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

Hi, everybody, and welcome to our next session here at Morgan Stanley's Global Healthcare Conference. I'm Ricky Goldwasser, Morgan Stanley's health care services analyst, and I am very pleased to have with me this afternoon, Felicia Norwood, who's President of Government Businesses Division in Anthem; Elena McFann, who's President of the Medicare Business; and Aimee Dailey, who's President of the Medicaid Business. Before we get started, I just want to note that the webcast today is for Morgan Stanley's clients and appropriate Morgan Stanley employees only and it's not for members of the press. And for any important disclosures, please see the Morgan Stanley research disclosure website at www.morganstanley.com/researchdisclosures. And with that, Felicia, Elena, Aimee, thank you for joining us today. Really excited to have the 3 of you with me here on our virtual stage. Felicia, let me just turn it over to you for just some sort of introductory remarks and sort of help frame the conversation for us.

Sure. And first, Ricky, thank you for having us. Aimee, Elena and I certainly appreciate the opportunity to talk with you about Medicaid and Medicare business here at Anthem. As you mentioned, Aimee is the President of our Medicaid Business, and Elena is President of our Medicare Business. Now in addition to Medicare and Medicaid, Government Business in Anthem also includes our Federal Government Solutions Business, and Federal Government Solutions actually includes 2 businesses for us. Our National Government Services Business, which includes operations for really 2 big Medicare contracts. We are the Medicare administrative contractor in jurisdictions K and 6. And then there is our Federal Employee Health Plan Business, where we provide health care coverage for 1.6 million federal employees. The Exchange Business at Anthem actually resides with our commercial team. Pete Haytaian and the commercial team worked very closely with us as we see certainly individuals who migrate from exchanges into Medicaid, so very close partners for us in terms of our business. So that really represents Government Business in Anthem. This is an integral part of Anthem's footprint. We've seen significant growth over the years, and at the end of '20, this business represented close to $71 billion. Unlike our Commercial business, we're focused on the 14 blue states. Our Medicare and Medicaid business actually has a footprint in 25 states and now Puerto Rico. We recently acquired MMM Healthcare, which we're incredibly excited about. And today, our Medicare business in total serves over 2.7 million Medicare beneficiaries. And on the Medicaid side, we are now over 10 million Medicaid beneficiaries. Very excited about that and certainly being in half the states across the country. When we think about this business, and you'll hear from the 3 of us today, we're just incredibly bullish about the growth opportunity, and that growth is going to come over the next 3 to 5 years, I would say in a few areas. First, on the Medicare side, the plan is to certainly go deeper in our existing markets today and particularly in our blue states. And Elena certainly will comment on that when we talk about that. Our penetration today is really about 10.6% in our blue states and the opportunity there is significant. 1% represents close to $1.5 billion in revenue, and Elena will share our plans around that. And then in terms of Medicaid, we have that pipeline that you hear us talk about often in terms of that kind of $80 billion pipeline, the number moves around all the time. But that really represents states continuing to move more complex and specialized populations into the Medicaid programs in their respective states, foster care, a long-term services and supports. And the good thing about Anthem is because of our Medicaid and Medicare penetration being able to then focus on the dually eligible population. So duals represent a significant opportunity for growth for us as well. And being positioned well in Medicare and Medicaid, I think, gives us the ability to penetrate that powerful pipeline that's out there just in terms of duals, and having the assets that we have in our Diversified Business Group to support that make our ability to serve that population even more powerful. The last thing I'll mention before I hand this back over to you is the community health strategy, which is an important part of what we do in Government Business. We spent some time talking about that at Investor Day because for us, the focus on whole person health is so important. We are -- and we can't just address the physical health issues that our members face. We have to focus on what people call the Social Determinants of Health and drivers of health. And even before the pandemic, we started to spend a lot of time focusing in this area because we know how integral it is to improving total health outcomes for those vulnerable populations that we are incredibly privileged to serve. So we are incredibly bullish about this business, see a lot of opportunity for growth in both areas and look forward to engaging with you in this conversation this afternoon.

Thank you, Felicia. And before we dive into kind of like the different segments of the business, you joined Anthem a couple of years ago. What excited you about the story that made you switch from kind of like your previous roles, Director of the State of Illinois Department of Healthcare and Family Services and join Anthem?

That's really a -- it's really good question. And I've been here 3 years now, but who's counting? When I take a look at it, Ricky, I think about it this way. In Illinois, I was privileged to have the ability to work on transforming health care for about 3 million people in the State of Illinois. Anthem gives us the ability to do that for over 10 million people. Actually, when you think about Medicare and Medicaid, it's close to 13 million. But the reason it's so important is that when you come from government, and I do think there's great value to having been in the shoes of our regulators and been on the policy side. But when you think about the kind of regulator or policy perspective, you have this vision around what you want help here to look like for the populations that you're trying to serve. So you develop great RFPs. You have great public policy around what you want to do, but you don't get to fully execute on that. What happens with this role and why I was so excited to join Anthem, this gives us the ability to actually execute on the vision that our partners have in state and federal government to improve health care outcomes for some of the most vulnerable people in this country. First and foremost, our culture here is so aligned with the mission of Government Business, but is also positioned in the way that we're able to deliver great value for those we serve and for our shareholders. So I consider this really the intersection of being able to drive your passion and your profession in a way that gives you the ability to not just have a vision for what health care should look like and how you can change what's going on in health care, but being part of a team here at Anthem that's committed from a mission perspective and totally focused on executing around improving outcomes, the quality of care and being able to deliver for the people that we are very privileged to serve.

And that's how time flies. So you talked about really kind of like that opportunity that you have to work towards a top 3 position in some of the key states. And how have you been going about this? And how do you think about the time line to get there?

So Elena, why don't you talk about that? This is in the Medicare space where we want to move to a top 3 position in our blue states. So Elena, why don't you talk about that strategy from a Medicare perspective?

Absolutely. Thank you, Felicia. Thank you, Ricky. Our 14 Anthem blue states really represent, as you've noted, that the area, the geography of incredible potential to drive growth in the Medicare Advantage business. So from a commercial perspective, in those states, we have 35% market share. That is easily 2x the next commercial player down. And at the same time, in those same states, we have 10.6% market share, as Felicia noted. So what a great opportunity to really harness the commercial aging population right there, who are already walking around with an Anthem Blue Cross Blue Shield medical ID card. Something else to consider in those states as well is our Group Retiree business. What a great platform again for us to expand our reach into the Medicare space through that. And even further than just those 14 blue states, think about our -- the incredible privilege of serving the City of New York retirees come 1/1/2002. That's nearly 0.25 million of group retirees who have -- whose employer has selected us to serve their needs. And we are incredibly excited about that because we get a platform then to -- on which we can innovate in this great sort of encapsulated population. We had to innovate how we're going to be interacting and working with our providers to deliver better care for them. Also more broadly, if you think just outside of the 14 blue and you include our Amerigroup brand, seniors are still aging in at the rate of 10,000 per day. And we offer very compelling Medicare Advantage programs that address not just members' medical needs, but also, we've been a leader for years in Social Determinants of Health. You've seen our supplemental benefits that address food insecurity through our healthy pantry solutions or access to health care through transportation or address loneliness, social isolation through our personal home help -- helper supplemental benefit. So we expect to maintain above-industry average growth across our blue states and across really our Amerigroup states. And I would also point out that this actually helps the enterprise overall because as we grow our Medicare Advantage business, we bring in, therefore, more members for our Part D coverage, right, through MAPD. So that helps IngenioRx. We bring in more complex chronic members, and they need specialized care, for example, in CareMore or through myNEXUS and then, of course, behavioral health benefits through Beacon. And then finally, I would be remiss if I didn't point out that Aimee and I have -- will get to work closely together on serving the dual eligible population. Such an important vulnerable population. And we have unique solutions that are tailored to their needs. So I hope that information was helpful, and you can tell I'm incredibly excited about our Medicare business.

Very helpful. And you talked about the opportunity, right, sort of go back to leverage and the synergies. I suspect also if we think about 2023, when other states are going to open to you beyond the 14 states, there's an opportunity to leverage that infrastructure that you already have across the states on the Medicare side for the commercial entity.

So we have such -- we are able to actually serve even more people through our alliances with our Blue partners like Blue Cross Blue Shield of North Carolina, where we have a D-SNP plan and Aimee got through the Medicaid plan we have there. I offer that as an example in Louisiana. We have an alliance with the Louisiana Blue Cross Blue Shield plan there. These alliances are critical to -- are critical differentiators because they allow us to bring together 2 well-known Blue entities and then grow together, use that brand to -- as platform for loyalty. And from there, to help the members get better outcomes and achieve greater affordability in their health care. So it is -- and we are -- quite frankly, we are interested in expanding even more alliances with Blue partners. It really is something that you don't see in other parts of our industry. I think it's really unique to how Anthem thinks about serving the greater good and really improving the health of humanity.

So Elena, one area that investors are very focused on now are changes, potential changes to Medicare reimbursement. With the administration directing more funding towards exchanges, there's just a lot of focus on what the offsets might be. We're getting a lot of questions on risk-coding adjustments that CMS could use as a lever to make near-term changes. What are you hearing out of your conversation in D.C.?

So -- well, yes, there are -- Congress is in the process of formulating the budget reconciliation, legislation. And so -- because everything is in process right now, we can't really speculate definitively on headwinds or tailwinds from specific policies. Regardless, as you noted, Ricky, we are actively involved in these policy discussions. From the perspective of the Medicare business, our priority is on ensuring that all Medicare beneficiaries continue to receive the same Medicare Part A and Part B benefits, so that Medicare Advantage is on a level playing field. So you know that half of all Medicare beneficiaries, nearly half choose Medicare Advantage because of the value that Medicare Advantage plans provide them, including those supplemental benefits that they receive as a result of the plan's ability to deliver the Medicare benefit package more efficiently at a lower cost than the fee-for-service program. So cutting Medicare Advantage payments or otherwise changing the benchmark formula would result in increased cost to seniors in the system. It would decrease benefits and choice. And really, runs the risk of changing the defined benefit nature of Medicare and its equal applicability to all beneficiaries. Now as a general matter, while the details of any hypothetical effective rate change for Medicare Advantage that definitely matters, the most important factor is visibility. We file our bids once a year, the first Monday in June. And if we know about potential headwinds in advance, we can then take measures to mitigate the impact through brand design and our overall bids. But right now, still too early to really comment on specific headwinds and tailwinds, but we are, as you point out, very actively engaged in the dialogue in D.C.

And Elena, I think the message that I'm hearing here is that you're saying is there are levers, right? If something were to happen, there are levers that you can use as you formulate the bid, and those levers could be lower benefit package sort of to offset that.

There are definitely all sorts of levers in the way that Medicare Advantage plans are constructed. At the end of the day, I think that it's critical to remember that what beneficiaries are looking for is lower cost and better outcomes. And the ultimate test of all the proposals that are flowing through the budget reconciliation bill is will they increase or decrease consumers' total costs, inclusive of their premiums. And -- so that's sort of our -- that's our litmus test. And as you point out, we've got multiple levers we can pull.

So I have to ask this one because you kind of like -- to your point, you are -- you're involved in the conversations. What would be your advice? If you were sitting there saying -- well, I mean, you are sitting there of what needs to be done?

I -- so my advice remains remember the level playing field that the way the regulations work is everything was contemplated for Parts A and B, that there would be a level playing field for all Medicare beneficiaries. Then along with that, it all goes back to the -- there is -- there's no really one silver bullet. Consumers have to have affordable access to health care. And they have to be assured that what they're going to get at the same time is a better outcome. That's really what they are -- what they seek when they are making their decisions on Medicare benefits every year is am I going -- how much am I going to spend? What is -- how am I going to access the health care system? What are my options to do so? How does that pan out for me in terms of my costs and my quality of health care?

So Aimee, shifting gears to Medicaid, and I want to start with sort of what -- the recent dynamic that you're seeing around COVID because clearly, that's topical. And we've heard from some others in the space about that. It seems that Delta variant has an outsized impact on the nonvaccinated population. What has been the impact on your book of business?

Sure. Thanks, Ricky. Maybe a couple of things. To acknowledge one, as you said, the Medicaid population does have a higher hesitancy around vaccinations as well as a higher population of children. So by definition, not able to get the vaccination presently. I do think we're very optimistic. I know I'm very optimistic that with the approval of the Pfizer vaccine that we'll get more adoption of the vaccinations in the population that's eligible. And then obviously, to the extent that they're not, we are certainly seeing more COVID, as every other insurer, I expect. And all over the news that you're seeing higher COVID incidents right now, which is -- I don't want to say disproportionately because then it makes it sound like it's marked, but certainly more in the Medicaid space that we're seeing versus other parts because of the vaccination specifically. As you think about it, children are disproportionately affected because of that lack of vaccine. And so they are seeing higher hospitalization rates sort of countrywide. What I would say for us now is it's a little early to really say what does that look like comparatively in the 6-month period versus the singular months of August and July. But I do think we're -- I know we're very confident that on the main that we still think right now that there's nothing telling us that the overall cost is any different than the outlook we put out. Medicaid as a rule had lower return to non-COVID utilization than the other lines of business. That's, I believe, still true based on what we're seeing. But it's only August from that perspective. I do think -- a couple of things I would say. From a financial perspective, the collars and rebate formulas that the states put into place make the variability in medical costs less impactful. I'm not saying it's not impactful, but it's much less impactful because that natural arbiter or hedge that the states put in place makes the overall financial picture a little more stable as a result. I also think we have taken the opportunity to really work to get more in different ways for people to get access to that non-COVID -- the PCPs, the preventative visits. We still and we'll always have an emphasis on quality of care and making sure we close gaps to those very, very vulnerable members. And so things like telehealth and our digital engagement that we have an adoption rate that we continue to try and encourage gives us access to those members. So in the long term, their overall health outcomes will be positively impacted. So on the main, certainly, a lot of volatility. But from a financial perspective, I think the stability and our ability to meet our target margins is not affected.

Redetermination is another topic.

Our favorite topic.

Favorite topic. But with all these ongoing uncertainty, and we're almost at the point where people thought we were kind of out of the woods. And again, we saw the spike in the virus. And given that it's going to take time until we have a better sense of the lasting efficacy of the booster shot, how likely do you see a potential extension of redetermination and just the emergency period to 2022?

Sure. So your guess is as good as mine, Ricky. But I would say that we are very confident based on just the construct of the legislation the -- excuse me, PHE will not end prior to the end of the year. By definition, we've already told the first 30 days. So it's got to go to November. Just based on the way the administration has indicated, it's 60-day warning prior to the end. What's going to happen in 2022? I think it's a reasonable guess, a reasonable bet that it could be extended. But I think all the things that we've been talking about make it hard to say which thing is going to trigger. God help us, I hope that we don't, from a country standpoint, from a health standpoint, have continued spikes. But that's certainly possible. Any change in vaccination rate that comes from adoption or ability to approve vaccinations for children will change what things look like. And so I think the administration, as we are very interested in making sure we maintain access to health care. And if that requires an extension of PHE, we would certainly be in support of that. As you think about recertifications, maybe to move to that part of the question, I do think we've continued to say, and I don't see anything that changes the expectation that states will vary state to state, but not have any precipitous cliff event. I think there's a couple of things in the legislation that will deter that. One, needing to have more recent determination information, financial information to make an eligibility determination. Also CMS has recommended a 12-month period that they allow states to take time, which gives them the ability to deal with the capacity problem they all have but also an interest in making sure that people went where they belong, that we don't suddenly have a very high spike in the uninsured population. But I think states will have that impetus irrespective of what the regulations require. And so I do expect to see sort of a slower ramp than maybe we fear, not me fear. I don't fear it because I think it sort of doesn't make a whole lot of sense. And most of our states have been very cooperative in sharing with us what their plans are, at least on -- in certain states anyway. And I'm not -- we're not seeing any of that are going to flip a switch on the day the PHE ends.

In the time we have left, I want to talk a little bit about both digital and value-based. So 2 very big topics. So hopefully, we can cover both. So on the digital, digital is really a core part of Anthem's broader and long-term growth strategy. And you embedded it in your growth targets. And when we think about front-end versus back-end investments, I mean, providing digital tools for providers using AI to manage patients, I mean, clearly, that's been an area of focus for the health care system. But we're seeing Star Ratings, CAHPS increasingly putting more weight on member satisfaction metrics. So how important do you think -- and I think that's a question for just across the book, right? How important do you view the front-end digital interaction with members in improving access and improving satisfaction? And from your experience today, what are you finding to be the most effective ways to better engage with either the senior population digitally or the Medicaid population digitally?

Yes. I will say, Ricky, the -- digital is -- certainly permeates and touches almost everything we do here. I mean, we say that 5 years ago, less than 1% of our interactions were digital. Right now, we're at about 65%. And in 2 years, 3 years, we think that's going to be 90%. But when you think about the investments that we have to make, the front-end engagement with members is critical. As you said, CAHPS is changing. By the time we move to 2022, it's going to represent almost 35% in terms of the Star performance. So it's increasingly important for us to think about this across all of our lines of business, which is why Sydney Health is so important to us and our members. And member satisfaction is just going to be critical, and strong consumer engagements, making sure that we are able to address our members' needs, ensure that we're connecting with them at the right place, at the right time. The way that they want to be engaging with the health care system is going to be critical. In digital, it's really going to help facilitate this. I mean, we also have to make sure that we are leveraging digital for our outreach, our interventions and doing everything we can to personalize health care in a way because seniors have come to expect that all of our members really have come to expect a more personalized experience. And having gone through COVID and Amazon, we are to the point where everyone wants something different, and they want it unique to themselves. I think the investments that we're making here are going to be critical to our strategy. They will touch almost every aspect of our business. And it will be integral to working with our members and improving CAHPS and our performance as we go forward.

So in the very last minute we have here, let me try and kind of like fit into that value-based care because I do think that it also kind of like fits with kind of that idea of personalizing health care and wrapping around the member. You've seen -- we're seeing more and more sort of that sort of kind of convergence between carriers, insurance, primary care models that are getting more of a prominent role as being part of the solution. You own some provider assets. Also after, I think the MMM acquisition, they have a little bit of a different model. How are you thinking about driving more value-based care? And how do you think internally, right, about sort of kind of like prioritizing owning versus partnering or investing into these assets?

So I'm going to try to keep you on time. But at the end of the day, I will say value-based care is an integral part of our strategy. From a prioritization perspective, Medicare is at the top of the list. We believe that it's critical that we continue to further our value-based relationships with care providers as we go forward. And we've been very focused around how we want to do that. As you've said, strategically, we decided we don't need to own providers. We want to partner with our providers in order to be able to deliver the outcomes for our members and actually have alignment that help us improve overall Star performance outcomes and quality of care. Now it doesn't mean that opportunistically, but we have an asset like MMM that comes along with providers that we own that we don't think that's also good. But strategically, from a business perspective, our strategy is to partner. It's not to own, but we will continue to be opportunistic in our M&A strategy when we see those assets that are so valuable like MMM, and they have that component that we see absolutely a way of learning from that and integrating it into our broader strategy from a Medicare and a Medicaid perspective.

Well, we made it. We made it in time. So Felicia, Elena, Aimee, thank you very much for joining us today. And for everybody on the line, thank you for listening in.

Thank you, Ricky. We appreciate it.

Thank you for having us.

Thank you for hosting us.