into the rates pretty quickly, actually. So as you think about the future, we would expect to be -- we were $2 billion-ish into those paybacks during the COVID era when the disruption of access occurred, and we would expect to sort of continue that in the normal course.

Okay. Great. And then you kind of touched on this before about the levers versus rejoiners, but you lowered the Medicaid enrollment guidance recently very slightly as, I guess, fewer people rejoin than expected. So if you could just break down how many members so far have disenrolled from what you think is attributed to Medicaid redeterminations? And how many have returned and how many of the people who are still disenrolled, do you expect to return and over what period?

Yes. So the membership drop was really driven more by states -- certain states going deeper into redetermination, so moving more members off than necessarily an expectation about the rejoining partly because I think the degree to which there is rejoinder dynamic is a thing. And we started off, sort of a year ago, we started seeing a rejoiner dynamic in the high teens, low 20s. We're now in the low 30% of members who were deemed ineligible largely for administrative reasons. So think about Medicaid, the state sends out paperwork and wants a member to fill out that paperwork, they're not paying attention to that. They may not get the paperwork. So they're deemed ineligible even though they are technically eligible. And there are a lot of system issues that states had that sort of moved more members off the rolls than were actually eligible. So some of those process issues, I think, have led to this larger rejoiner dynamic. But then for certain states, they went deeper at the tail end of is really what drove that sort of July, August membership dynamic that we were seeing. In those states, we're now seeing, as we come through August sort of more stability in the membership. So I believe that we've now hit that trough at, call it, 12.9 million, 13 million members. And then watching the rejoiners, which are creating some of the MLR dynamic because of the fact that they -- when they were -- again, a year ago, we saw 80% of those members would come back within 60 to 90 days. And at that point, they are automatically -- the premiums are retroactively applied as that, the rejoiner time frame, which is also expanding comes into play, then you have a gap in premium. When the rejoiners come back, it's largely because they are seeking care. They either filling a prescription or they've come into a doctor's office or the ER. And so you have the sort of artificial view of their utilization pattern, if you smooth that out, which goes back actually to your trend question because that's another cohort that we can isolate. And if you smooth out that rejoiner cohort as if they had been -- we've been getting premiums for them the whole time. There isn't any inherent trend in that population. So it is just this breakage in what is sort of a fundamental insurance model that you don't just get premium for months where there is utilization. So that's another thing that we're talking to the states about sort of making us whole on that. But again, we feel like we've sort of hit the tail of the administrative process, we're starting to see stability in membership. That should start to return to growth. We do still have rejoiners that will come back in. And so that may be seen as sort of normal growth as we get to the end of the year. But we feel like the big focus now is just getting rates and acuity to match, and there isn't as much movement expected in the underlying membership.

Okay. Great. And then if we could show the exchanges. There were sort of a lot of moving pieces with this with -- because Medicaid redetermination sort of fueled the exchange growth as people look for other corporates and then there's the enhanced subsidies. And so it's kind of unclear what the 2025 market looks like because redeterminations are over. But do you have a view of what the exchange market as a whole grows in 2025 because one of your competitors are saying something like 15% premium growth, but there's not necessarily a clear catalyst as to what drives that.

Yes. So to your point, we saw outsized growth in Marketplace partially driven by redeterminations over the last year. I would say we saw strong growth in the Marketplace over the last 3 years, also driven by the subsidies and by intentional investment by the -- this administration in building awareness for the program as well as kind of the hardening of the distribution infrastructure, so brokers really coming into the space in a way that we had seen early on, but I think is much more robust now. I think that will actually be durable to support long-term market growth. So we wouldn't expect the outsized growth that we've seen due to redeterminations, but we do expect market growth. I think one of the things that will create sort of a dampening of that growth are certain program integrity factors -- initiative CMS is putting in place this year, that I think will naturally create some downward pressure on growth. So one of those is this agent of record lock that CMS has put in place. We actually pioneered that back in January of this year, and CMS implemented it at an industry level, I think, in August. And then maybe do you want to talk about kind of failure to reconcile and...

Yes. So failure to reconcile the periodic data matching are two other program integrity elements at CMS and the IRS in terms of the failure to match or failure to reconcile. Other programs that once again, we think they'll still be net growth in the marketplace, but you just have to think about that -- those counterbalancing forces before you get too excited about the gross potential market growth.

Making sure that people who are on -- who are getting enhanced subsidies are qualified for them? Is that what you mean by program integrity?

Yes, exactly whether it's their income level or the data matching where they make sure that there's no other available coverage under other government programs.

Okay. And then in terms of 2026, now we're getting a little far out, but there is a catalyst for this one. The enhanced subsidies under current law are set to expire at the end of '25 and there are like some government estimates that suggest like 20% to 30% enrollment could go away. Those are like rough estimates. I think they're kind of just assuming that things go back to pre-COVID. But do you have an expectation on your long-term plan of like what happens to the exchange market in 2026 if subsidies were to go away?

So a little early to give 2026. But I think philosophically, what we see is that there is a lot of support for the subsidies that is bipartisan. Many of our members and sort of market members who are receiving those subsidies are Republican voters. There is huge support from -- think about the states that have not expanded Medicaid who really rely on the private infrastructure and those subsidies to provide health care for their base. So we've got a lot of support sort of natural support out of the Democratic base. And then I think more support than people realize because again, the rural Republican communities have benefited significantly from having continuous access to health care and coverage for the last couple of years. So lots of different scenarios that we have put forward and our planning around everything from sort of capping the subsidies at 400% of the federal property level, which, as we've said, is roughly impacts sort of mid-single-digit percentage of our membership base as they sit today. So that's without adjustments made to product design or pricing strategy. And then there's also the opportunity, again, if you think about reverting some of that subsidy dynamic down to the state-based exchanges. So in a worst-case scenario, if the subsidies were to go away, I think you would see state base exchanges actually pick up the product concept because, again, there would be an entire base of Americans who had this covered and relied on it. So those are all things that we can actually step in and help with in addition to sort of, again, base product and pricing innovation. But the other piece of this that I think is really important is that the stabilization of the Marketplace has also created a different level of awareness around the individual market as a whole. And the idea that as small groups are struggling to afford insurance for their employees, the Marketplace has become an alternative. So you've heard us and others talk about this idea of ICHRA and a disruption to employer-sponsored insurance in the U.S., particularly in either small groups or low-wage worker segments of larger companies. And that ICHRA market to be as robust as we all want it to be. And frankly, I think it's kind of an anchor tenant in some of the Republican dialogue, you need to have a robust core Marketplace so that you have the level of participation in competition product choice and sort of sophisticated offerings so that employers feel like that is a viable alternative than what they're doing today.

Yes. Fair. And then turning to like margins. You've long had like a 5% to 7.5% pretax margin target on the exchanges. And I think last year, you said you were near the higher end of that. But then this year, you had positive development in '23 related to risk adjustment. So if you could just give us an understanding of like where you sit versus that margin target in 2023 when accounting for prior period development and then what you expect margins are today?

Yes. For '23, we are around the low end of that. To start with, but you're right, the $600 million that we benefited from in 2024, which was, by the way, hard work and great execution related to 2023 dates of service. So we've called that out as a sort of mechanical headwind as we think about 2025, but there's a number of tailwinds we could discuss also. So well into the 5% to 7.5% range this year, excluding that $600 million. And as we thought about pricing strategy, which hasn't completely been unveiled yet, through the equivalent of the landscape file process and the Marketplace business that will happen over the next month or two. We thought about driving margin as we thought about our diversified company and some of the variability as we exited redeterminations, though unrelated to Medicaid, thinking about the portfolio as a whole, and sort of leaning a little bit more into pricing than seeking outsized growth. So that was the posture we attempted to take in our pricing we filed throughout the summer. So far, that's holding true with the limited information we have about what our peers did, but feel like that, that's going to be a good productive position to sit in as we look at 2025.

Do you think 5% to 7.5% is sustainable if -- because you've had that target for a long time, but the things that have changed in the meantime is that the market itself has gotten a lot more rational and stable and that a lot of new competitors, but new competitors for these exchanges have gotten a lot bigger, like Oscar and even United and CVS who have like rejoined the market in a big way. So does that like increase competition and stability kind of like imply that there could be more competition on price? Or have you not really seen that?

Well, the 5% to 7.5%, used to be 5% to 10% but we knew that drew you guys crazy, such a wide range. And so we think that's a sustainable range and a little bit of disruption with the smaller players that I think thought they could trade off a revenue multiple. Those two are gone now. And the entry of the larger players back in, actually, I think it's a net positive, and I've been at one of those before and been around the commercial underwriters and pricing a lot of my career. I believe the thought process is going to be for those large carriers, hey, my small group business is getting chipped away at because either small groups are displacing their employees and encouraging them to go into the exchanges, that's already happening. And then as we talked about ICHRA a minute ago, the opportunity to sort of work our way up small group and into midsize group, the margins on those businesses often were higher than 5% to 7.5%. So I think if I was sitting here with a portfolio that included, I'm glad I'm not, but that includes a large commercial group business. I'd be thinking about, all right, if the outlet here is going to be growth in the exchanges in ICHRA, how do I preserve some or all of that margin as I think about participating and running a diversified company that included commercial groups. So we like our position of being exposed to these growth areas, but not having to protect a large commercial group business.

Yes, fair. If we could shift to Medicare Advantage. I think there's been a lot of focus on STARS in the last few weeks around some of the cut point changes. And I think you sounded a little bit more positive in terms of what your expectations are from the October STARS release while some of your peers have sounded more negative. And so just wondering what your thoughts are in the upcoming cycle and what your expectations would be in it? And if any of the changes CMOs are making around cut points would impact that?

Yes. I mean, I think nothing is final until plan previously comes out in a couple of weeks. So we don't tend to get into the weeds on commenting. What we have said we have been working with an internal range that represents that meaningful step for us between last year's results and then our ultimate goal of next October, getting to 85% of members and 3.5 STARS or better and just that we continue to feel good about that range that we had internally. And obviously, a lot of work that's gone into that over the last 2 years and continuing this year as well because these states of service that we're in, in '24 are going to influence next October's results. And the nice thing is that the work is really more of the same. So as you think about layering in initiatives, you get better at those. You sort of -- they start to build on one another. And so while you wouldn't necessarily expect sort of linear progress, you do expect a nice meaningful step. And then kind of the building momentum of those initiatives from here into next year. So that's really sort of been the band of our commentary. And then once we get planned previous three and things are final, we can get specific about the results.

Okay. But then on Medicare Advantage in general, there's been a lot of moving pieces just for the whole industry. And you guys have had a PDR in multiple years. And so if you could just let us understand like what is roughly the Medicare margin versus target margin today and last year? And what do you think the progression could look like over the next few years? And like how much -- how important are STARS in that?

So if you look at -- we originally guided -- and by the way, the PDR is a premium deficiency reserve, it's essentially the same concept as entering into a loss contract. So we thank investors for letting us spend that money so that we can invest in the part of the Medicare portfolio that we think is going to have a lot of value in the long run. Going back to the convergence, as Sarah talked about earlier, of Medicaid and Medicare, and having that Medicaid footprint to leverage the potential opportunities in '27 and then in '30 for the duals population. So as we think about the portfolio of Medicare, we're investing in those businesses while we improve STARS to backfill the absence of the STARS revenue. And therefore, we're in a loss position in Medicare. And the goal is to first get to breakeven, and that will be commensurate with the improvement in STARS, about 2/3 of the lever we need to sort of get to breakeven and then start making a positive margin and returning to growth. And the other 1/3 would be SG&A initiatives. I've said a couple of times, we've got to take probably a couple of hundred basis points more out of Medicare, and that's just not the Medicare business itself, it's the improvements that we're making to the company as a whole that then accrue to all of our businesses as well as clinical initiatives and maturing of those clinical initiatives in the Medicare business. So like the long-term prospects of that business, but yes, working our way out of a loss position. And as many of you know, the execution on STARS, you get the revenue 3 years later. So what gets published this October, and more importantly, next October of '25, where we're targeting 85% in 3.5 STARS. That will be revenue in the 2027 sort of calendar and policy year that then we can use to basically backfill the economics that are missing in today's calendar year and sort of work towards that breakeven goal.

So you mentioned SG&A and STARS but you didn't mention benefit design. So do you feel like the benefit design level that you have currently is sustainable? Or do you need to still got kind of in the face of the rate cuts that CMS is proposing and then does like potential membership losses kind of counteract SG&A improvement?

Yes. The benefits -- that's a lever. Once again, we thought about which cohorts of product as we exited 6 states going in 2025. We took action on simplifying the H contract structure. Those are the contracts between the payer and CMS so that we could get a better bang for the buck on the STARS investments as well. So those are levers, but we -- there's parts of that business we want to preserve for the long run, and that's where we've chosen to sort of underwrite them at a temporary loss until we could backfill that business with STARS revenue.

Okay. Great. And we've kind of touched on a lot of these building blocks, but a couple of years ago, you laid out the 12% to 15% EPS growth target over the long term. And so as you think about those, like how would you rank order kind of like the building blocks you would need to achieve that over like a 2- to 3-year time period? In terms of like the STARS or like Medicare margin recovery or Medicaid margin Like how would you rank order that?

Yes. So certainly, for Medicaid, getting to parity in terms of acuity and rate. But embedded in the Medicaid assumption is really back to this concept of the organic growth that is available in that business. And so looking at states that do not move to managed care, states that are in managed care that Centene is not in. States that are still eligible for Medicaid expansion like North Carolina, just went through that. And then the biggest bolus of opportunity or states moving more complex populations into managed care. And so continuing to execute on growth, and we didn't touch on it, but I'll bring the bell for our BD team has done a tremendous job, I think, with reprocurement, and that is a critical foundation, increasingly Centene is competing as an incumbent and making sure that we not only keep the base and the foundation of what we have, but then add new programs on top of that. So we've seen great results in Michigan, Kansas, Iowa, Florida, New Hampshire, the last 12 months, I think, has showed great momentum from that perspective. From a Medicare standpoint, I think Drew hit on at STARS is 2/3 of that lever. And then again, I think the upside there is actually this convergence of Medicaid and Medicare and really focusing on the duals population and the opportunity to take market share there in addition to getting to breakeven profitability and then sort of more normal growth. And then from a Marketplace standpoint, I think it's continued execution of growth and hitting our target margins. So that's a big piece of it. We've got baked in. So that's sort of 7% to 8% of that 12% to 15%. And then we've got 1% to 2% of kind of margin expansion leverage on growth and then 4% to 5% capital deployment. And so thinking about leveraging the cash that we generate in the business, whether that's for right down the fairway, M&A, tuck-ins and add-ons share buybacks, which is a big portion of what we'll do in the back half of this year. So just thinking about that portfolio, we still feel great about the long-term prospects of the business. And obviously, what's going to contribute in the short term is a little bit different than what we see in the long term, but we are still a margin and growth story, and we actually think that's pretty unique.

Okay. Great. And we have time for one more question. But you kind of touched on it, you mentioned capital deployment as a part of your long-term growth algorithm, and there's kind of a lot of cash that freed up from Medicaid redeterminations because you no longer have to hold like statutory capital for those members. I'm not sure that's like fully allocated in your '24 guidance. And so first, on the statutory cash, is that allocated? And if not, what would you use it towards? And second, on M&A, how do you think about balancing M&A versus share repo and when you do buy something, what is kind of like the profile of the thing you're looking at?

Yes. I'll hit the second one and then let Drew talk about statutory capital. So we think about -- we've rebuilt the M&A sort of surveillance capability over the last 2 years. And really, as I said, thinking about things that are right down the fairway for the core business. More add-ons and tuck-ins, if there's a critical capability that we think is important to support the business, but I think you would probably see more kind of health plan acquisition. And then to your question, we would always look at that on a relative basis, what's the highest and best use of the capital that we have, both short term but also keeping the long term in mind. So I think really healthy dialogue on that. The nice thing I would say is, if you asked the question 2 years ago, there was a bigger operational hurdle in terms of -- we've got a lot that we want to fortify in the core business. Do we have the bandwidth for an acquisition. I think the progress we've made over the last 2.5 years allows us to think differently about that bandwidth as we look at different targets that might be out in the market. And then do you want to talk about...

Yes, on statutory capital, you're right. If we were a Medicaid-only company, we would have shrunk, but the good news is with a diversified platform, we've got businesses growing. And so net-net, despite a 3 million member drop in Medicaid, if you look at our premium service, we've actually grown this year, and we expect to grow next year as well. So that just reallocates that excess statutory capital, but where we would have otherwise had to backfill growth.

Okay. Great. I think that's all we have time for. Thanks for speaking with us today and really appreciate you coming. .

Thank you. Thanks, everyone.