Elevance Health, Inc. (ELV) Earnings Call Transcript & Summary

All right. We are now ready to start our next session. Thank you, everyone, for joining us for the 2020 conference. And we are delighted today, this year, to be welcoming back Anthem as one of the largest companies to participate in our annual conference. The company today will be represented by John Gallina, the Chief Financial Officer; Felicia Norwood, who runs the Government Division; and Chris Rigg, as you all know, who is Head of Investor Relations. So thank you all.

And if I could, maybe start with, certainly you've been pretty visible with investors but perhaps you could tell us if there have been any recent changes or developments to highlight with regard to utilization trends or any aspects of earnings guidance that you might want to touch on.

Thank you, Matt, and good morning to everyone. So in terms of -- I appreciate that you recognize that we have tried to be active and maintain open lines of communication during this entire crisis. And from the beginning, our objective has always been to serve our members and to be a source of stable and reliable support. And we've done a number of things during the pandemic for our members, providers, communities, sort of the waiving cost shares for treatment, expanding access to care through telehealth, waiving cost shares on telehealth visits, waiving some of the prior auths. Recently, we sent out a press release talking about the $2.5 billion of value that we're providing back to the health care system to help address the imbalance that has occurred as a result of the COVID-19 situation. That includes many things. It certainly includes the waiver of copays and deductibles. It includes providing certain advances to providers. And it provides a fairly significant amount of premium assistance and premium credits to our customer base. We're talking somewhere in the neighborhood of $300 million to $500 million premium credits that we're going to recognize in our second quarter financial statements, which are up to 50% premium credit on certain dental products and then 10% to 15% on many of the group fully insured type product lines. And we're even giving a $10 PPE credit for every dental visit that occurs over the next 6 weeks or so in order to allow the dentist offices to get up and running. So really a lot going on. And then with that, with earnings guidance, we have reaffirmed the greater than $22.30. And we've retracted guidance on all other metrics. And we continue to do so just because of the uncertainty of how we're going to get there. We have an extremely resilient membership base, and we feel very comfortable that regardless what happens with the economy the rest of the year, with COVID-19 the rest of the year, we're very well positioned to deliver the at least $22.30. The other metrics could certainly look different based on which direction the economy takes for the last half of the year. But with that, as we really reflect on the low utilization that occurred in April, those of you who may have heard that we've talked about seeing a 70% to 80% drop in nonemergent services that were provided to our members, our commercial members, specifically in the month of April, that we now expect to earn approximately 70% of our earnings per share in the first 6 months of the year as a result of all the impacts of COVID and how things are shaking out from a utilization type perspective. So -- and I'm more than happy to talk about more specificity on certain areas, if you've got questions on that. And certainly, there's some things that we may ultimately end up deferring and talking about more on our second quarter earnings call. But I think really the takeaway is, is that we're very well positioned. We have a very robust and resilient membership base that we can adapt very quickly, regardless of the direction the economy takes, regardless of what's going on out there in the environment. And then we expect to earn about 70% of our earnings in the first 6 months of the year, this year, having a different seasonality pattern than we've ever seen.

Well, thank you for being so dynamic with your view of the outlook. I think it's been very helpful to investors. And of course, given how fast everything is changing, we wouldn't be surprised if there is additional information, additional changes to projections when we get into the second quarter earnings call in about a month. If I could just pivot back for a second to some of the things that you're doing on behalf of customers, both employers and covered workers and spouses and so forth. Are you -- how does that work in terms of your interactions with state regulators in order to do things such as premium products? Is -- I gather that hasn't been a stumbling block here. But I'm just curious, has that been something that the regulators have allowed you to move quickly on? Or I guess, in some states, you don't need [ reg approval ], right? Just comment on that, if you don't mind.

Sure. On the premium credits, that was specifically related to the commercial, fully insured group businesses as well as the individual businesses. And really, we have had no regulatory roadblocks, regulatory stumbling. For any regulator that needed to provide approval, it was obtained very easily and very quickly. They're all very supportive of the efforts that we are making on that side of the equation.

As I would expect them to. That's great. From the standpoint of your broader landscape, you clearly -- I don't need to tell you, you have major presences in all of the, say, business lines. Really, I think you're the only company in the sector actually that has a major presence of such significance in all of them. So I was wondering from that standpoint, could you touch on, because this is fast changing, what are you seeing in terms of the employer enrollment, disenrollment? When will be your next point of getting some visibility on that? And how is that interacting with what you're seeing on the Medicaid and exchange side?

Yes, sure. Great question. So why don't I start and talk for a minute or 2 about commercial and then turn it over to Felicia, and she can discuss what she's seeing in the Medicaid side as well as our continued growth in Medicare Advantage. One thing that hasn't changed with the COVID-19 situation is that 11,000 Americans are still turning age 65 every day. So we certainly don't want to take our eye off of that ball along the way. But in terms of our commercial membership, our commercial enrollment, it's done quite well during this period of time. The amount of attrition that we've seen has been less than originally estimated and significantly less than what you might think if you just look at the unemployment stats and try to do some very high level math. And there are several reasons for that. Certainly, the PPP program has helped in terms of keeping folks employed as well as ensuring that their premiums are paid to us on a timely basis. The fact that many employees have been furloughed within some of our larger customer bases, when an employee is furloughed, they very well may show up on the unemployment statistics, but they maintain their health benefits. And so there's really no impact to our membership from that perspective as well. And then as we really looked at the membership piece that we have on the commercial side, we actually did a detailed analysis by SIC code on a group-by-group basis across our entire membership. And we ended up seeing that we currently insured a higher percent of companies that were considered essential or workforces that were considered essential at the beginning of the COVID environment, which really kept a lot of them insured a lot longer. And that includes things like school districts, where we have the #1 market share; municipalities, where we have the #1 market share; a lot of the union shops, we -- fully insured union shops, where we have the #1 market share. And so many of those had much lesser impact from the initial economic situation associated with it. So we've lost through April and May just under 200,000 fully -- commercial members in total, which is really very, very small when you look at our overall commercial footprint. So we do have quite the dynamic and resilient membership base. And we've picked up far more than that on Medicaid. Again, I'll let Felicia talk about that more specifically. But really, the point to be made is that we have a product offering for every American, in every situation, whether you're young, whether you're old, whether you're rich, whether you're poor, whether you're employed, whether you're unemployed, whether you're sick, whether you're healthy. And so we believe that our business mix and our business model actually sets us up better than anyone else in the sector to weather the storm, to be able to do things like affirm our long-term growth rates during this crisis. And we're not going to be subjected to the wild swings from one way or another, is that we're going to have a good, steady, sustainable growth rate. But with that, Felicia, maybe you'd like to talk a little about some of the positives you're seeing on Medicaid and Medicare.

Yes. Thank you. Thank you, John. And Matt, thanks for that question. We have a Medicaid footprint in 24 markets today. And while we don't usually provide intraquarter updates, through the end of May, our Medicaid enrollment has grown by slightly more than 400,000. Now that's largely driven by the suspension of reverification activity across our states. There remains considerable uncertainty around the shape and timing certainly of the eventual recovery. But we will have a meaningful uptick in our Medicaid membership as we go across the next few months. I mean from our perspective, we expect to continue to see about 40% to 50% of the unemployed enrolled in Medicaid, but the impact that we are seeing so far, as I said, has been related predominantly to the suspensions with respect to reverifications. As always, we are having frequent conversations with our state regulators around the membership. The objective right now is to just make sure that we continue to support our members, particularly during this period of growth that we're seeing. And we will expect states that -- will continue to see the uptick in membership over these few months and who knows how long that will go on. But certainly, having the additional FMAP helps states during this period as they're seeing that increase in enrollment. With respect to Medicare, obviously, this continues to be an area that we are very bullish about. It's a hypercompetitive environment as it always is. But pre-COVID, we saw very strong results coming out of the annual enrollment period. And that, we believe, is attributable in large measure to our continued focus on whole person care and the supplemental benefits that we provided to our Medicare beneficiaries. The strategy for us will continue to deliver double-digit growth in our Medicare portfolio, entering on being able to go deeper in our existing markets as we move forward. But we're pleased with what we saw in terms of growth coming out of AEP, and we continue to see a nice uptick in our Medicare membership, particularly with respect to individual MA.

Felicia and John, if I could ask a couple of follow-up questions here. First, I'm curious in terms of any impact you have seen thus far on Medicare Advantage enrollment as we've entered the pandemic period. And I realize that's outside of the AEP, but still an important factor. So I'm wondering what you're seeing there and maybe what you expect to see. And just a clarification question, Felicia and John, the 200,000 down, is that both fully insured and ASO and the 400,000 up in Medicaid, are those numbers year-to-date? Or are they from the end of March?

Yes. Thank you for asking that last question to allow us to provide a bit more clarity. So the -- those numbers are since the end of March, that's April and May activity that we discussed. And as Felicia said, we typically don't provide mid-month information really on any metric. But just given the magnitude and significance of the COVID-19 situation on the economy and a lot of the uncertainty out there, we wanted to provide the comfort level and the proof points that our membership mix and our business model is very resilient, going very well. So the less than 200,000 is a combination of both fully insured and individual and ASO on the commercial side. So part of the overall commercial block of business. And then the greater than 400,000 on Medicaid, obviously, is 100% fully insured, and it reflects just April and May activity.

And with respect to MA, I will say that individual MA membership is right in line with our expectations in terms of our growth. I will say, however, that our outlook for group MA is uncertain over the near term as groups are understandably prioritizing minimizing disruption to their own business during these challenging times. So what we have seen is a selling process on the group side that's been a bit more elongated than what we originally assumed, particularly as it relates to some of the momentum we had originally expected to see this year. So while we continue to be very confident about our growth on the group MA side, we would just expect that to take longer than what we had originally anticipated.

That makes perfect sense, and that's consistent with what we're hearing from other sources. And maybe since you touched on that with -- either Felicia or John, could you also comment on the sales cycle generally, particularly as it relates to some of your larger employer clients as they look ahead to 2021, how are they engaging in that discussion, if at all, although I assume they have to, at this point where we're still in the midst of the pandemic.

Yes. Sure, Matt. So yes, certainly, the majority of our membership, commercial fully insured membership, does renew January 1. And you say, are we engaging? We're clearly engaging. We're having ongoing conversations. We have not yet provided a lot of specific price points yet. We're still trying to analyze trend on a go-forward basis. We've made a commitment that we will price for trend -- forward trend in 2021. One of the benefits of 2021 is that the HIF goes away. And so being able to remove that excess tax or that excess cost from health insurance premiums is certainly a desirable thing for next year. But we're really trying to very thoughtfully look at the deferred procedures that we've experienced here in the second quarter and make estimates associated with which ones of those are just deferred and there's now pent-up demand, how many do we expect to occur over the last 6 months of 2020, is there a thought process that any of those may actually come to fruition in 2021 as excess utilization? Or how many of them are permanently gone and that there are procedures that are just eliminated because they're not necessary? And certainly, we look at that on a regular basis. And until such time that we really have to have a final pricing out there, we're not going to declare because we want to have as much information as we can to have as thoughtful of a decision as we can. But at the end of the day, we need to price the forward trend.

Yes, that's -- thank you. I was going to touch on that next. And obviously, it's an enormous challenge, I would imagine, for you given the moving parts versus a normal year. How concerned are you about the rest of the industry? I mean it's one thing to be comfortable with trend that you're pricing to with all of your conservatism. What about the rest of the industry and the potential for wider price points than normal 2021 impacting the competitive marketplace because of the volatility in the underlying cost base?

The industry has always been fairly rational in terms of pricing, at least certainly the most recent past, with a higher and higher percent of members being covered by public companies, data is getting better, a lot more access to information, a lot more sophisticated systems. You can really look back at the fact that the underwriting cycle that used to be quite significant a couple of decades ago has really been quite minimal over the last handful of years and you sort of have to take all those thought processes into consideration as well. And is there a chance that the pricing within a particular customer or a particular area might look a little funny on a short-term basis? Certainly, I would be naive to say that I don't think that would ever happen. On the other hand, do I feel very good about the fact that with public companies holding a majority of the market share across America that there's going to be rational pricing in general across all the markets? I think, absolutely, yes.

That's great. That makes sense. Felicia, if I could direct a question to you, which is, in the midst of everything going on, how do you think the disruption and pandemic are impacting state Medicaid leaders as they look at decisions about which populations and programs to potentially move into private sector managed care? Has it slowed down the process? And -- or any comments you can make around any impact that you see, if there is any?

Thank you for that question, Matt. I think that the state partners are rightfully focused on what's happening in their own states on a number of fronts, but we have seen certainly a kind of a cancellation or a delay with respect to many of the Medicaid RFPs that we expected to see this year. That certainly occurred with respect to a delay in Tennessee. California has delayed its RFP as well. And then certainly, with respect to Texas, there was a cancellation of the RFP and not a new time line in terms of the new RFP process. So the timing of RFPs, I think, is going to be uncertain as we get through the rest of the year, and we'll probably have greater clarity on that as we head into 2021. I will say, though, this time does present an opportunity, I believe, for states to consider those populations that aren't currently in managed care and think about whether there is the opportunity to move those populations into managed care as we go forward. States want to continue to see improved quality and outcomes and greater predictability with respect to their own budgets. So I think that while we've made certainly great gains in terms of the increased penetration of managed care in most state Medicaid programs, there remains a tremendous amount of opportunity to continue to move new populations into those programs. And particularly when you think about the complex and specialized populations that states try to manage today, small in number, but certainly significant in terms of their costs. So as we think about the opportunity on the Medicaid side, I see not only the ability for us to provide solutions to our state partners around the existing populations that we serve today but also present opportunities for better management and greater quality for the complex and specialized populations that many states, and including us, have concerns about as you think about the opportunity to have greater certainty with respect to costs and quality in Medicaid programs as we go forward into 2021.

All right. So a little bit slower today, but maybe some acceleration tomorrow as this unfolds. So thank you very much for that. In fact, we're really pretty much out of time. Just if I could sneak in one more quick question. When do you expect to get visibility? Or do you have visibility now on the competitive landscape as it relates to the individual marketplace changes as we approach 2021?

No, thank you for the question, Matt. And in terms of the when, I would say, I don't know that we have frame visibility on it today. We obviously continue to review our own pricing and our own strategy. We believe that the strategy that we've employed is actually outstanding since we really pulled back our footprint back at the end of 2018 and became more focused. We've been earning double-digit margins in the individual ACA block to the extent that we were going to have to pay MLR rebates in 2020 anyway, even before the drop in utilization that here occurred in the second quarter. And so from that perspective, there's really no P&L impact of the drop in utilization on the individual side if we just increase the rebates slightly that would have been paid anyway. So we actually feel very good about the strategy that we've employed and the footprint that we have. But we'll continue to tweak that as we go. We're not looking for major wholesale changes associated with that strategy here in the near future. And we believe that really, that the digital space and some of the telemedicine is going to create even more opportunities to have a product and offerings that will be more and more desirable to that marketplace as we continue to work on those capabilities as well. And we'll maintain a similar strategy of trying to be the second-lowest silver in many of our markets and to be able to really maximize the CSR aspect of the way that the rating formula works. So we feel good about where we are in the individual marketplace.

Right. Okay. Fantastic. Thank you. We've run out of time, but this has been a great session, very comprehensive. Thank you to John, thank you to Felicia, and thank you to Chris Rigg. And we hope that you'll be able to participate and we see you in person at this time next year. Thank you.

Thank you.