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

Great. Well, good morning, everyone. Thanks again for joining us at our conference. My name is Nathan Rich. I cover the managed space here at Goldman Sachs. We're very happy to have Elevance Health here with us today. I'll do a quick round of introductions and then we can get into questions. So to my left, Felicia Norwood, President of the Government Business; then we have Morgan Kendrick, President of the Commercial Business; and Steve Tanal from Investor Relations.

I think maybe starting at a high level, could you maybe give us your view of how utilization has trended to start this year? One of the themes we heard about yesterday is continued kind of robust demand for procedures, and I'd just be curious from your perspective, what you're seeing and any notable differences across the lines of business that you oversee.

Sure. Yes. Thanks for the question, Nate. Thanks for the opportunity to be here as well. So I'll tackle that from the enterprise lens and I can give you a little bit of color by business as well. So overall, I think we've been pretty consistent in sort of providing updates, especially this quarter, just being in a number of conferences trend year-to-date, take that through May, very much in line with expectations sort of across the board. And I would say that comment really does pertain to each line of business as well, commercial, Medicare and Medicaid, nothing very aberrant or very different from what was planned. When we've talked about some of the puts and takes, you asked a little bit by business and by service line, if you will. We've talked about -- there's obviously a lot of inputs in the trend every year and some of them are better than others. And this year, we're seeing some favorability in categories like inpatient and ER. And I would say that that's across the board, commercial, Medicare and Medicaid and the one area of pressure that we have called out that remains the case is pharmacy and commercial, in particular. I'd say you're not really seeing that as much in care and caid. But we expected an elevated trend in pharmacy. It's just a little bit higher than we had planned. But again, seeing offsets in more of the inpatient ER-type category. So overall, not very different than expected, maybe on the margin a little bit better all in. And as you know, we raised guidance coming out of Q1, felt really good about the quarter and the start of the year. So yes, I think we're sitting in a strong spot and as it relates to some of the commentary you referenced about procedure volumes and such. I think the one really important point is there continues to be a fairly significant shift from inpatient to outpatient in terms of the procedures we're seeing commercial, Medicare and Medicaid, frankly. And it's a few years in the making but that remains one of the dynamics that I think is happening sort of beneath the surface that's maybe a little less obvious.

And I think that one of the things that have come up kind of related to that is just demand for elective care. I guess just thinking about like the sheer volume of procedures that may have been missed over the past couple of years, how are you thinking about whether and when that might come back into the system, if at all?

Yes. So I would say, in general, we've been tracking this very closely. And what's pretty interesting if you look over the last sort of 3 years through the pandemic is that there wasn't sort of long-term deferrals or a big bolus of care that just wasn't happening. You saw more short-lived sort of bouts and they were really around those big spikes in COVID where procedures would get, frankly, rescheduled or kicked out some number of months. And so you tended to see a lot of makeup-type activity on the back of it in the sort of the months right after those COVID spikes. So as we sit here today, kind of continue with the message that we don't really expect a big bolus of sort of makeup care, frankly. And I'm not so sure that's necessarily what we're seeing. So we're comfortable with that dynamic, I'd say, Nate, and I think a lot of that was more short-lived than episodic throughout the different COVID spikes really.

Got it. Okay. Maybe moving to the Medicare business. So the 2024 bids were due last week, lot of focus, obviously, on the rate environment for next year, maybe some of the changes that the CMS put in place. I guess maybe -- how does that translate into your view of what market growth will be? And then as you thought about your bids for next year, how -- what did you kind of prioritize from a competitive positioning standpoint?

Yes, sure. So we certainly just submitted bids on June 5. We spend a lot of time trying to take a look at the competitive landscape, what happened in the previous AEP, where we want to be as we go forward. And as you said, there have been a lot of changes. I think our strategy this year was not meaningfully different than it ever is, which is we try to really take a look at a balance between membership and margin. Our strategy for Medicare Advantage continues to be pretty consistent which is to go deeper in our Blue states. I mean today, when you take a look at how we are positioned, we are trying to get to a top 3 market position in our Blue states and been spending a lot of time working there. We have that top 3 position in 6 of our 14 Blue states today. We're trying to get to 9 of our 14 Blue states by 2027. And we focused once again on a couple of things. One, supplemental benefits which are incredibly important to our Medicare Advantage members. Medicare Advantage members really choose the value that you see here in these programs, which is why they represent almost 50% of the selection that goes into our Medicare programs now. So supplemental benefits continue to be a focus. And at the same time, we wanted to make sure that we continue to be very disciplined around this whole health approach that we've been trying to take. And then we looked at our market in terms of where we wanted to make progress on the Blue side. And then most important, we are very much focused on the dual-eligible population. When we look at strategically how we are positioned from a government business perspective across Elevance Health, we have deep market penetration in our Medicaid states in over 25 or so markets. We have long-term services and support members that are in Medicaid, representing over 327,000 members. Those individuals are individuals who are very much able to transition to Medicare Advantage plans in light of the supplemental benefits that they provide and the support that you can do there around drivers of health. So strategically, we try to be very mindful of the competitive environment, provide stability across supplemental benefits where we could, but really being very disciplined around margin improvement in our Medicare Advantage program which is what we talked about heading into to this season and certainly looking to do the same thing as we head into 2024.

Great. And maybe just a follow-up on that. I guess one at a high level, can you maybe help us think about how you thought about the utilization trend for next year and what's embedded in your bids? And then specifically, I think given the potential for some of the new Alzheimer's therapies to get full approval and not being kind of put in the CMS benchmark, how that could potentially impact your MA book next year? Is that something you think would hit the significant cost threshold and may be covered on a pass-through basis? If you could maybe just elaborate around your thinking there.

Do you want to take that one or you want me...

Yes, I'm happy to take that. So yes, Nate, as you'd imagine, every year, there's a myriad of inputs into the bids, right? And so trend is absolutely one of those things, I would say. It's -- we don't have a crystal ball like anybody else but I think we feel really good about the assumptions that were created there. And with respect to [ lecanemab ], in particular, but I think the drug that you're probably referencing though, I know there's maybe one or two others, but certainly one, at least on the back of that, something that we have good line of sight into. We expected the FDA approval. It seems like that's what's happening. So I guess that becomes official early July but we did make assumptions for that inside of our bids. We feel really good about those assumptions. I spent some time with the team looking at all the inputs as well and the sort of variance around it. And I would say we're generally comfortable. I think some of the key points that I'd highlight there is that the drug is really for earlier-stage Alzheimer's. So when we kind of look at our diagnosed population and who would actually be sort of in the -- there was the right class for that therapeutic. It's more limited than I think you might otherwise think at the surface. So that's part of why I think we're frankly quite comfortable with the inputs there. And in '25 and beyond, that would go into the benchmarks. So for '24, we dialed that into the bid.

Okay. Makes sense. And then margins for the Medicare business. I think you plan to be in the 3% to 5% target range this year. I think you have also talked about margin expansion year-over-year versus 2022. I guess, is that right? And can you maybe just elaborate on what you saw in the first quarter relative to expectations? And do you feel like you're still on track for those targets for the full year?

Yes. I mean I will say when we take a look at Medicare, we've certainly been turning below our 3% to 5% margin range. That continues to be, though, a long-term target. When we think about where we are positioned overall, I think we've done a lot of work to focus on margin. We're seeing improvement year-over-year which we feel really good about. I just think we need some more work to get to that 3% to 5% range but I think we're on track in terms of doing that.

Okay. And I guess, are you still on track for margin improvement on a year-over-year basis this year?

We are.

We are. Yes, that's the expectation. And some folks in the audience may have seen a sell-side note go out recently. We weren't sort of proactively looking to highlight individual markets but sure enough now that, that information is out there as many can tell some of the issues that we faced in MA were sort of more isolated to an individual market we are in. There's some unique dynamics going on. That market is obviously Puerto Rico. So it's literally on an island. We feel really good about our ability to contain that for '24 and the good news is we spotted that really early. The bids for '24 repositioned it. So we feel really nice, there's going to be really nice trajectory on the island itself and that was sort of one of the sort of the lesser points of what happened in Medicare year-to-date. I would say the mainland, quite good, still expect margin expansion for the year. There's quite a bit going on beneath that. And yes, I think in terms of the issue in Puerto Rico, '24 bids, I think, will address it pretty fine, I think.

That's obviously a big duals market. Was there anything you need to that population that you've seen kind of this year or expect going forward?

I don't know that I would say it was unique to duals but there's a confluence of things, right? Like really nits and nats when you look at each one of them in isolation but in the aggregate, all related to the island. There's a little bit of trend there that's worse a little bit of a mix shift that was unfavorable that showed up in the PMPMs, elevated levels of supplemental benefit utilization. The good news is some of that's seasonal, right? So dental, vision and hearing, it's an annual cap in terms of the benefit structure and it looks like a lot of that was pulled forward as best we can tell. And we've got plenty of cost-of-care initiatives that are ramping right now going into place on the island to ensure that frankly, the cost structure is appropriate and there is fraud, waste and abuse occurring, working closely with providers on that. So yes, confluence of things there, but Puerto Rico is sort of the source of that pressure and inside of MA year-to-date.

And I say equally important, though, having enough visibility as we were constructing our '24 bids. So the pressures that we were seeing with respect to supplemental benefits gave us an opportunity to step back and understand what we wanted to do around our bid strategy for 2024. So seeing it early enough to be able to drive the impact in terms of improvement in margins as we head into '24.

Okay. Yes, that's a good point. Maybe a few questions around Medicaid and then we'll move over to commercial. I guess, 2 months into the redetermination process, I think a relatively small number of your states, 6 or so has actually started the redetermination process at this point. I guess some of the data that's come out has showed the majority of disenrollments are based on procedural reasons versus person being deemed ineligible. Can you maybe just discuss this dynamic and kind of what you're seeing play out on the ground as the states start to go through this process?

Yes. So I will say through June, we actually are up to closer to 21 or so states. And then in July, we'll have another 5 or so left. But as you said, great concerns and certainly pointed out in the letter that came from the Secretary of HHS yesterday, in terms of what's going on across the country with respect to what people call procedural issues, administrative issues in terms of eligibility, which is the last reason you want someone losing coverage. But upwards to 80% of what we're seeing in some states is tied to individuals not retaining their Medicaid coverage because of these administrative reasons. So the Secretary has certainly suggested that state step back and try to understand what kinds of things they can do to mitigate some of this impact. We've been asking and have been getting some cooperation in many states around flexibilities that allow us to help with completing applications for members, allowing community-based organizations and others to help with applications for membership. But when it's all said and done, states were not prepared from a staffing or other perspective in terms of the volume of what they're seeing. And I think visibility around that is certainly coming to the floor right now. So we are doing everything that we can in terms of collaborating with our state partners to make sure that people who are actually eligible for Medicaid retain their coverage. It's another thing if a person isn't Medicaid eligible. But when you think about the issues here for administrative reasons, these are individuals, many of whom are continuously eligible for Medicaid coverage. What you will see invariably, unfortunately, is that members were recognized that they don't have Medicaid coverage and then 2 or 3 months from now, you'll see what we call the boomerang effect. Once individuals either go to try to get a prescription filled or go see a doctor, they realize that, that piece of mail that they probably didn't open or something to that effect really represented their Medicaid coverage eligibility information that they needed to complete. The stories are out there with individuals who are calling states are online for 3, 4 hours just trying to get through to someone who can help them. So the challenge is for all of us, and I think the partnerships that we have with our states is to see what we can all do collectively to really mitigate this impact from some of the most vulnerable people in this country when it comes to Medicaid coverage. So HHS will certainly advocate for more flexibility with our state partners. We will all be working closely together. But it's certainly concerning when you're seeing some of the numbers now around the administrative challenges that are presented in these populations that we're trying to serve. But our people are out there every day, literally, in storefronts which we stood up in some places, working with our community-based organizations, faith-based institutions, our federally qualified health centers, signs and doctors' offices, billboards, commercials, doing everything we can to reach this population but it is absolutely going to be a lumpy process as we go through this. And certainly, the best counsel is to try to spread this out because the understaffing and state resource issues are a challenge across the board and we certainly don't want to see individuals penalized on something so critical to their overall health care because of administrative reasons with respect to the state processes that are in place.

Okay. So maybe a little bit higher disenrollment in the immediate term and hopefully that normalizes as quickly as possible.

Sure.

I really do think that it depends on the state, Nate. It's really fascinating, right? I don't think we have the time to get into the weeds unlike a range of outcomes but we're tracking it all. And I would say there's nothing we've seen to date that's different from what we've expected early on. So I think that's the key point right now.

And what's the communication been like with the states around? Rate setting is an acuity pool shift, like how proactive do you think kind of those kind of key -- your key states will be in terms of acknowledging changes to the risk pool if and when it happens?

I'd say very good communications with our state partners on the rate-setting process. As you know, acuity is now a standard input into the rate-setting mechanisms that we have with our state partners. As we sit here today, we have visibility to about 93% of our rate revenue for '23. So we're in a good place in 2023 with respect to our rates. And certainly, as you're already starting on the [ 7-1s ] and then going to the back half of the year, we get more and more visibility into what rates look like for 2024. But very good and strong communications. We have certainly done a much better job of building the tools we need to have information around individuals that are continuously enrolled versus individuals who are left, giving those inputs to our state partners. But I would say the collaboration has been incredibly strong between us and all of our various states as we've been going through these processes.

Got it. And to maybe tie into commercial now. I want to maybe talk about the recapture opportunity and then move into the core commercial business. So I think you've talked about 8 million lives potentially being subject to redeterminations in the Blue states that you're in? And those -- a portion of that could become members of yours on the exchanges. I guess given how you started to see this process play out, what do you think the time line is like for those members that maybe don't have coverage are ineligible for Medicaid would end up finding -- looking at an exchange product?

Right. Nate, it's a little more than 8.5 million beneficiaries in our 14 Blue markets. And when we think about our capture rate, if we think there's 40%, 45% of them remain with Medicaid, there's a vast majority of that are going to go back to commercial business whether it's an employer or an individual on the ACA. ACA seems to be likely certainly with subsidies -- the enhanced subsidies for them to join there but we've got a massive commercial business in those geographies. And what I like about it is, if you look at the 14 markets, we've got leading share of employer business in all of those markets. So that is a natural catcher's mitt, so to speak, for those on the commercial group side. And if you think about the ACA business, we've had a very intentional approach for the last 3 years as we've sort of gotten back in, in a responsible way into the ACA business to really -- we're in 95 rating areas across our 14 geographies. We hold the leading pole position in a large number of those where people actually live for this. So we're seeing that come through. It's very early. And as Felicia indicated, it really started ramping in June. We have information through July that sort of compares our annual open enrollment period to our special enrollment period, and we are seeing an enhancement in those markets that have gone through. And the only catalyst the delta between the 2 of OEP and SEP is the actual event of the redetermination activity. So there's something there that's ticking up the receipts that are coming in for the ACA business and more will flush out over the coming months. But we feel really good about it. In a normal situation where an individual loses coverage, they've got 60 days to make a change to another policy. With Medicaid redetermination, the beneficiaries have until July of '24, theoretically to make the decision. So it could come later but we are seeing spikes in receipts for those markets that have gone which are giving us some thoughts around the speed in which that will happen but that's very early right now for that.

Got it. Okay. And Steve, one of the things that I think investors have been concerned about is just the potential for dual coverage between someone being with an employer or maybe on the exchanges as well as having Medicaid coverage. I guess can you give us your latest thoughts around the data that you've looked at and what you're seeing on that front.

Yes, absolutely. So I'll start just by level setting for those who haven't heard us and our comments on this in the past. It's fascinating when you look back pre-COVID, there's always a double-counted population. So the phenomenon itself is not new. And historically, for Anthem if you looked at our Medicaid business versus our commercial side, you typically see about 1% of our Medicaid members show up in commercial. With redeterminations on hold now for 3 years, that number has gone up commensurately. So you're now talking a few percentage points in total Medicaid. And then we've extrapolated that based on our local market share and embedded it, frankly, in the guidance we've provided, right? So the projections we have for the aggregate net-new Medicaid beneficiaries on the program 40% to 45% we've said are likely to still be eligible for Medicaid when this first redetermination cycle is said and done. Mind you, everybody is being rechecked, right? Nobody's eligibility was checked for 3 years. So everybody is getting redetermined. But when we think about the PHE-related growth, we expect about 40% to 45% will still be Medicaid eligible by the end of this process, call it, midyear '24, 20% to 25% go to ACA, 20% to 25% employer-sponsored. If you stack those up and add them up, it leaves 5% to 20% uninsured or previously double-counted and that captures the extrapolation of what we've seen in terms of double-counted population. So I would say that population in and of itself, not a material issue or risk in part because the risk-sharing mechanisms that have been in place for 3 years now have really prevented health plan's ability to overearn on this potential lower utilization or the potential dynamic where you might have somebody who uses more of the commercial benefit but it's getting effectively counted in 2 pools. So we've been at a pretty large payable position for a few years now relative to those risk-sharing mechanisms with the states. And I think that's one of the most important dynamics to consider in this context broadly. So we don't know exactly who's going to leave or not but we're watching that population in particular and making sure we're looking at the acuity of the levers versus payers and staying vocal in states in the process as well. So to Felicia's point, the rate environment remains quite strong in that regard as well. The states are being great partners for us. So, so far, so good on the dynamic.

And then Morgan, I wanted to ask about the '24 commercial selling season. Can you maybe just talk about how it compares to '23 from a size standpoint? And then, obviously, still a tight labor market, employers want to have competitive benefits. Any particular areas of focus that you're seeing from that customer base?

I would say we're -- it's interesting, the pipeline emerged a little later than normal and the decisions have shifted later as well. When we talk about the '24 cycle, we're just entering it for what I would call our local business, the upmarket of the local business and then we'll get into the bread and butter through the balance of the summer and early fall. But the national business is sort of that barometer upfront which this year, it's interesting because we've had several years of just record growth in that segment and it's all cyclical based on the renewal cycle of these employers. Many of them are -- most of them are on a minimum of a 3-year cycle, many of them are 5 years, some of them haven't been to bid in a decade. So when they actually hit, that's when the activity comes. This year, we've had a number of our cases that were on cycle. I would tell you when we think about the growth starts with retention and the retention has been incredibly strong. And to your point about tighter labor market, I've said this, the market is coalesced around 3 dynamics. It's around affordability, experience and simplicity. And we've seen this dynamic of employers consolidate for simplicity but they're not doing it for that sake only. If it leans to the right financials, they'll do it. We're still seeing that happen in this cycle, albeit it's slightly smaller than before. The same dynamics are pulling through on our business. So high levels of retention. We're winning where we have the right value proposition tied up. And when you think about in times of uncertainty and when you've got a talent challenge, people really focus on that experience piece as well. I think there may be a slight tilt to the economics, how does the affordability of the whole package look but that plays well for us. Certainly, every one of them is a competitive marketplace but like how things are shaping up, it's not indifferent. It's just the market dynamics and size are indeed different year-by-year just because it's based on cycle.

I guess obviously, one of the things that are topical from a cost standpoint is the new drugs for obesity. I guess, can you maybe talk about employer's kind of appetite to cover those for their employee base and what you're doing to maybe help them manage utilization and the cost of these new therapies that are coming to market?

Clearly, on the GLP-1s, when we think about that, certainly, for diabetes, prediabetes, comorbid cardiovascular illness, they're fantastic and we cover those, of course. We have 2 of our markets that require covering those for weight loss. Certainly, those laws that were put in place many years ago also allow for UM protocols. It's just not wide open. So we have the appropriate protocols in place. We have not had a customer specifically asked as a self-funded employer to actually cover them for weight loss. But those things are batted around when we start seeing long-term effects of the drugs, both good and bad, how they want to look at that is part of their total human capital strategy. That said, we feel good about where they are now. We feel good about the UM protocols that are put in place. All of the pricing for those drugs are built into our forward view. So we're not concerned about a spike that's unknown when we get into the back half of this year. But clearly, California and New York are the 2 that mandate it by law. And both of those require or allow for UM protocols. And when we see the UM protocols, they're actually have an appropriate effect. The drugs are being released for those that have the morbid obesity as well as the prediabetic conditions as well.

Yes. And I guess from a kind of philosophical approach to coverage if the cardiovascular outcomes trial data is successful, like how does that maybe change the potential patient population as well as your approach to coverage of those medications?

And I think it just goes -- just like we look at all of the other drugs when we come out. We look at the data as it comes out, and we make the decisions on the long-term effects and the benefits of the drugs for the patients.

Okay. And then maybe one on margins for the commercial business. Obviously, still a ways below the kind of 10.5% to 11.5% longer-term target that you kind of had under the old framework that I think you guys are still striving for over time. I guess, can you maybe talk about kind of how you balance working towards that margin goal while maintaining kind of competitiveness in the market and the type of improvement we should maybe expect on an annual basis as you work towards that?

Yes. We're pleased with the results we've seen so far and this activity began in sort of the back half of 2022, and most notably in 2020 -- the January '23 business when we had north of 50% of our large group risk business. And this issue on the price rationalization was most notably on large group fully insured. We feel good about where that landed. Certainly, it came with some retention because it's a fine delicate balance to your point of the levers versus the stayers. And what do those cases look like and was it due to the overall margin profile of the business? As we expected, it proved and yielded the result that we wanted. So our objectives have remained unchanged, albeit we have the combined health benefits business. We feel good about the trajectory going forward. Steve, I don't know if you've got anything you want to add on the specifics for the expectations year-on-year. But where we are for [1-1], how we're pricing for [7-1] and how we're tracking that, I feel really good.

Yes. I mean I'd put it in the context of the broader health benefits segment. I think commercial this year is the biggest driver we have with the margin expansion we are committed to. But we've always talked about this being sort of an 18- to 24-month exercise in terms of the large group risk business and the margin degradation that occurred during COVID and getting back to those pre-COVID type levels. So that continues to be a driver that will continue into '24. But that's not just the totality of it, right? There is also a dynamic where we've talked about growing fee-based profitability for our enterprise which to be fair, includes Carelon. But with an enterprise lens, over 50% growth in our profit contribution from fee-based membership through '27 is another target we have out there. As folks know, that tends to be higher margin rate type revenue that will come into the commercial part of the health benefits segment, that's a driver as well. And then efficiency on the admin side. We've invested quite a bit in digital. And to be frank, you're not yet seeing those benefits in earnest in the P&L. We've not yet scaled them and taken out some of the more experimental type investments we've had in the last few years. So that's going to be on the come as well. And that's all just in commercial. And of course, we could talk about Medicare as well if you want to kind of broaden this out. But on the commercial side, there's a number of drivers, frankly, that are going to help us get back to that target. It's pre-COVID, frankly, where we were.

Right. Got it. And I guess maybe just to build on that, just to be clear. So I think the long-term target for health benefit margins for 2027 is about 100 basis points higher than where we are today. I guess -- what does the pace of that look like? And then maybe if we could tie in Carelon here, as they -- as more risk is transferred to that entity, what does -- does that change at all the pace of margin improvement you'd see in HCB relative to what might show up in Carelon?

Sure. Yes, good question. I'll help you level-set the numbers too. So for 2022, in our 4Q press release, we provided that pro forma table for the new benefit structure or new segment structure, I would say, and the health benefits segment showed a 4.5% margin for '22. The long-term duration accounting change that's going to restate a little bit lower 6 basis points or so. But the guidance was 25 to 50 bps of expansion off that 4.5% level. So we're targeting this year landing in the range of 4.75% to 5% in terms of the health benefits overall segment margin. And our target is to be in the range of 5.5% to 6.5% in '25 through '27, right? So let's say, we end up solidly in that range. We're pretty close to 5% to your point. There's another sort of 50 to 150 basis points of margin expansion over the ensuing few years. Some of that's the commercial large group pricing, just continuing into '24. Some of it's obviously Medicare margin improving, as Felicia just referenced. Like I said, we're very much committed to our 3% to 5% long-term target pretax margin range for Medicare. So we will get the business in that range in that horizon. On the Medicaid side, there's maybe a little bit of normalization that plays out from where we are but you have faster growth in Medicare, which on a long-term basis should be a slightly higher margin business. So those things are offsetting. And net-net, government provides a little bit of opportunity over that time frame as well. And then really across all of those businesses on the OpEx side, I just referenced the digital comments I was making earlier, there are real opportunities to run more efficiently from where we've been. So all of that is going to contribute, Nate, on our way to getting there. We haven't sort of been very specific on '24. But as you can imagine, a lot of these drivers persist. So may be premature to put a stake in the ground. But obviously, if we're ending close to 5% and trying to get to 5.5% in '25, that gives you sort of a road map for where we think we'll be in '24 and so on.

That's helpful. And then maybe in the couple of minutes that we have left, I do want to hit on capital deployment. I think company kind of targets 50% either towards investment in M&A. And I guess, could you maybe talk about where the focus is in terms of the additional capabilities that you would want to acquire? And I don't know if Morgan and Felicia have a wish list that they want Carelon to do. But yes, just any kind of framing of that would be helpful.

Yes, absolutely. So our capital allocation framework has not changed very recently but to do a quick recap, we target 50% of our free cash. We call it flexible deployment but the first earmark under that is M&A. It's opportunistic. We try never to box ourselves into a corner and feel the need to buy anything in any given year. We try to be really disciplined on what we do. And if there aren't good opportunities, that could be reinvested in the business pretty easily or from year-to-year, we could be more opportunistic on buyback, for example. So the framework is meant to be, call it, any number of years, 3- or 5-year rolling average to the end of these ranges, 50% M&A, again, with a sort of flexible earmark, 30% is buyback, 20% is of the dividend. So we do think over time, we'll be in those ranges. On M&A, the strategy is really to be programmatic. So we've done a number of bolt-ons on both the health plan side as well as on the Carelon side. I think you should expect us to do more of those kinds of deals. I don't think we are talking anything transformative, to be clear. But we also flex up and do some of the larger deals. I guess, I'd highlight like Louisiana and MMM as examples of where we spent a little bit more where some of the Medicaid deals are maybe more bolt-ons. So with respect to Carelon, the focus is on capabilities that really will help us better address whole person health. And I think we're -- in terms of where we're going in the long term, going back to some of the comments at Investor Day around physician enablement, really working through what it will take to take on full cap risk basically, the risk-bearing entity inside of Carelon, using the assets we have and frankly, better integrating them. I think that's the real exciting aspect of the strategy, Nate. In the short term, you might see us tuck in more sort of capabilities in point solutions but all in service of that broader point of how do you later connect them and really with a focus on patients with complex and chronic conditions whether that's D-SNP or higher acuity populations in Medicaid. It's a big area of focus for Felicia and our health benefit side. We see a lot of growth there. Of course, they'd be pull-through in synergies on the Carelon side. So that's sort of first and foremost there but not at the expense of bolt-on health plans. We like those deals, too. I think Louisiana, we're really excited about. We expect to close that one later this year. That will be really interesting for us, not just on the health benefit side, give us a 15th Blue state, but also good pull-through on Carelon. We could bring the PBM in-house, start to penetrate some of the Carelon services through the asset as well. So that's the lens through which we look at it. Pipeline is robust. The team is very busy. That's an exciting time.

Awesome. I think we're out of time. Felicia, Morgan, and Steve, thanks so much. I really appreciate it.

Absolutely.

Thanks, Nate.

Thank you, Nate.