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

I appreciate everybody coming out today for the Strategic Decision Conference and for a fireside chat with Anthem. Again, I'm Lance Wilkes, healthcare services analyst. As I said yesterday, really happy to be here. So I appreciate everybody's time. I'm going to ask the Anthem team to do some quick introductions and then we're going to kind of kick off with a fireside chat. We've got Pigeonhole open. So we're certainly open for questions and look to have a really good discussion here.

Great. Thanks, Lance. Appreciate it. Really appreciate being here. I do want to say Gail gives her apologies, Gail Boudreaux, our CEO, she unfortunately, came down with a sinus infection and was not permitted to fly. So I'll try to pinch it, I'll do the best I can. My name is Peter Haytaian. I've been with the company since 2012. I've been in the industry for about 25-plus years. Right now, I'm heading up the Diversified Services business as well as the Pharmacy business. Prior to there to, I led the Commercial business for 4 years. And then prior to that, the Government Business Division for about 6 at Anthem.

Everybody, I'm Steve Tanal, Vice President of Investor Relations. I lead FP&A for us as well. I joined Anthem at early '21 from actually Wall Street, where I was a sell-side analyst covering the sector for a number of years. It's great to be here. Thanks for having us.

Really appreciate it. And again, just kind of to pile on the introductions because we've obviously done things in the past with Anthem, which we really appreciate it. I do think it is really interesting for a discussion like this. Obviously, I love having Gail here, but having Pete, Pete has actually run all the businesses at this point. Having been on the Amerigroup and then running the Government Business, having run the Commercial business as part of the 5:1 to 3:1 turnaround like probably the impetus of that and now the emphasis on services.

So maybe just at the front end for folks framing, if you could talk just a little bit about sort of the vision of the company. Obviously, you're changing the name of the company to Elevance, how that fits in. What's the objective for Anthem, 5 to 10 years down the line? Where do you want this to be kind of perceived as far as like there's growth? Is this supposed to be more of a consumer brand? Is it supposed to be more of a brand as a platform for the health plan? So just a little framing of the company and the name change, and then we'll start to get into some of the more detailed questions.

Yes. No, I appreciate that. I'd be happy to do that. Maybe what I'll do is start back to when I started with the company because it's evolved so much under Gail's leadership. It's changed fundamentally. But when I joined the company in 2012, it's predominantly a commercial insurer in large part. Anthem was focused on the Commercial business. I had a little bit of a government platform. But at that time in 2012, acquired Amerigroup and that was really the beginning of diversifying the company and having 2 major P&Ls. So we had, obviously, a very strong Commercial brand, but then also establishing a Government Business brand. And under that P&L, resided Medicaid and Medicare. And over the last 5, 6, 7 years -- or I should say, 5, 6, 7 years from 2012, there was a deep focus on solidifying [ back core ] business. The Commercial business continued to be industry leading, but I think pivoted to growth under Gail's leadership in a very big way. That was something that I was very focused on when I led the Commercial business. We established a broad portfolio of product offerings. As Lance alluded to, focused on profitability in our self-funded business and really sort of blew out that business. And so across every dimension of the Commercial business, I think you see strength in diversity. Government Business, and again, starting that P&L in 2012, an industry-leading Medicaid franchise with, I think, a very significant pipeline opportunity of growth that continues to exist. But when I started in that business, it was predominantly much more focused on moms and kids and now, with a real focus on the special needs populations. And I think even further opportunities as you think about the pipeline of growth in Medicaid, especially focusing in on those more sensitive high needs populations. Taking us to where we are today in rounding out the P&Ls with the services business -- with the Diversified Services business, which started a few years ago as well as standing up the pharmacy platform. And so you think about our book of business today, and then I'll sort of Lance touch on Elevance Health. We've got this really broad book in terms of the core business with over 47 million participants, 20 million fully insured. We talk about being a resilient and diversified book of business. I don't think there's one that's more diversified than our core business. And that creates a great opportunity for us as it relates to the services business and serving Anthem primarily as our client as well as growing our pharmacy business and really rounding that out. And that's what's really led to Elevance Health. And that is our holding company or will be our holding company brand that was recently approved by our shareholders. When you think about that word Elevance, it's a combination of elevate and advance. And it's really a representation of us stepping beyond the core insurance business and being more focused and diversified in terms of the services business. And again, it's a really tremendous opportunity for our company with where things are today. And when you think about services and reaching into our core business and serving our core business is a tremendous opportunity to improve quality, to improve cost. At the same time, we're creating this virtuous circle of activity where -- and the services side, we're generating that cost of care and quality and then we're creating margin on the Diversified Business side of the equation as well as on the pharmacy side of the equation. So it's a really exciting time. I think you're going to see a fundamentally different company over the next 5 years. We're really going to live up to being a lifetime trusted health partner. That's what our focus is. And to do that and create whole health, obviously, we have to be serving much more than a core traditional insurance business.

Yes. That's really helpful. So let me focus in on some things related to kind of this shift in focus to the services businesses. And let me just start off with as you, as a firm, have evaluated this, what are the advantages you see for Anthem in this space contrasted with many other payers who either are already in the space like United or are entering the space or participating in some sort of way?

Yes. As I said, I think it's a tremendous opportunity for some of the reasons I stated, but I'll sort of reiterate them. I think at the top of the -- the top of the ladder is this massive book of business that we have, this diversified book of core business of 47 million members. And of that, 20 million fully insured members. So there's just a tremendous opportunity to penetrate that book. And let me go a little bit deeper on that. Not that external sales don't matter. They really do. In fact, we're having a lot of success externally. But as you'd intuitively think, selling externally can be a little bit more complicated. And many times, you're selling by the ones, you're developing a relationship with a partner, you're maybe doing that on a single product offering, for example, and then expanding that relationship. Where in contrast, if you're dealing with the Anthem portfolio, I have an obligation as the leader of services to obviously prove to the P&L owners in the business that we can generate value. But once I do that, the ability to scale across the portfolio, across all lines of business, being able to bundle my products, I can do that with speed and agility, and we're seeing that as we speak. So I'd tell you that's number one, being able to really penetrate the Anthem book of business with speed, agility and at scale. Number two then is once we do that and we can prove in Anthem, especially with such a diversified book of business, that we can perform well. It's a wonderful springboard for our external business. And I would say -- I'd say, in large part, with the Blues, we are all a part of one family. We understand the Blues and how they operate and function. We have a lot of the same values, obviously. And so you're dealing with 1 in 3 Americans that have Blue coverage and our ability to penetrate the Blues, I think, is very, very significant. Then I'd say probably the third thing is our density and focus in our markets, our deep penetration with the provider community. And as you would suspect, if you're a provider and you have 60%, 70% of your book with Anthem, which is a lot of times the case for us. Doing business with us is important. And us partnering with those providers is important for both parties. And we have a tremendous opportunity on the services side to sell into those providers. And so I'd -- foundationally, I'd say that's a big distinction for Anthem versus other services business and other payers.

We've been -- obviously, we've been bullish on Anthem for a while. So one of the things that we've focused in on until we adopt different names from you guys has been sort of [ this concept ] of an Optum for the Blues, but really a shift to the services businesses. As I look at the opportunities you're talking about, again, you got 20 million fully insured, you got 25 million plus of self-insured and then you got a 65 million Blues kind of target plus other health plans and stuff like that. But all really big, robust areas. Can you talk a little bit -- and as you said, easier to penetrate, fully insured, you got to cross-sell or do something with self-insured and then you got to go sell outside? Can you talk a little bit about how far along you are in fully insured as far as the capabilities you have currently that are penetrated there? And then the capabilities that perhaps you can go out and get and how you define priorities for those, kind of for that fully insured block. And then next, I'll ask you about like cross-sell penetration for self-insured.

Yes. I'd say, generally, there's a lot of white space opportunity as it relates to our fully insured book [ still ]. So when you look across the verticals that we have in the services business, maybe that helps a little bit here. We have a Care Delivery vertical with CareMore and Aspire, really focused on the chronically [indiscernible] chronically ill and then [ palliative ] care. We have an Advanced Analytics vertical that includes my myNEXUS, AIM and a Payment Integrity capability as well as a subrogation capability. We obviously have a behavioral health vertical through Beacon and then a pharmacy vertical through IngenioRx. And when you look across each one of those, there's variation. I'd say in some of the -- in the more mature offerings. So for example, when you think about Advanced Analytics and you think about AIM, that's a UM and redirection capability. That, in large part, has penetrated a significant amount of the Commercial book with some opportunity in the Government programs book. When you think of myNEXUS as an example, we are beginning that journey of further penetrating the Medicare book of business, but there's a real focus there out of the gate and then an opportunity in the Commercial business. And then as an example, that's a great example of we're always looking to evolve the product offering and expand even beyond that. So when you think about myNEXUS, right now, I am serving through, myNEXUS to Medicare Advantage business at Anthem to a pretty significant degree. And the next step is how can we further evolve that. MyNEXUS is a convener of home care. And so we're in the home in terms of managing that. What's a natural extension of that post-acute care and managing post-acute care, durable medical equipment, Social Determinants of Health? These are examples of areas that we can expand into. So without getting into every segment, I would say, generally speaking, there's tremendous white space in the Anthem footprint to further penetrate, be it fully insured or ASO.

Got you. As you're thinking about the ASO books of business, as you're looking at penetrating in that space, maybe you can just talk a little bit about some of the strategies you're using? Is it more of incentivizing the sales force to cross-sell? Is it more of a packaging? If you want to have your services and you're under a certain life threshold, you're going to need to bundle Ingenio or things like that. Like how are you going [ about it ] and where are you finding the most success?

Yes. Well, it's sort of core to the 5:1 to 3:1 strategy. And so when you're facing off with an ASO and just to familiarize people with that, it's really getting our profitability margin closer to what we're making, operating gain margin on the fully insured side. So when we say 5:1 to 3:1, getting closer to that margin profile on the fully insured side. And when I was in the Commercial business and you're facing off with an ASO client, that's exactly what you're trying to do. You're trying to package [indiscernible] different offerings. And when I think across the continuum of the offerings that exist, in terms of driving that 5:1 to 3:1, a lot of them do touch upon my business, right? So there's integrated clinical offerings that we have in our portfolio that ASO clients are very interested in. There's obviously specialty services like dental and vision and those services, which I don't own now, but that is a big part of the strategy, their stop loss. At the top of the ladder is probably pharmacy -- and pharmacy. And then to your point, if there's an ability to bundle DBG product offerings, we'll do that. I mean, obviously, there's a keen interest in behavioral and how behavioral may connect with pharmacy, for example. But we are at the beginning of that, I'd say, Lance, evolution. I think that's another area that will really distinguish Anthem when you think about the services portfolio and the verticals that I talked about. I'm also working very, very closely with Rajeev Ronanki and the digital organization. He's our Chief Digital Officer for the company. And we're really focused on developing a digital platform for health in which I can create that continuity across the DBG portfolio and better package the offerings for the ASO clientele. So while we're attempting to do that, is there as much cohesion as we'd like there to be so that if you're looking at this from a patient-centric perspective, and they're accessing products across the DBG portfolio? Do they feel like that's minified at that point? I'd be disingenuous in saying that that's the case today. That is clearly something that we are attempting to do.

Yes. And then, again, just kind of from this foundational framing of DBG in those different market segments, as you face off against external health plans and Blues and the things like that as far as prospects, how do you approach that from a sales force perspective, from an account management perspective? And importantly, one of the unique offerings you guys have is all the government partnerships that you have. And so how do you coordinate that with the other efforts you...

Yes. It's a really great question and it's -- probably because you were on the health plan side that you'd ask that because I think it's really important. The way that we're organized on the DBG side is we have an infrastructure, a sales infrastructure and an account management infrastructure actually for Anthem as a client separately. I mean, they're our largest client, right? We have 47 million members. So it's not like I have one belly button overseeing that. There's a whole team that oversees that. We've divided it regionally and also by line of business. As it relates to the external, a whole separate infrastructure in the services business, I will make a distinction between services and then pharmacy. They have different sales organizations, but the DBG does have a sales organization that's focused on external and there's an account management infrastructure and there's a direct sales team. And in terms of facing off, I mean, we have 26 relationships today, 10 of which have multiple offerings to the DBG. And that's, again, just in the DBG side of things. We obviously have a lot of Medicare and Medicaid partnerships. And it's like you'd expect a normal sales process on what you're building a pipeline, you establish relationships. A lot of times, as you'd expect, and I alluded to this before, you're engaging with a client that wants to get to know you from a service perspective, even though we're Anthem and we say to a Blue, "Hey, we've proven this internally." You've been in that world, you can't necessarily offer the whole portfolio. And so there's an entry point, you prove yourself, and then you expand upon that. I mean, I won't name the Blue, but I recently had a really great meeting with a very large Blue. We talked about the several offerings that we have today. And the way I'm trying to package this too, being a former P&L owner, is look at all this incremental value that can be created by just turning on some of the dials with your existing product offerings. And by the way, here are all these new -- these new offerings. I do think, though, what you alluded to before and ask me, once we can integrate across the digital platform, I think that will really differentiate us and enable us to sell externally to a much greater degree. Because, again, when you're facing off against a Blue or any other payer, when you have multiple product offerings, you have to ingest that data in multiple [ laces ]. You have to package that in multiple different ways. If you can unify that, that's where you can really create a lot of synergies and value.

Yes. Maybe for just a second, if you can give the audience a perspective of kind of from that client or from that prospect perspective, when you're meeting with larger small Blues, what is it that they're really lacking that they see as the highest priorities today in the current environment? Obviously, going to be a different company to company, but is there a theme? Is there something that they really are striving for right now? And then how do you either offer that? Or is that something that maybe is a priority for you...

I think there's a lot of variation. But generally speaking, the themes are the same. I mean -- so for example, we all know that the complex and the chronically ill are driving a great majority of the trend. And if it's a Blue that actually has a Medicaid footprint or has a partnership with us on Medicaid or Medicare, they'd be very interested in capabilities that enable that. So what can CareMore do for us, what can Aspire do for us. Behavioral health, obviously, is something that's on everyone's mind. And so I think there's consistency and a real interest around that. Another area that -- I don't want to say it's a deficit for a Blue, but we've definitely invested a lot of time and focus on Payment Integrity, and we've built a lot of our own capabilities. We're leveraging AI. We're not as reliant on third-party vendors. That's an area of interest that I think we can evolve a lot. And again, we can create cohesion across that. If you think about Payment Integrity, there are a lot of different parties involved. There's a lot of complexity to it. There is prepayment, there is post payment. There's SIU, special investigation units. So it's a really complicated role. And if we can simplify that, I think that's a great opportunity. But thematically, those are some of the areas of interest. Yes.

That's helpful. Let's shift over to value-based care for the whole enterprise for a minute. And obviously, you guys have been doing a lot of partnerships and other relationships with external value-based care companies. Just interested in kind of what your strategy is right now with respect to kind of the ownership and/or control of value-based Care Delivery or enablement sorts of assets? How important is that for the Anthem kind of payer businesses? How important is that for DBG?

Yes, I think it's -- well, obviously hugely important, a deep focus of Gail and the health services organization and our company in general. We talk about having over 60% of our membership in value-based deals. But the real focus most recently as it should be, is on risk and establishing a greater penetration of risk where we have a goal of 1/3 of our membership being at risk and relationships at risk. I would say that I think you've heard us say this before, we believe it. There's a -- there's a more capital-efficient way of approaching this. And I think we have a great advantage in that regard. Number one, we're not opposed to owning providers. I think we've proven that. We're not certainly looking to buy brick-and-mortar all around the country on primary care. But we'll be opportunistic and focused on that regard. So there's plenty of examples in that regard. You've got CareMore, you've got MMM, you've got HealthSun. So where it makes sense, we'll be opportunistic if there's a deep concentration of Medicare members or complex and chronics and it makes sense for us to own. I think we're very open-minded in that regard. Number two is partnership, be it with aggregators and MSOs or joining forces with groups, clinics and engaging with them. And this is, I think, in large part where the DBG can come in and [ recreate ] value. As you'd expect, these organizations are necessarily great at everything or focused on everything as it relates to primary care. And so a lot of times, there are gaps, which they would be open to admit and say, "Hey, we'd love to join forces with you." The diversified services business can really fill in those gaps. So I'll be more specific. I mean, is a primary care group necessarily an expert in [ palliative ] care, probably not -- probably not an area they're going to focus on. So if they have some membership that where they need that support, we may plug in. Post-acute care management. Are they actively getting involved in discharge planning to the degree that we would with myNEXUS? And can we plug in and help them on a subcapitated basis around things like that? Yes. So can create not only have the partnership invest in those partnerships and aggregators and create value there for the company, but then also wrap around that. I'd say third, a real focus on virtual care. And again, if you think about where the puck is going in healthcare, is it necessarily going in a brick-and-mortar or in light of the pandemic and other things we've learned, is there a tremendous opportunity on the virtual side? We think the answer is yes. We're doing a lot of work in that regard, both on urgent care and virtual primary care. I'm also deeply invested in it -- on the behavioral health side and how we can create more access on the behavioral health side. And then lastly, I'd say that as it relates to what I'm thinking about and our team is thinking about, how do we think about a place of service to a greater degree that makes sense for the company, i.e., for example, the home? We're stepping into that, right. We're doing that through Aspire. We're doing that with myNEXUS. To what degree is that an opportunity for us and to play a big role. And so that's something that we're interested in as well. I don't know, Steve would like...

Yes. Maybe I'd just point out a couple of different things on the topic too, Lance. I think the first thing I would say is where Pete started the conversation on services and that local density that we have and why that's differentiated. One of the things that that's allowed Anthem to do is work with providers to accelerate the shift to value-based care. So without ever actually building a risk-taking primary care asset, we've already gotten 60% of our benefit expense in '21 into value-based care arrangements. And about 1/5 of that is in shares, downside risk. Medicare obviously, first to move, the target is to get that sort of low double-digit percentage, the 1/5 of the 60% to over 1/3 of total spend in '25, and we're pretty confident we can do that. And interestingly, the biggest gains as you think about the change from '21 to '25 are Medicaid and Commercial, right? So this is a broad-based theme. It's very important to the enterprise. We're finding a lot of success accelerating that shift without actually having to go out and buy things. So what does that mean? It means we're doing it more capital-light, right? That's really important to us. I think we're really thoughtful about where we put the incremental dollar. And it gives us the ability, frankly, to continue to work with our providers in collaborative ways. And as Pete mentioned, kind of pulled through some services whether on a subcap basis or outside entirely, if you're not doing a full cap deal with a partner provider. In either set up, right, there's pull-through opportunities for DBG. So in the process, we get the benefits on the insurance side, get some pull-through on the services side, diversify the revenue and the profit streams of the organization. It's really important for us.

One question and kind of my last question here on value-based care for right now, at least, is on the employer side. So value-based care, obviously has been adopted much more quickly in MA. You guys had an interesting investment and relationship with [ Vera Whole ] Health, which is one of our [indiscernible] 25 companies this last year. And one of the things that's been intriguing to me and as I've looked at you guys and others is the concept of that ASO business, the 5:1 to 3:1, if all of a sudden you enter into a value-based care there, you're kind of flipping it to a full risk relationship and you're positioning yourself to save costs so long as you're delivering. If you're doing it on a partnership basis, it's more complex. I'm not sure, you're not necessarily going to just flip the revenues to yourself or whatnot. Just be interested in how you guys are thinking about the opportunity of value-based care in the ASO market? Like, where you see that as far as a client priority? Is that something that's coming anytime near term? And is it something that's an area that you're likely to go into?

Do you -- just to be clear, do you mean are ASO clients interested in those?

Are ASO clients interested in flipping to the value-based care for their employer population? And then from your perspective, obviously, you facilitate the conversation with related -- with a party that you think highly of like [ Vera ] or you could take on P&L, the relationship by having your own asset, whether it's there or [ something ] else?

I mean, I think I'll start, pass to Steve. When I was in the Commercial business, there was a real -- I mean, obviously, a major focus on affordability in the current economic situation, even probably more so. And there was definitely an interest in clearly in high-performing networks. And when we talk about high-performing networks and what we've created as a Blue, it's exactly that. It's value-based relationships that drive greater affordability, but it also does come with a much smaller and smaller network construct. So we have been seeing a lot of traction in that regard. If you think about the growth that we've experienced over the last several years in Commercial when I talk about this diverse portfolio, that was a component of it, for sure. I mean, that definitely helped with a certain subsegment of clientele. There are also some more sophisticated clients that are even willing, and I think that's [indiscernible] going to take it even deeper. Do you want to create plan designs and other offerings that are very focused on a partnership with a value-based provider downstream that can truly drive greater affordability? And then we can also create value via Anthem, if we have an ownership stake in it, et cetera. I think there's a balance there, and I haven't been talking directly with clients about this most recently in light of my new job. But there are examples of it. One large national company, we had a relationship like that and a product offering in Texas is something that comes to mind. But I think there's probably -- you're going to probably see a lot more of that and an openness to it.

No. And I think part of it is just the evolution, right? Like it's still relatively early innings when you think about where we are in the shift to value. And so I think the proof points will continue to come out. So far from what we can tell in our data, the outcomes are better, patients are satisfied, and providers prefer it as well when it actually works well. And so with those kinds of results, it's very difficult to envision this not really translating into the Commercial side, and we're seeing that success as well. So the teams that are implementing our strategy on the ground are the ones that are creating those projections that I shared. And it's phenomenal to me to look at it as a former analyst, where I used to think about this as just a Medicare theme. And I would say to people, well, there's more of a utilization management component to Medicare into the chronically ill and Commercial consumes care more episodically. So it's not as easy or as obvious to transition into value, but it's happening. It's happening and providers are willing to do it. And I think when you have the kind of density that Anthem has, again, we don't really need to own the assets, right? So what Pete described maybe I'll sort of go a layer deeper on how we think about this market by market. You look at what's there, what providers are willing to take risk with you, how much density you have, and can you get there, right, to a place where you're really sharing risk and getting the value of that for the health plan side without ownership. If those assets don't exist on the ground, the next thing we may look to do is partner and maybe even invest in an aggregator. What this is allowing us to do this multipronged approach is really accelerate the transition without, again, having to put our own money in the ground everywhere we go. Part of the reason is there's an urgency to this. We know the benefits are very real. We want to get there quickly, and we want to do that in a capital-efficient way. And so when you make these investments, and one of the public ones is Privia, for example, Anthem made an investment there, there's a number of others, less that we said these are not mutually exclusive arrangements. You literally established joint operating committees and very specific targets for what you want built and for whom. And it gives you an element of control. And there's nothing that precludes you from maybe getting bigger in that space, doing an acquisition, 10 years out, who knows? But for now, it's capital efficient. It allows us to move quickly, and it keeps our options open and what is, [ if in effect ], a very dynamic environment that's still evolving, right? There's no one care model that we think is going to be the single solution to all of our member populations in all of our markets. And so I think this approach for us makes a lot of sense for now. And we'll see where we go from there.

Okay. Real helpful. Let me shift over a little bit to inflation, impacts on payer business, but also the PBM and things like that. Can you just talk a little bit about what you're currently seeing as far as inflationary pressures, wage and labor supply pressures from hospitals and other providers? How you're thinking about pricing? Obviously, as we're -- you're moving into kind of the fully insured selling seasons, you've got the MA bids, there's -- obviously, you're doing a lot of work on this right now. So kind of how are you feeling and forecasting inflation at the moment? And then how are you looking at that going forward? And like how impactful do you think this is in your ability to actually pass it along?

Yes. I can start. So obviously, we're very sensitive to it. And we are definitely seeing labor pressure downstream, reading what you're reading about what providers are experiencing. I would say though that we're -- we are on -- most of our deals are on 3-year cycles. These are pretty large, sophisticated deals. I wouldn't say that right now, we're seeing anything, at least when I talk to our Care Delivery leadership and organization, the contractors, anything that's really unusual, we're seeing significant pressure that we can handle. I would say though that if that does occur, you really want in these economic times from my past experience is to really pivot to a win-win dynamic. And what I mean by that is, how can you have a constructive conversation with a provider where it's a win-win back to our value-based discussion, deal -- online incentives? So it's performing better from a quality and a cost perspective. There's upside, but just not necessarily passing it all on directly. So I think there will be a lot of discipline. I'm not necessarily worried about that in light of the cycles, in light of the discipline that we've historically had, in light of our market strengths. I think we'll be very disciplined and creative around the contracting. In terms of -- if we do see increases and passing it on, I think [indiscernible] to different lines of business. Again, I just like Commercial. We have a group that is very disciplined and always prices the forward-looking trend. And so we're getting visibility on that constantly. And we'll have that discipline. I mean there's just no way around it. And I think that we'll be able to achieve that. So on the Commercial side, I feel good. On the Medicaid side, state and state actuary is pretty sophisticated in evaluating all this, and they obviously have to adhere to [indiscernible] rates. And the sophistication of states has really gotten, and the actuaries associated with that have gotten a lot better. So generally speaking, they have an obligation to provide those [indiscernible] rates. I think they will. On the Medicare side, it's all pursuant to the bid cycle. But if you're cognizant of those issues before, which we are, you're going to build that into your bid assumptions. So I feel like it's all manageable, but I don't want to dismiss it. It's a sensitive topic that we have to be careful in light of our focus on affordability.

Yes, yes. And I guess related to this, are you seeing any sorts of changes in kind of the employer enrollment outlooks or your perspective? And I'm thinking about recession or slowdowns in labor growth. Anything that's different there and/or client needs to not pass along costs and maybe greater appetite to burden themselves with the costs in order to be able to maintain their labor supply?

Yes. I'll let Steve jump in here too. I'm not close enough to the day-to-day pipeline anymore for the Commercial sales team. I will start out by saying just generally, as it relates to Anthem, I started with this, that we have this resilient broad portfolio, and it's really obviously helpful in times like this. I'm very confident that no matter what happens, that we'll have membership. If it bleeds off Commercial, that they'll be a resting place for those folks in either the Individual ACA market or the Medicaid market. Same thing vice versa with the recertification issue on Medicaid. I think there's a broad portfolio. And then I would say in the Commercial business, and I stated this at the beginning, we spent a lot of time on the subsegment strategy. And so when you look at each one of our segments, there are more affordable offerings tied to everything we talked about today around value-based purchasing and high-performing networks, et cetera. So I feel like the choice is there. In terms of -- in the near term, are we -- am I hearing anything? And, Steve, pipe in here that the pipeline is a lot less significant or we're starting to see membership peel off. I'm not hearing that. I know that on the large National side, just like last year, some of the larger big jumbos, there's less activity on the RFP side. But you saw how Anthem handled that last year. They -- we pivoted. And for those accounts that were slice offerings on which we could add incremental value, we took on the entire account and actually grew more than anyone in the industry on the National Accounts side. So I feel good about that. But I don't know, Steve, do you want to add to that?

Yes. No, I think that's well said, Pete. I think the most important point to remember for me is the balance of the benefits business that we have. Medicaid is a very big business. Commercial is a big business. Medicare is a big business. When you look at it across all of those, we aren't over-indexed from an earnings perspective to either side of that. And so that gives you a certain resilience against the macro that I continue to believe is underappreciated. I used to underappreciate it as an analyst, and it took some years to really understand how valuable that is. So that's first and foremost. But then, Pete, you hit it well. So I won't be redundant. But having the flexibility to work with employers in tougher moments is critical. And Anthem spent years, as Pete described, developing that muscle memory. And so we have that now, and I think that's a big differentiator. Then when you think about the current macro, it's an interesting moment, right? You've got CPI printing 6, 7, 8 handles and therefore, real GDP growth negative. So if this is the kind of recession we're talking about with unemployment at pretty low levels, really tight labor market, lots of job openings out there. I know for us, we have plenty of positions that we have trouble filling. And so when you think about the core of Anthem being sort of a membership-driven business, traditionally, you've thought about recessions is impacting that membership. But between the balance of our overall book and the current sort of flavor of the macro, it's a very weird environment to put it lightly. So it's hard to say exactly what happens next and what this will look like. But I think Anthem is at least as well positioned as anybody else to navigate what happens from here.

Yes. A couple of more questions that are more kind of payer-centric, one more on inflation, and this is on the net investment income side. So just interested in kind of your perspective on what are the implications for net investment income as we kind of roll forward with kind of inflationary -- Fed increase outlook that we've got, at least at the moment.

Yes, absolutely. Happy to take that. I'll sort of cut to the chase, the punch line first. We like higher rates. We do -- we have a $38 billion investment portfolio, of which $35 billion is in fixed income and cash of which 30% is variable rates. So that just reacts very quickly if rates rise as a result of inflation or for any other reason. Obviously, the Fed's hiking as well. And then when you think about our debt side, $23 billion of debt, only about 10% of that is variable rate. So we are really set up to benefit from rising rates. And of course, investment income is not a material proportion of our pretax earnings and pretty much drops to the bottom line. So pricing rates is a good thing for our business. The sort of point that I'll make, though, that's important to know is when we provide guidance for each year, we don't just assume flat rates. We do look at the forward curve and make some assumptions around that. It's not to say that we get overly aggressive, but there isn't a flat rate assumption in there, nonetheless, but never -- it's a good environment from a rate perspective, I think the investment income line will benefit. You'll have some partial offset in interest expense, but yes, that will -- it will be a good thing. We'll stop short of providing a point as to that, but...

Okay. And then kind of not an inflation topic, the same sort of payer topic. If this was not right now, and this was 6 months ago, 9 months ago, 12 months ago, we would have led with what's going on with COVID, what's going on with utilization and things like that. So let me ask sort of the utilization question. This gets into outlook, gets into your '23 pricing and things like that. Like what are you seeing with respect to utilization broadly? COVID was a part of it, but also a lot of focus on like recapture of miss volume, just return to baseline and things like that? And then what are you assuming as you're going forward into '23.

Sure. No, happy to take it. We couldn't have a conference [ with ] that. So no, it's really -- it's fascinating to see all the data as it comes together. It's actually pretty different by line of business right now, where -- but not that different from what it's been. So as a reminder, Commercial has been tracking pretty hot or heavy, let's say, relative to what we would have estimated to be a normal level had COVID never happened. Sometimes you refer to that as baseline or just normal. But to be honest, it's harder and harder to say what is normal. You're now in the third year of the pandemic. We have estimates for it, but it's very challenging to know what is normal or is there a new normal? Nevertheless, Commercial is the one line of business that's probably most elevated relative to what we call a normal level, followed by Medicare, which is sort of pretty close to that level. And then Medicaid still is below, but more recently, has been kind of coming back toward that trend line. So kind of more recent here now. And with respect to COVID, we spent a lot of the pandemic talking about COVID and non-COVID and separating those buckets. We no longer think that that's very instructive to do for a whole host of reasons. It's challenging, frankly, to know what is the COVID impact on non-COVID, right? Like just to make an estimate of that just to start, let alone what are going to be normal COVID costs. Clearly, there's going to be some component of boosters testing, right, that stays with you longer term, if not actual COVID treatments and hospitalizations, et cetera. So we're looking at it in total, more and more. But I would say when you do see these major spikes in COVID prevalence and hospitalizations, you do tend to see a reaction and let's call it, non-COVID care that's concurrent. And in Q1, you had a huge spike in Omicron as everybody knows. The quarter ended up being much better than we kind of feared to be in early Jan, when we weren't really willing to bet that there'd be a substantial offset in non-COVID. There ended up being a substantial offset in non-COVID care. January and February, particularly depressed. And the expectation was that based on what we've seen in the prior 2 years of the pandemic, you'd make up that care in the next few months. And that's pretty consistent with what we're seeing. So we expected March and April and even into May to kind of run a little bit more elevated as some of those procedures that had been deferred in Q1 got made up in Q2 and then ultimately come back to more of a normal baseline for the balance of the year. The guidance assumes Commercial will run elevated for the whole year. So we think we're pretty well covered in terms of the risks. But with a bigger picture lens because Lance, you asked a little bit about this as well, like the patterns are pretty clear at this point. You tend to see short-lived deferrals and then short-lived makeups of those deferrals and then you kind of come back to more of a plateau. So there isn't any clear evidence in our data that would suggest there's some multiyear deferrals or we're missing high acuity cases. In preventive care, the trend lines are very consistent with blips around those big spikes and then they kind of come back and they're kind of pretty consistent to pre-pandemic in terms of where they're tracking. So we don't think there's a huge bolus of higher acuity care coming. Of course, we could be wrong. There's risk to that. We have quite a big sample size and a lot of data behind that statement. So we think everything is pretty consistent so far with having guided. So feel comfortable with that, and we'll see where we go from here.

Great. Well, let me try to sneak in 2 questions here at the end, but I'll be quick. The first one, because it's a really short question, I think, is when I'm thinking of upsides to my model to medium-term outlooks and things like that, one of the areas could be Individual products. Individual membership is still down roughly $1 million from kind of like your historic levels that you were at pre-ACA, post ACA, et cetera. And you guys [ did ] that on purpose kind of position yourselves with that. Just interested in your outlook for Individual if that's something that you see, not necessarily get more aggressive on pricing, but entering more markets, trying to reattain prior levels of membership?

Yes. I can start on that. Yes. Yes. And I like the Individual business a lot. I think there's a tremendous opportunity there. Again, in my tenure in Commercial, we did rebuild that business back. To your point, we had exited right when I took over at the beginning of my time in Commercial, we had gone through the exit process, and then we were building back. It's a very thoughtful and targeted strategy. We evaluate on a county-by-county basis every year on whether or not we can enter. As you know, you really have to have a product offering that's the lowest cost over or close to it to be able to be viable and to grow effectively. And so what's going to enable that? In large part, back to what we were talking about before, how do you join forces with providers, especially in value-based relationships and create that predictable and stable sort of environment? What's your anchor in that particular market to create that kind of a dynamic and drive the most affordability? And when we have that, we're able to do that. I mean, in this past year, the years I was there, we were expanding 70, 80, 90 counties a year. I think this past year, it was about 77 counties or around there. Yes, 76 counties in 2022. So there is expansion occurring. But I will tell you this, and I was a part of it. If we can establish that kind of a relationship, we're not going to just get aggressive on pricing and enter a market for the sake of growth. It's just not something we're going to do. We're very thoughtful about that strategy. So I think it's a great growth opportunity. I think over time, you're going to see those that build the kind of relationships that we're talking about will have predictability and stability going forward. But to me, that's the right way to do it. Just getting aggressive on total volume of counties for the sake of growth and then hoping that you can fix it on the back end. I just don't think it's a sustainable strategy.

Yes, that's really helpful. And then the last question, real quick. IngenioRx, one of the big questions I would have is you're looking at the specialty pharmacy kind of shift into more generic sort of opportunity and you're thinking of your capabilities and what you have, what you're outsourcing. Just interested in how you positioned there. How big of an opportunity do you [indiscernible]? Is that something where you were looking to build capabilities as part of your current relationship, obviously, that ends at some point as well?

Yes. I would say that we're pretty excited about what we're seeing in biosimilars in general. I think there's about 26 in the pipeline, a lot of activity. We like the competition. We -- absolutely, out of the gate, it's going to create greater affordability for the health plan. So there's a wonderful cost of care opportunity there. As it relates to the PBM and how we're positioned, I mean, it does -- the timing matters and some of the other factors that I know you're aware of, the pricing of the biologic, the pricing of the biosimilar, interchangeability, the timing of all that. With Humira, for example, we see it playing out over a couple of years. So kind of going through that transition over the next year into '23 and then seeing some kind of normalized situation or at least what we think the -- what the end game looks more like in '24. So we're still sort of trying to get visibility on that. As it relates to Ingenio and our pharmacy franchise and our specialty strategy, we feel very good about the things that we're doing today. So we've got robust condition management programs. I mean specialty 60% of the pharmacy trend, right? So we're very focused on it. We've got, like I said, robust condition management programs. We've got co-pay -- manufacturer co-pay assistance programs that we've been building out and joining forces with employers and actually generating value for Ingenio but also a lot of value for our customers. We've got site of care strategies in which we're sending -- patients are accessing specialty pharmacy or providers from the best site of care and that's creating affordability. And then I'd say in terms of what we're doing strategically, we are generally very interested in the specialty space and broadening our capabilities in that space. And so there will be more to come about that, but that's something that we feel strongly about it. It's a big part of the trend. And as I said at the beginning, the services business is focused on the complex and the chronic and certainly specialty fits right into there.

Well, I really appreciate you guys taking the time. I think we're right at the end of our session time. I know people also have meetings with you today. So thanks so much for coming. This has been really great. Anybody who's got further questions, please shoot them into me, I'll reach out to the management team and looking forward to how things progress.

Thank you very much, Lance. I appreciate it.

Yes. Thank you for having us.