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

Hi, everyone. I'm A.J. Rice, the health care service analyst at Crédit Suisse. Thanks for participating in our conference, and thanks for dialing in for our next presentation. It's -- we're happy to have Anthem presenting next. From the company, we have Morgan Kendrick, Executive Vice President and President of Commercial and Specialty. We've got Chris Rigg, Senior Vice President and Chief Financial Officer of the Commercial and Specialty Business; and Steve Tanal, Vice President of Investor Relations. I know -- first, welcome and thanks for participating in the conference, guys, this year. I know there's been some recent management reshuffle. And Morgan, you've taken over the commercial business. I think there may be a number of investors that haven't been able to -- haven't had a chance to spend time with you. Maybe, first of all, just give us a little bit of your background and the evolution of your career at Anthem.

Yes. A.J., thank you and good morning, everyone. Morgan Kendrick here. I am in Atlanta, Georgia, and I, as of about 3.5 weeks ago, succeeded Pete Haytaian, who moved over to our Diversified Business segment. And a little bit about my background. I am a Georgia native, and my career with Anthem and its predecessors is rather expansive. I've been with the company for over 25 years, starting with Blue Cross of Georgia back in the nonprofit days. I actually led the Georgia plan post ACA passage into the exchanges, and then also ran our National Accounts business for 6 years. So I've got a career that is almost exclusively within the Commercial & Specialty Business realms either locally, nationally. And most recently, I ran our 8 West markets, which were our plans from Ohio to California. So look forward to our time today, and it's a pleasure to be with you.

Yes. Great. That's perfect.

I've got a series of questions I'm going to ask you guys. I'm going to particularly focus today on the Commercial segment up front. But I also want to make investors on the line know that if they want to email a question to me, I can ask it on their behalf, aj.rice@credit-suisse, S-U-I-S-S-E.com. On the third quarter conference call, management said that the spike in COVID during August drove costs up in Commercial but was offset by some of the non-COVID utilization pulling back in September. As the COVID surge continues to ease, what have you seen in the commercial market with respect to COVID/non-COVID utilization? It sounds like expectations for the fourth quarter that John Gallina laid out sort of had an assumption there would be pretty heavy utilization on both sides, COVID and non-COVID, but I'd be interested if you guys can offer any update as to what you've seen so far in this last quarter.

Yes, A.J., I'll start. And Chris, you can add additional commentary. Clearly, as indicated earlier, we felt that the COVID spike in the non-COVID -- the dampening of the non-COVID were certainly part of our plan and price for it. When we look at fourth quarter 2021, we have seen a reduction in inpatient COVID costs. So that has gone -- that has abated slightly. The expectations that we had might be slightly better but nonetheless within where we planned. So we feel good about pricing. Certainly, we feel good about the way the year is going to end. But again, there is some caution about an additional spike or slight surge after the Thanksgiving holiday. But again, all within expectations and what we planned for.

Yes, it seemed like the recent spike -- oh, did you have something, Chris, you wanted to say?

No, go ahead, A.J. Go ahead.

Okay. The more recent spike in COVID impacted younger, unvaccinated individuals more. Does the company have a sense as to how much of its Commercial book is vaccinated at this point?

A.J., that's a tough one to gauge because it moves and we've got new vaccines out for younger-age people. But if you think about the average population with a 60% vaccine rate, we probably track pretty close to that, and about 60% is a good estimate, we would say. But then you also have to look at sort of the waning of the actual vaccines and the efficacy after about 6 months and also those that have had natural immunity by catching COVID-19. So when you put those 2 together, I would say we're probably -- we'd guess that we would be around 75% of the business vaccinated.

Okay. Okay. And I guess I haven't asked anybody this, but you just made me think of it in that comment, and is, have you been able to see -- we keep hearing that the vaccination wears off after 6 months-plus. Can you see that in your data that, all of a sudden, people are -- that the incidence of people getting COVID has -- picks up after -- it's probably more the senior population that's got that kind of a longevity in the vaccination rates, so maybe that's not a fair question for you all. But have you -- can you -- have you validated that, I'm wondering, in any way?

Well, Chris, do you want to start?

And Morgan, go ahead.

Yes. What I would say is this, A.J. I don't think we've seen much actual experience yet in the commercial population of people getting a booster shot. But that said, we have a very elaborate COVID model that we've been using really since the early days. And so part of our view for the balance of the year and into next year is an assumption that people will be getting boosters. So the actual experience isn't there yet. It is our assumption that most people will indeed get a booster at some point in the fourth quarter into the first half really of 2022.

Okay. Okay.

Yes. And A.J., to your point around the dampening or waning of the efficacy after about 6 months, the broader population began probably in the February, about in the March time frame, and then general population started, 50 and above, getting vaccines in late March, April. So it's coming up on that 6 months. But that said, we've seen breakthrough cases certainly in our experience. And just in having conversations with our hospital partners, we've seen, as we saw spikes in geographies where there was low vaccination rates, primarily that began in the Southwest Missouri geographies. However, when you think about just the way the hospitals were -- it crescendoed shortly thereafter. And much of that -- of the vaccinated population were breakthroughs. So nonetheless, it's not been anything that's been telling in the actual data. But in just commentary and discussion with employers and with the hospital partners, certainly it's part of the equation.

Okay. Interesting. Interesting. And I guess one other aspect of that is we've now had a series of surges in your commercial population. Have you seen the way providers react to surges, the way the members react to surges change materially? People are more willing to just go ahead and get their procedures done? They're not as concerned about catching COVID in the facility as much? Or even the provider is getting a lot more effective in the way they treat? From your perspective, how has that evolved as we've seen surges? And can we read anything into, if we have more surges next year, that, that might make it less of an impactful thing for you?

I certainly would say the Delta surge was different than the initial surge. Certainly not as large. And we had learned. So from that point, there were many facilities that were continuing to have elective procedures continue during that period of time, and people weren't unafraid theoretically. They were having them done. They were elective, so they weren't mandated from that perspective. I will say, too, the challenge, though, in the second surge was there was a lot of staffing shortage. We had vaccines in the middle of vaccinations; providers with different levels of requirements of vaccination, of staff treating members or consumers. So there was a -- more of a staffing problem that sort of caused the vacancy rate in the hospital to be 0 theoretically. They weren't able to take as many people in. It was more of a staffing issue that I saw. But clearly, I think we learned from that as well. And as this continues or becomes an endemic, let's say, I think we'll be much more fluent in the way we respond and more elegant in the way we actually respond.

Interesting. Interesting. Well, another area that's gotten some discussion here coming out of the third quarter or in the third quarter is these virtual first programs. And I know you guys have been out there in front doing that. And then particularly, I think the way that Anthem has framed it is trying to leverage off of high-performing networks. Do you have a sense of how big that product might be in the next year or 2 and maybe laying out the demographics of who's likely to be interested in that product and how it differentiates from what's available in the marketplace already?

Right. Well, I can start by saying the pandemic certainly got the public very comfortable or much more comfortable with just virtual care. It was convenient. It was easy. There were many early adopters several years earlier. So we've seen this sort of rise. This sort of was almost a hockey stick approach to utilization and comfort in using that modality. What we're talking about is virtual primary care. So it's taking that comfort level with a virtual encounter rather than a physical encounter with a provider and thinking about it holistically as your primary care physician. We think on average, depending on the data that you see, roughly 30% of America doesn't have a primary care physician they use. Every single employer we talk to is wrestling with the fact that there's unlimited capacity in primary care, and we've solved for that. We believe this is a terrific way to do it. But it's got to be done where it is a closed-loop system. It's not an episodic convenience. It's an actual closed-loop system that ties back into a high-value network, as you referenced earlier, to have a complete continuum of care, where there's need for advanced specialty or hospitalization, they're referred into high-performing partners that we have across the United States as well as the individual networks that the consumers are actually enrolled in. I think Gail mentioned it on our earnings call that we've got a pilot right now with about 1 million of our fully insured block in it. The plan is to continue to study that against the control group and continue to iterate. But I will say the appetite is strong. So A.J., I think the market is very receptive. Again, it comes back to convenience and outcomes and quality.

Interesting. Interesting. I think a couple of the other companies that have said that they're moving down this path have started more in their self-funded book. It sounds like, from a regulatory standpoint, it's a little easier to get new product launched in the self-funded side. It sounds like you're one of the few that's actually doing it on the risk side as well. When you think about the economics of this type of product, is it similar to what you get on, looking at it both from an ASO and a full-risk product? Is there some reason to think it's different?

No. I think of this -- I think of it as a product like you're describing. But I also think it is an alternative modality. So the modality kind of fits across the spectrum, risk, nonrisk, small group, large group, perhaps even individual at some point in time. When I think about it as a product, I think about the base foundation being a high-value network, which we've built many of these across the United States with our Blue partners and have a consistent approach across the country. That said, we would overlay that with a virtual first, sort of we would have a digital front door which we've talked about, Sydney. It's sort of the gateway to help, I would describe it, where you come in to a virtual primary care encounter, and then that would be a $0 copay. So we would have 24/7 excess, $0 copays for the primary care, and then we would have other attributes that would be benefit enhancers along that. That would be a specific product that we would launch. And we're piloting -- we're targeting certain markets today of doing virtual first managed care products. And we think there's clearly an appetite there. Now in reference to your conversation around self-funded, we do plan to move in the self-funded market in January. So we'll be starting to launch in markets where, clearly your point, we're not passing a regulatory hurdle, but there is a demand, and it'll be part of it. It'll start as a value add for the Anthem business through the Sydney modality.

Okay. And so if I...

A.J., I would...

Oh, go ahead, Chris, yes.

No, I was just going to add from a financial perspective or finance perspective, right now the virtual component of the product design is -- we're not giving that a lot of actuarial value. To Morgan's point, we're still trying to benchmark how much cost of care or savings we can produce from the virtual product. So any price differential today that you might see where the virtual product is attached to it in the fully insured business is still primarily driven by the more traditional mechanisms that would reduce the overall cost such as the high-performing network relative to a more open-access PPO. And I think my goal and Anthem's goal over the next 3 to 5 years is to be able to measure the folks that have the virtual products compared to the folks that don't and see what the differential is and whether we can actually put an actuarial value on the virtual product that will ultimately drive down the cost of care for everyone.

Right.

That's right.

And I think when we were doing like our big employer survey over the summer, it seemed like people -- one aspect of why you'd sign up for this is some cost savings maybe at some level. Is that the principal reason that some of the younger, healthier people that don't have a primary care relationship and are willing to go on a virtual first and deal with whoever is there, is that the driver of why they would -- someone would sign up for this? Or are you finding other reasons that people would sign up for this type of product?

I think you're saying the younger population certainly is typically more digital friendly than others, and so I think it's more natural. And again, when you think 30% of America doesn't have an established relationship with a primary care physician or somewhere thereabouts those numbers, it's a different convenience. And I think, to Chris' point, the value-based contracting construct is the foundation of the economics of the delivery system. However, when you overlay these components, you sort of continue to amplify its relative value. And I think once we can study that piece of it and what value it is, again it's -- we're thinking about it less around just pure dropping premium but providing better, more high-quality coordinated care through a high-value network. That should intuitively lead to better savings. Just like we've always thought, the high-value networks are economically driven, but the outcome is better, higher quality, more coordinated care.

Interesting. Okay. Another interesting topic that came up on the third quarter conference call that I want to explore a little further was this concept that you were seeing in the market, maybe people moving from -- large employers moving from multi-partner relationships to a single partner. Can you flesh out how much of that was -- you guys said that you thought that would be a positive for you. I can envision that, but I'd like to hear you maybe -- or articulate why you think that would be the case for the audience.

Yes. I said that, and it was around our national accounts business. When you think about the geographic disposition of a national employer, their people are in every ZIP code in America. And the pendulum continues to swing when we think about point solutions, where it's -- disintegrated probably isn't the proper term, but we have an integrated solution in a disintegrated solution where you have point solutions that dot in. I think when we're talking about -- the way I was describing it, this is less around point solutions. It's where the employer has formally perhaps selected multiple payers to where they'll have a payer for a part of the country or maybe they'll have 2 payers in the same geography, and they'll structure their contribution strategy to favor one or the other based on underlying economics. What we saw is that requires certainly additional overhead, additional staffing, additional strategy at the employer and consulting community level because they're managing multiple plans for a single employer. That still is -- I would say that's been about half of our business. We typically have more single-vendor solutions already in the national space because of the economics, the underlying economics of the Blue network across America. In this cycle, however, we saw a much larger number than normal go out for bids. Now they typically would bid for multipayer and single payer. We would bid both scenarios, and we were selected in a number -- an aberrant number -- increasing number of multipayer to be the single payer. In fact, we had 16 customers that were formerly sliced, as we would call them internally, where they have multiple payers as options for their staff to Anthem being the payer. Now they did that because the economics, to your point, made sense. The economics versus the cost of administering multiple plans was in the favor of the employer to do that. And the fact that the pull-through of the digital assets, the pull-through of the clinical programs that we've put on top of the networks, I think, really resonated, and that was why there was such a quite successful selling cycle this year in national.

Interesting. Interesting. So what they're seeing is administrative cost savings on their side of the equation? Or if -- I mean, is there a differential? If someone gives you a single source versus you're part of a multi-partner relationship slice of business, are you going to give them a significant discount for doing that? Or is it more what they say?

No. Well, it's 2 things. It's the savings that they're going to make administratively, the admin fees. The admin fees themselves are such a small piece of the total health care spend. So put that in a box of its own. There may be some slight degradation in the fees to consolidate, but it's not material. It would not drive the decision. The decision is driven based on the underlying economics of the network position -- or the network composition, whether it's a high-value network or not. And I'll tell you, it's an incredibly competitive market. And every year, through digital investments, through clinical investments, we're pulling through additional value, and we're pouring that back out into the market. So these are backed up with actual guarantees and trend and things of that nature. So the decisions aren't taken lightly, and it's primarily driven by the underlying economics. The saves internally on an admin perspective would be rather inconsequential. It would be a value add, so to speak. And then the admin fees, I would categorize the same way.

Okay. Okay. And I think the company did say on the -- a national account selling season was one of the strongest on record. Was -- is it because of things like this? Is -- was it naturally stronger? Do you think the overall market had much more activity than it's had the last year or 2?

The market was quite active. The activity was almost consistent with the prior years'. National had a quite active market. Our 2021 launch was one of the most successful years we had. It all sold -- business sold during the pandemic virtually in 2020. So if you think about that 2022 cycle, which we just concluded, it was even stronger. And I think the difference here is there were a couple of jumbo cases, very large employers that we're looking at consolidation and looking at various different strategies, all of which Anthem sold. So they selected Anthem as a payer. So we've got a number of brand-new logos coming on January. And then in addition to that, we've got 16 customers that are consolidated with us -- consolidating with us. So it's -- again, as I said on the call, this is something you're as good as you are on the effective date. We've got to earn this right every day, and we've got to continue to iterate and provide value in the market. We think we're poised uniquely to make that happen.

Okay. Great. Any -- maybe give us your thoughts on what you're seeing in the small and midsized accounts market this year heading into next year.

I can speak to that. And Chris, weigh in. I feel like I'm doing a lot of talking. And I see you, but if you want to jump in, please do. But the mid-market, I'll tell you, it's interesting. I am -- before this seat, I actually led the national business as well as some of the regional business locally. And one of the strong drives that we started in 2021 -- or 2020 actually was to move that -- to move the asset articulation, the value that we're driving national, downmarket. That said, we're seeing a quite active cycle mid-market as well. It's clear we've got high share in every one of our states locally. That said, there's still room to move in particular subsegment geographies in subsegments of the business. And we're seeing actually higher retention, slightly higher retention than we've had. We saw really high retention in '20. Because of the pandemic, people didn't want to make a change. It started to shake loose a little bit last year. And we're still seeing a higher number, actually a little bit higher, this year. And then we're seeing growth, I mean, materially, 35% more in receipts, when we look at January over prior years, in particular in that real sweet spot where we've had the conversation around our 5:1, 3:1 in the past that plays exceptionally well with integrated pharmacy, Stop Loss, those various theses. So we feel really good about the mid-market business as well as the specialty business. which tracks quite nicely with that.

Okay. Okay. And talking about [indiscernible]...

Yes, I'll only add...

Oh, go ahead.

No, no. in the small group business and, to a certain extent, in the large group business, Morgan mentioned that the subsegment strategy in small group and large group, we have made incremental investments in our balanced funding product, and we have high expectations for that as we look ahead. But really, it's been a multiyear run for the small group segment. We've been performing very well, traditional -- the traditional ACA product but as well as in MEWA and ABF or the balanced funding area. With regard to large group, a similar dynamic, but a little bit more specialized. If you think about our fully insured growth sequentially in the third quarter, about half of that came in our student segment. And again, that's been a multiyear investment strategy. And as you look ahead, we think that's an area that's still relatively untapped for Anthem. And so as we look ahead, we feel pretty good that we have a sustainable path to growth here, focusing on these downstream segments that historically, for whatever reason, Anthem wasn't all that focused on.

Understood.

Right.

Okay. That's a good point. On the 5:1 to 3:1 strategy, did the pandemic do anything, you think, to either slow the progress or accelerate it? Are people more open to speaking to you about some of those ancillary products now coming out of the pandemic?

I think the first year, in 2020, it was -- there was -- it was dampened a bit because there was just a lack of movement. They were trying to keep their staff safe, trying to figure out how to manage their businesses through this pandemic. And I think there was not as much movement in the market, especially down market where the bulk of this comes. And then you think -- in 2021, we started to see that pick up. We do expect to end this year, start '21, somewhere around 4:1 and expect to be 2:1 by 2024 primarily driven by Ingenio, Stop Loss, the various dental/vision products that we pull through. Lots of opportunities still, and we feel good about it because the market is opening up. The market is receptive. They like the value of integration. Intuitively, it makes sense to everybody. If you have different pieces of your health care encounter connected and managed holistically, cost and outcomes are better. We're able to prove that and show that in reporting to our customers. Thus, the appetite continues to increase.

I just want to make sure...

Yes, just to make sure that by 2024, we're hoping to be at 3:1. I would like to be at 2:1. But officially, 3:1 is where we'd like to be. I'm not saying that we can't get to 2:1, Morgan, but right now we're still hovering at 3:1.

We're swinging [indiscernible].

What's that?

You're right. You're right. My apologies.

I was -- Chris and I used to work together, so we must think on the same thing. That was the question I was going to ask as well. All of a sudden, we're making -- are we making new news today with 2:1? A big part of that, it seemed like, was going to be the Ingenio opportunity and also the chance that, that gave you to drive membership growth. Maybe just talk a little bit about how that has played out and how much of that opportunity you've captured, how much maybe is still in front of you to really drive performance in your business because of the Ingenio capability.

I would say the beginning of Ingenio was having a flawless execution and migration of the business from the former PBM relationship to our Ingenio platform. That took up about the first 1.5 years. And then we started -- the wheels started turning. The market started taking looks. I would say this year, we were quite successful, in fact 5x in our sales over prior year on the Ingenio side. Presently sitting somewhere around 20% penetrated the book. We plan to be 30% by 2024 in that book. So we think the bulk of it is ahead of us. There's a lot ahead of us. This year, our penetration rate went up slightly. We expect that to crescendo as time passes. I think there's more fluency not only internally but externally in the issues that we bring this -- the value together and the integrated value. What that looks like, there's an appetite to do it. And we've got to talk about the assets that we're putting in the market and how they're driving value. But this is one that I would say the bulk of the opportunity is still in front of us.

Okay. Okay. And when you go to a conversion of a self-funded account, which seems like where a lot of the focus is, who's the -- who's responsible for selling that? Is it your side? Or is it the Ingenio side? Who identifies those opportunities? And how does that cross-selling work? And do they typically go out to a full RFP? Or do they -- you've got a long-standing relationship with you -- with them and you get to bid alternative to whatever they're currently doing? How does that typically -- what does that typically look?

I think it's -- first of all, we're all -- I view us all as the same, right? It's not an us market -- Commercial versus an Ingenio. We're kind of one together. We have separate tracks. But we work symbiotically, if you will, and we operate in a synchronous manner. The -- it's primarily through an RFP. Very, very rarely are they moving. Now you will have some of that occur where, through continued stewardship on a quarterly basis, monthly basis with employers, we'll be talking about the asset, sharing information about the asset and they'll make a decision, but it's less likely. Usually they're hard-fought wins with a strong RFP. So the pharmacy piece is having to stand on its own, But then, when you bring together the convenience and that value that you can articulate and report back on, that's where the market is -- we've seen it respond. Certainly, some very large cases this year on the Ingenio side, but that sweet spot, sort of continuing to work in that mid-market space, that 500 to 10,000.

Okay. Okay. That's interesting. The individual market, the marketplace, public exchanges, whatever you want to call it, has been somewhat of a soft spot for the industry given the SEP. I mean it's not a soft spot in enrollment. Enrollment has been strong. But it does seem like, from an MLR perspective, there's been some pressure in that area. Can you guys talk a little bit about what your experience has been on the exchanges this year and what you've seen as the year progressed, particularly with the latest COVID surge?

I'll start, and Chris, unless you -- unless Chris, you want to get -- you look like you were about to say something.

Go ahead, Morgan, and then I'll fill in.

My apologies. You're a small like 1:1 cube in my screen.

Yes, I get it.

So my apologies. No. A.J., I would say, look, we like this segment a lot. We think there's continued sustainable growth here. As you know, we were in and we were out. And subsequent to 2018, we've seen this market grow and expand. We think that will continue with the American Rescue Plan as well as when Medicare redetermination resumes after the 1st of the year, granted we did have our plans priced properly this year as it relates to COVID. One thing that was interesting. When you look at SEP and you look at the most recent COVID surge, the average age on the individual business was older than the group. And these were vaccinated people most notably. So we didn't see quite the spike there, albeit everything, all in, was within market expectations and within our expectations of what we were expecting to produce. And when we look at '22, we've also priced appropriately, certainly pricing to our forward view of trend. But all of this is built on what I would describe as some very progressive, elegant relationships with providers. I talked about this on the earnings call where our scale and density is certainly an asset not to take lightly, but one that we need to convert into value for the market. That's what we're doing. And we're driving that value through these relationships. So 2021 is playing out quite nicely relative to our total expectations on membership and growth in earnings. We saw about a 3x spike in SEP, Anthem getting its fair share. And we're off to a pretty good clip for the OEP for '22 right now. It will conclude a little bit later this year than usual. I believe it's on the 15th of January with the exception of New York, California, which will be the end of January. Chris, sorry to cut you off on the front end.

Yes. No, no, no. That was well said. I would just say, A.J., I don't think we've experienced the volatility that some others may have experienced or are experiencing. As you know, we target a 3% to 5% margin in our individual ACA business, and we're performing in line with expectations there. And as Morgan alluded to, when we look to the future, that we're playing a long game here and we will remain disciplined. We do see this as a growth opportunity, but we're trying to avoid sort of a boom-bust mentality and just make sure that over the long term, we can steadily grow this business rather than see big swings up and down.

Okay. When I think about Medicare Advantage, Medicaid, even -- and traditional commercial, those are pretty established products. And I think people have a sense of how the customers react to various changes. The exchanges is still sort of an evolving area. And from an outside observer, I look at it and say, well, it seems like there's a lot of churn now in there and maybe not a lot of loyalty from one year to the next, consumers. Now alternatively, what I've come to realize is some of that churn is because people are going back and forth between Medicaid and the individual market. Maybe just -- can you guys assess? Do you think -- because we see a lot of new competitors coming in and different people, small and large, trying to carve out a stake there. How do you -- why do you think about that consumer? Have you been able to develop a sense of loyalty? I guess the Blue brand, I could see maybe people are familiar with that, and they get to buy insurance for the first time. Or -- and that attracts them and that sort of is a selling card that's pretty impressive for them. But anyway, just give us a sense of how you view that customer at this point and how persistent are they.

I would say, in the very beginning, you're right, there was like almost 100% churn in 2014/'15 when we saw the business start and there was a lot of in and out between Medicare, Medicaid and the ACA as well as between payers. It was the Wild West for the first couple of years. Subsequent to 2018, we've seen it get much more stable. In fact, we've seen a degree of loyalty. Again, we have to constantly innovate, constantly be at the right price point. We do think the brand is helpful. And I would say that there is much more stability in that business and much more stickiness than there was in the beginning, which is why this market seems quite attractive to us and is quite attractive to us.

I mean we had last year about a 20% increase in the overall enrollment, about 2 million people. And a big part of that was the extended open enrollment period, special enrollment period. A big part of it is also the enhanced subsidies. When you think about '22, are some of that going to tread down? Do we think the market will stay at this level? Or what -- do we think we'll see a step back in enrollment next year with a more normal open enrollment season?

I feel like with the American Rescue Plan and the enhanced subsidies, that's going to continue, right, so -- into next year. And then you've got redetermination of Medicaid that will be sometime early -- at the end of first quarter, sometime in 1Q, allegedly, maybe. And so that's -- those 2 things alone make us optimistic about this isn't just a blip, and this is sort of just some continued stabilization of this market. And again, we've expanded our footprint quite nicely this year over prior years. And we're in some strong geographies. But like you said, every year, there's players that come and go. And to Chris' point, we priced for the long book -- the long game. We want to be a stable, steady provider in every single one of these markets. It's county by county, ZIP code by ZIP code as we think about the provider mix, who we're working with, how we're partnering to deliver the goods for the customer.

Interesting. Okay. A lot of chatter and discussion this year about various stages in which people price their book of business for next year. And with the COVID rise and fall, what did they factor in? What did they not factor in? How do you guys feel about the different aspects of the commercial book as you sit here today, mid-November? And thinking about '22, when you were pricing national -- large account risk business in the summer, is there anything that says, well, I wish I had noted that down? Or do you feel better because of what you're seeing? Give us some flavor on that.

Hey, Chris, I'll let you start there.

Yes. I think that in the ACA businesses, to a certain extent, there's a bit of protection there through the risk adjustment mechanism. So I'll probably put those aside and just assume that generally speaking, the market is the market and the risk adjustment provides sort of an offsetting lever there. In the large group, fully insured business, the heart of that renewal, like the actual sales of -- and the sweet spot of what we're selling is really, call it, mid-September through end of November-ish. And so we were able to have sort of the latest and greatest data on the Delta surge. And when we were thinking going into that final stage of negotiations, we feel very comfortable that we both took a -- have a firm view on underlying cost trend and we were able to factor in our latest thinking on COVID and how that would bleed into 2022. So overall, we're comfortable that we are indeed pricing to trend, and we do feel very good about our overall competitive position so that we can have the end, both generate the margin we're looking for and grow membership.

Okay. Okay.

That's right.

Great. There's also, obviously, a lot of excitement about DBG and obviously Pete going over there to run that. When you think about that relative to the Commercial business and where the opportunities are with what they do today, are you -- do you feel like you're capturing that today? Or is there still a lot of runway on even what they do? And how do you see that evolving in areas that could help you enhance your commercial offering?

Yes. A.J., I share your excitement about Pete being over there because no better leader to take this to another level than Pete, quite honestly. And I would say that I am wildly optimistic about not only enhancing what we have today but also what we're going to be doing in the future. When we think about our AIM redirection, if we think about CareMore, and Aspire, palliative care and high-cost members, and if we think about Beacon, Beacon certainly is another one that's going to really take off in 2022 with us. The acquisition is about 1.5 years old. And so we'll be in a position to where we can really start driving this in our business. The market is receptive. The market wants it. We've got products launching in January. So I think it's going to be fantastic to see where we go with it. There's a lot of ideation occurring presently. Pete is building his team, and I expect good things.

Maybe specifically to drill down on Beacon because there may be people on the call that don't know that, maybe talk just a little bit more about that opportunity.

Yes, Beacon is our behavioral health acquisition, which was primarily in Medicaid. We're also taking it into Commercial as well. Clearly, the market for years has struggled with access and out-of-network utilization cost. How do we manage that? And so we've built a product that's sort of -- that actually solves for that. It solves for access. It solves out-of-network utilization controls. It almost provides like a concierge-type approach to navigation and connectivity back to the health care mother ship, so to speak. So it's together. It's connected between the behavioral health aspect and the traditional medical benefits. This is something the market has been wanting. It's something that we've now launched in the market. We've had a couple of things we were piloting and trying. This is what the market was receptive to and where we think we can really drive continued value.

Okay. Well, I think we've done a good job of covering the Commercial in a lot of different ways, and I appreciate you guys doing that. I'm not going to let Steve get completely off the hook here. You guys did announce an acquisition yesterday, more on the Medicaid side, Integra. I just wonder if you could give us a little bit of a commentary on what that opportunity is and how we should think about that.

Absolutely, happy do it, Jay. Yes, so really excited about that deal that we announced yesterday. Integra is a managed long-term care plan in the New York Medicaid program, really a nice complement to our business there. As you know, we have HealthPlus in New York and a small stub of that is actually in an MLTC program. So this will complement what we have in the state, get us deeper there, and I think really well aligned with, frankly, what the strategy is for [ PBG ], both growing in general, getting deeper with state partners. And just when you think about what Integra does, it is a very sort of integrated plan that brings sophisticated care management programs to vulnerable populations, duals in particular. Pretty high PMPM that comes with that as well, so the economics are favorable as well. But also very well aligned with New York's vision for integrated care for duals. So this is just us doing what we said we would do, just getting deeper into markets or going to stay as best we can and growing that business further. So really excited about that deal. A nice little tuck-in for us.

And as you mentioned, LTSS populations have a very high PMPM, but it can be wide. I mean something in the 4,500 PMPM range? Is that in the ballpark? I don't know if you have that or not.

Yes. Well, so we're not providing too many -- we're not getting too specific, and I think that number probably came from AgeWell. If you backed into that, it was a competitor acquisition that was recently announced. And you're right that this is the same population, same program. So Integra is very much like AgeWell, the asset that was recently traded. 4,500 may be a little high. But if you're in the high 3% range, you're probably pretty close to it, to [indiscernible].

Okay. And we don't often get to see an LTSS business standalone. Is the margin profile of that book similar to just Medicaid in general, the lows 2% to 4%, something like that? I don't know.

Yes. So 2% to 4% is our target range for Medicaid. I'll probably stop short of commenting on this one specifically. We'll see how we'll run it and how it will come in, but that is our target range for Medicaid, so.

Okay. All right. Well, good, good. I really appreciate you guys taking some time with us today. We've covered a lot, and it's a good chance to really be able to drill down into the commercial market, which we don't always get to do. So I appreciate that, too, as well. Morgan, Chris, Steve, thanks for doing that. I hope you have a great Thanksgiving. And hopefully, next year when we're doing this, it'll be in person instead of virtual. But I appreciate you working with us this year to do that. And thanks, everyone, for dialing in.

Absolutely. Thank you.

Thanks, A.J.

Thank you.