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

Good afternoon, everyone. Thanks so much for joining us for our first afternoon session. My name is Nathan Rich, I cover the managed care space here at Goldman. Very happy to have the team from Elevance with us today. From my left to right, Pete Haytaian, President of Carelon; Morgan Kendrick, President of the Commercial business; and Steve Tanal, FP&A and Investor Relations. So thank you all very much for being here. I'm glad you made it in last night despite the weather.

Steve, maybe if I could just start with you at a high level. You had an 8-K out this morning reiterating guidance. Can you maybe just give us an update on how utilization trended -- has trended so far in the second quarter, maybe across the different lines of business as we think about how 2Q played out relative to the reiterated outlook?

Yes, absolutely. Thanks for the question, Nate. So as Nate referenced, we did issue an 8-K this morning reaffirming our guidance. And so as you surmised from that, we're actually very comfortable with what we're seeing. I would say, from a trend perspective, to your question, really not much different from what we saw in Q1, pretty stable trends in our lines of business and broadly in line with expectations really in each one and overall. So if I go back to some of the commentary we made back in April, what I would say is consistent with what we're seeing in Q2, that portends there is a trend in every business. So in Medicare, we're seeing some pockets of trend in inpatient particular. We think that's more around the two-midnight rule and short-stay observations are down, but -- observation visits are down by short stay inpatient is up. And so we're tracing that back there. If there's actually an update there, if anything, we see that as maybe stabilizing a bit here in Q2, but that was a call out there. We talked about some outpatient categories where we're seeing a bit more trend. Cardio was called out, physical therapy, radiology, I would say those are consistent. So a very consistent trend dynamic in care, [Technical Difficulty] consistent with our bids and our guidance. So that's that side of it. In Medicaid, I would say, again, a range of outcomes as assumed in our guidance. We knew that this would be a year where there was a lot of shifts happening in the risk pool. We planned for that, I would say, very consistent again with what we talked about in Q1, specifically some pockets around acuity, but nothing outside of the bounds of what we've expected and guided for. So feeling still comfortable there. And then on commercial, again, a similar story where there is a degree of trend, I would say. The second derivative is not really changing, meaning trend is there, but stable and accurately priced in our pricing for commercial. So pretty comfortable with what we're seeing. Hopefully, that's a takeaway from the reaffirmation of guidance this morning and that's really the update.

Great. Maybe just a couple of follow ups there, if I could. I guess, in Medicaid, I think you talked on the last quarter about having sort of visibility on 75% of your Medicaid revenue for the year as of the first quarter. When we think about this lagging some of the state rates relative to the acuity that you're seeing, you are kind of talking about that 25% of your book where there's still uncertainty on where rates will be set over the -- as those come out over the course of the rest of the year. And that's where -- maybe those are the states where you're seeing that variability?

No, not necessarily. So it's not really our message. So just to recap some of the comments we've made, as of April, we talked about having visibility into 75% of our Medicaid premium for the year, and we've talked about broadly actuarially sound rates being very comfortable with what we are seeing on that block. I would say that remains the case. So it's 25% of the revenue for the Medicaid business that is tied to back half renewals. There's obviously still a degree of uncertainty on the rate side of that. But I would say we have a very, what I would call, not quite conservative, but I would say pretty sober type assumptions for rates. So we're not looking for aberrant to the upside to be clear, rates in the back half to meet the guide by any stretch. So again, comfortable with what we're seeing, but 25% of that revenue was not known as of sort of mid-April. We have some visibility into that. I'd say in the coming weeks, we're going to have more visibility into that. But it's about 1/4 of the revenue block for Medicaid.

And I guess maybe just to be clear, just in terms of -- if you look on a same member basis, kind of month-to-month, how that has progressed, have you seen any kind of increase in the kind of for member utilization within the Medicaid book?

Yes, it's a great question. I would say, in Medicaid, there's certainly trend occurring. But when you peel it back, it really has a lot to do with the acuity mix shift underneath that. So it's really a change in the population. As folks, I think, in the room would likely know, we've had pretty significant attrition through redeterminations that's occurred over the last couple of quarters. We had some footprint changes as well in Q1. And so that's really what's driving it. On a sort of same member basis, there really isn't much to call out in terms of trend. It's an acuity mix shift dynamic that is occurring in Medicaid.

Okay. And then you kind of talked about your assumptions for rates over the balance of the year. I guess as you get that visibility, do you kind of feel like there will be that adequate matching between rates and acuity as we think about kind of the longer term trajectory into '25?

Yes, yes. So the conversations with states are ongoing. It's very active. Again, we expected this. And so we were set up to monitor acuity and utilization very intently and to have active dialogues with our states. So we're talking to all of our states, almost monthly at this point. I'd say the conversations are really constructive, very encouraging. Broadly, rates are actuarially sound as well. So states are recognizing it. They're seeing it as well, and we'll have more to report, I suppose, in the coming weeks on the back half rates and where they shake out, but broadly, quite constructive actually in terms of what's occurring there.

Okay. Great. And then maybe one follow-up on Medicare utilization. You kind of mentioned the two-midnight rule. How long do you think it kind of takes to get to that new equilibrium between inpatient and observation? Are we there yet?

Yes. It's a good question. I touched on that earlier. I mean, I'd probably stop short of saying we've reached equilibrium because I don't know what that necessarily is. We had a range around this one. There's a bit of uncertainty in predicting exactly what that impact would be. But as I was noting earlier, just in the last few weeks, in particular, we've probably seen some stabilization in what that impact is in terms of trend. And so for that reason, we may be close to being at sort of that equilibrium state, but it's hard to call that. So we'll continue to monitor it. But again, comfortable with how that's playing out.

Great. And maybe just because Medicare has been so topical this year and the bids were due last week. Obviously, there's been a lot for plans to navigate for the upcoming year. So I guess can you maybe just talk about how Elevance kind of approach their bids from a strategic perspective for '25?

Yes, absolutely. So first, let me start by saying Medicare is a critical business for us, in particular. We talk about being a lifetime trusted health partner and to do that for consumers broadly, you need to be in Medicare, and we're dedicated to that market. It is a good market as well. And so for the long term, we're going to continue to be disciplined around balancing growth and margin. I think you've seen that approach from us. And so I'd be remiss not to touch on '24 in the context of '25 in this question date. So in front of '24 facing a 3-year phase in on a risk model revision, we took a hard look at every one of our products down at the county level, the level of competitiveness as well as, of course, the margin performance there, and this was in front of '24 bids. And we made some hard decisions. Frankly, we exited some plans at the county level across the mainland that impacted about 85,000 members. We had a tough '23 in Puerto Rico. I think, broadly, that's well understood at this point. We actually lost money, which is unusual for our company. We try to be very disciplined around products and the margins. And so in Puerto Rico, we made some significant changes to supplemental benefits, which is impacting another 90,000 members. So entering 2024 this year, we effectively seeded about 175,000 MA lives and still guided to flat membership growth, which we continue to feel good about meeting the rest of the business grew quite well in sustainable ways and markets that we're dedicated to. So pretty pleased with that, and that sets us up for '25, right? So we're in an environment now where Medicare earnings are growing this year, the margin is improving. We are making money. To be clear, we are not losing money in Medicare. We aren't quite in our target margin range, but that's the potential for the future and the upside there. And so as we thought about '25, frankly, somewhat encouraged by the commentary from many of our peers, competitors around benefit of rationalization and taking a hard look at that market. I know others are not -- maybe potentially losing money this year. I think there's been commentary around that point. And so as we approach bids, which we submitted just last week, we took a very disciplined approach. Of course, we do have a Stars headwind coming in from a reimbursement perspective. We considered that. And again, we did this very locally, county-by-county looking at the competitive dynamics and even the types of products our competitors were offering at that local level to determine where we wanted to position for either growth or truly protect the margin. And so growth will be hard to call without knowing what our competitors actually do. But I would say, from a margin perspective, I'd be comfortable suggesting that margins are stable to improving in '25 based on the bids we submitted. And I think we'll have more to say about growth when we see what our competitors have submitted.

I guess is there anything from a plan design standpoint that you did to kind of guard against excess growth?

Yes, it is. But it gets really nuanced really quickly, Nate. There's nothing generally, I would say that across the board kind of plan design component. So it would be, yes.

And I guess maybe the other side of that coin is, if you do see excess of growth above maybe what you expected, which I think kind of like in line with the market, kind of plus or minus. Is that necessarily bad if you kind of price the plan design correctly?

Yes, not necessarily. So it's all within a range, right, and we'll have to see exactly what occurs. But as others have put it, if everyone's talking about membership losses, those members are going somewhere, right? And so we'll see where we end up. I would say that if anything, increase the level of discipline around margin. And so that was the real aim here on our bids. If we grow slightly in excess of market, I don't think that's necessarily bad, but what we're trying to guard against is really aberrant growth, which to me is 30% type plus to just throw a number out there. I think that would be much more than anticipated, but I don't think that's really in the cards. So we'll see where we land. Again, growth is tricky to call without knowing what our competitors are actually have done with their bids. But I would be confident -- or I'd say I'd be comfortable with market plus type growth. I think that we'd be very comfortable with that.

Great. I appreciate those comments. Pete, maybe if I could bring you in at this point.

Okay. Great.

I think Elevance has kind of taken a different approach to care delivery than some of its peers. You did the deal with CD&R. Can you maybe talk about why Apree and MPG were the right assets for Elevance? And how that fits into sort of the strategic vision for Carelon?

Sure. I mean, first of all, we're very excited about that arrangement. When you step back and you think about what we're trying to do as a company, we've been talking about perpetuating value-based care and this is really consistent with that. And as you said, in terms of the way that we're approaching things, we are looking at doing things on a capital-efficient basis from an enablement perspective, and this is very consistent with that. I'm really excited about this for a variety of reasons. When I say this, I mean, the relationship with CD&R and MPG and Apree, first of all, what really differentiates this, I think, is that we're -- there's an application across all lines of business. So there's diversity in the approach, commercial, Medicare and Medicaid, and it really plays off our strength of having a very significant commercial platform on which we can springboard off of, and we also have the ability to scale this in a really differentiated way. It's much different than buying brick-and-mortar at scale as we talked about, that's not our strategy. It's much more focused on enablement. We think we have a really nice mousetrap here to be able to do that and scale that. I'd say the other thing that is really exciting about this is how Carelon -- the existing Carelon plays into this as well with the ability to wrap around a lot of the Carelon Services in terms of our partnership with the Apree and MPG. And then finally, when you think about Carelon Health, Carelon Health is a leader in managing the complex in the chronic. And so we're excited about its application in the context of both Apree and MPG. When you step back and you look at these 3 organizations together, there's tremendous synergy opportunities across them. So as an example, when we think about Carelon Health, we see a tremendous opportunity in leveraging a lot of the capabilities that MPG and Apree have around things like differentiated EMR capabilities, some of the technology capabilities that exist across their assets. And then finally, I would say that there's a wonderful payer agnostic approach to this. So growing outside of the 14 and on a payer-agnostic basis, we're looking at this from a long game perspective as well. I mean, obviously, the 3- to 5-year time frame will bring this back up in-house into Carelon Health, and we really look forward to that. But we see this as a tremendous opportunity, very much consistent with our existing strategy and I think very differentiating for the reasons that I stated.

Yes. And maybe just following up on the synergy point that you made, kind of how do you accelerate the growth of those two businesses, Apree and MPG? And where maybe, do the synergies lie within the insurance book of business in terms of member overlap and how kind of quickly you can maybe roll out...

Yes, I think we're going to actively begin engagement planning once the deal is approved. But I would say that we can be very again, intentional and deliberate about this. So when you think about the opportunities in Morgan sitting here to my left as it relates to commercial, we can identify by ZIP code, by territory, where they're independent providers that have large books of business, be it large commercial and Medicare books of business in which they want to remain independent. And we have an opportunity to then engage with them in that regard and scale this through our asset [Technical Difficulty] in a very similar fashion in terms of being able to accelerate that. And then finally, the other thing about this arrangement from a growth perspective that's really interesting is it will have the capital necessary in that structure to be able to acquire at scale as well. And so we're going to have a whole process in which we are identifying new and incremental practices that we can acquire and enable. So the combination of all that, I think creates a wonderful opportunity. Finally, though, in the context of all that growth that I talked about, we are being very deliberate and intentional also about applying the Carelon Services that exist in my book of business today around specialty enablement and on a subcapitated basis, deploying that within this new structure.

I kind of wanted to ask on that. How does this kind of maybe accelerate the percentage of the business that's in risk-based arrangements. And does this result in more global [Technical Difficulty] or not necessarily?

Well, as it relates to primary care, yes. Today, our footprint with regard to primary care and that which we own or be it Carelon Health or some of the other assets we have in Florida is more limited. We've been much more opportunistic in that regard. This does allow us to assume global risk on a primary care basis at scale to a different degree. So we're really excited about that. And then as I said before, even within those practices being able to carve out subcapitated opportunities, I mean, to give you a real example. If you're engaging with a primary care group or an advanced primary care group and you develop the right kind of partnership; when you're managing high-cost, high specialty areas of care, sometimes it makes a lot of sense to have that kind of a partnership. Kind of primary care practice really effectively manage oncology to the degree that we can when we specialize that. Those are examples of how we can work together and create synergies and growth.

And I think the company and Gail, maybe in particular, has really talked about kind of proving it inside, taking it outside is sort of your approach to a lot of these services that you're building, whether it be pharmacy or on the health services side?

Yes.

You are asked a lot about kind of where you are in that process to be able to have proven it inside and start to take it outside? And how does that differ between the different businesses within services and on the pharma side?

That's a great question. I think it's a tremendous advantage for us to be able to do that. And when you think about the [Technical Difficulty] and we have the opportunity to roll out some of these solutions at scale pretty quickly. [Technical Difficulty] We mean what we say in terms of proving it inside and then deploying it outside. I think a great example of that from the recent past is what we did with the post-acute care initiative. We built -- we ideated and built a product in a matter of 12, 13 months, rolled it out at scale over a 16-month period across the entire Medicare Advantage book. And then to your point, we package this as solutions externally and most recently sold a couple of Blues for our post-acute care initiative. I would say that if you look at the time line, we have a very formal product life cycle management. So we've really invested time and being very deliberate about [Technical Difficulty] and bringing in talent to be able to do that. The reason why [Technical Difficulty] is depending on the product offering, there may be a different time frame in terms of when we commercialize and go external. So for example, the post-acute care initiative is one in which we're really leveraging, was formerly known as myNEXUS and their technology, their portal capability. And from an execution perspective, not that complicated. As long as we get the providers to adopt that capability, we can deploy that at scale pretty quickly. Where in contrast, when you're looking at a whole health risk arrangement like the seriously mentally ill or oncology, that may take a little bit more time to scale internally and then package and sell externally. But we're going to have a variety of solutions, a portfolio of solutions in which we have both that, which is more akin to what I described in myNEXUS or now post-acute solutions and whole health initiatives.

You guys have been working quite a time on the PBM and pharmacy side. Kind of the PBM, maybe traditional PBM functions first, some of the specialty capabilities a little bit more recently. What does it take? I mean, you're going up obviously against a lot of big incumbents in that space. How you feel like that business is coming together to be in a position to maybe sell more broadly, externally and kind of compete in those RFPs?

Yes. I mean we feel really good about. I'm very proud of the team in terms of the strategy that we've laid out and what we've done thus far in a very short period of time. We talked about in-sourcing the strategic levers that matter, and you all have seen us do that as it relates to specialty pharmacy, what we recently did. Infusion, to answer your question directly on when you're facing off with consultants, with clients, big clients [Technical Difficulty]. I would say, first, stepping back at the top of the [Technical Difficulty] still remains very, very important. The quality of the service that you provide, and I'd say simplicity and making sure that, that is all part of your offering. And I would say that we have grown a lot with regard to that over the last few years. So I feel very good and I think Morgan's team does, too, and we're selling the integrated business. We're showing up really strong from a pricing perspective. And I think our packaging is really powerful. I'd say the other thing that is resonating in the marketplace today is the story of whole health and integration. They like it. And they also like the fact that we've acquired these additional assets, be it specialty pharmacy and infusion and what we can do with it. We still have to prove in that regard. Obviously, we want more proof points out there, but we've done a variety of studies that show the savings that exist. We also are willing to put up guarantees in that regard. So I think that's resonating. I would say where that is showing up most effectively and where we're having the most success is middle market and down market. On some of the larger jumbo opportunities, I think there's still more runway. And obviously, there's a lot more stickiness to that clientele. But we're on a journey. We feel very good about it. The integrated business is where we're focused and then these new assets in terms of scaling these new assets is a big part of our focus.

Like how important is that specialty piece? Because you bought BioPlus, Paragon, Kroger Specialty coming in, hasn't closed yet. Can you talk maybe just about where sort of that integration stands in like the capabilities that you've acquired and built? Are they integrated? Are you at a point where you can handle Elevance's volume? What does that transition looks like?

Thanks, Nate. That's a good question. Like I said, we're on this journey. Last year, we spent a lot of time on acceleration building out the infrastructure for specialty. So what I mean, infrastructure, I mean, in dispensing facilities. And now we have stood those up at scale. So we would be able to assume not only all the Elevance business but more than that. So we feel good about that. And also all the administrative sites and personnel and talent that we had to infuse. So that was Step 1, and that we talked about that as an acceleration opportunity. And then I would think about specialty as a staged multiyear transition of the Elevance scripts. Starting this year, we started that process. You'll see that continue out through the end of 2025, and we feel good about where we are in that journey for specialty. In the middle of all that, probably Q3, Q4 of this year, we'll see Kroger Specialty close. And that's just something that -- obviously, we didn't originally know about when we did the BioPlus deal, but now as a part of our [Technical Difficulty] process, and we're really excited about that. That's 500,000 incremental [Technical Difficulty] plus additional LDDs. So I think that scale will give us a lot more from a capability and affordability perspective. So that's really good. And then quickly on the infusion side with Paragon, we closed on that earlier in the year, and I'm really excited about that because it's a business that we can be really intentional about because of the great density that we have in our markets. We can, on a ZIP code basis, stand up these ambulatory sites and take advantage of the $16 billion in infusion spend that exists today in the Elevance portfolio, 50% of which can potentially -- 50% of which can be diverted. And -- oh, I should say, 50% of which isn't in the hospitals today that can be diverted. And so we have a tremendous opportunity in that regard where we are as it relates to that journey. As soon as the team came on board, we began to plan and identify those ZIP codes. And think of us, again, on a multiyear journey in terms of standing up these facilities, we will stand up a significant amount in the back half of this year, but really more at the beginning of next year to take advantage of that more appropriate site of care, and that will help -- that will happen over multiple years. The only other thing I'll say about that, that I'm super excited about, is the additional incremental value that can be created through Carelon? Think about potentially infusion and infusion products being deployed on a capitated basis, where we can package this offering. We can stand this up in other markets. We can handle the front end from Carelon Services perspective and assume risk and then also garner margin on the dispensing side. It's a really good example of that flywheel concept that we're trying to create.

And can you maybe help us think about how the economics ramp? Because it feels like you're maybe in kind of build-out mode now, a lot -- maybe a little bit investment heavy at this point. How long does it take to kind of get to mature margins in either like specialty pharmacy or infusion as we think about what that curve looks like?

Yes. I think like we said, I mean, I think we're on a journey. I think the -- on the specialty side, we're going to be continuing to grow and invest over the next couple of years, and you'll see margins come more into line over that period of time. On infusion, sort of the same thing. But I think this is -- it's a multiyear journey. And then depending on what we do outside of Elevance, that could also impact things as well. And I see a tremendous opportunity in that regard with the Blues, both on the specialty side as well as on the infusion side.

Yes. Great. Morgan, maybe if I could bring you in. So the company started on this -- I think, 2 years ago on this process of improving commercial margins on the back of COVID. I think you had talked about a path of several hundred basis points at that point. I guess from where you stand today, how you're tracking relative to that target, and also, can you continue to price for margin expansion on top of trend and remain competitive? And continue to grow that commercial book of business?

Yes, Nate, thanks for the question. And as you indicated, July marks 2 years of the endeavor to actually improve and we can correct those on fully insured risk margins back to pre-COVID levels, and we're pleased that we've done that. To answer your question directly, I do think there is incremental opportunity to price trend and a little extra and continue to grow that in '25. We saw this occur in '23, '24. Now, it will occur in '25. And I also think there's a bigger opportunity, quite honestly, when you think about our higher-margin fee-based business growing into it, and we announced at our IDay last year that we were going to grow that fee-based earnings across the organization, 50% over the next 5 years. That includes a lot of what we're working with Pete's team to build for purpose to solve customer problems as well as pharmacy integration, things of that nature. So we think there's a real opportunity to not only -- we've got the business in the right spot. So now we've got a growth opportunity with large group risk and we've got opportunities with our very large fee-based organization as well.

And can you maybe talk about that, just how you're kind of selling in the suite of Carelon services through your commercial base?

If you think about it, as Peter has indicated, I mean, I would say the markets, upmarket and downmarket. We are acutely focused on simplicity, experience and affordability. And they're going to over-rotate to one of the other based on where they are on the chain and what they're thinking about for their human capital strategy and their staff. It depends. Down market, of course, as Pete indicated, we've got a lot of pharmacy integration, which is really good. Behavioral health EAP is really strong in all of that business as well. We see upmarket curated opportunities to work together to build for purpose BH EAP opportunities together. And also when we think about ways of abating trend internally, it goes back to affordability. And typically, the higher you go in the size of the employers, the consumer experience really matters because this is a human capital strategy. There's been a fight for talent for a long time. And how do we use this formally known as a benefit package to really do more than just provide a health benefit. And I think those are the areas where Pete and my organization work together collaboratively to build for purpose, to your point, use and test inside, then go outside once determined to be successful.

And I guess, there's been a lot of focus, I think, on the smaller end of the market on what role [ ICRA ] might be able to play. It seems like, you have others kind of saying maybe more of those employers are looking at ASO type of relationships. Can you maybe just talk about kind of what you're seeing from that kind of smaller employer...

And I think that market is a really interesting market, and I like the market a lot. And we're talking 200 to 500 lives would be more of what I would define as downmarket. And we're seeing across the -- whether they want to move into various [indiscernible] opportunities where we have various chambers and various organizations, where they want to stay fully insured. Do they want to be fully self-funded with appropriate specific and aggregate stop-loss protections. Do they want to be and what we would call a balance funded, which has basically got a kind of a minimum premium type of hybrids in between. [ ICRAs ] are interesting as well. I would tell you, we don't see a significant appetite for them. We have a few that we've deployed on behalf of an employer. Many -- we find many of the down market employers are still very quite maternalistic, and they want to remain that way. When it becomes cost prohibitive and unable to manage a benefit plan, we think there's something there. But we think that dovetails precisely into the way we think about our ACA business because when you get money to the staff to go buy their benefits, they're buying on the exchanges, and there'll be a TPA or a brokerage firm that will be working to coordinate this for them. But if we show up competitively on the ACA, that's where the membership will go. And that's what we've seen when we've seen competitors [indiscernible] in markets where we're very competitive, we reap that benefit by having the most affordable solutions in the geographies.

Makes sense. And I guess maybe just going back to my initial question on margins in the commercial business. As you think about the kind of capturing that kind of [indiscernible] margin opportunity to get to your target margins, how much is dependent on kind of selling in kind of additional services? Can you like -- what is really the key to kind of getting those last couple of hundred basis points? We don't get the disclosure anymore. But...

Right. Where we are right now, I would say we've gotten to our pre-pandemic margin levels on the large group risk business. We kind of were slightly ahead of it. I do think the market's solidified quite a bit. And I think there's opportunity for continued incremental margin improvement on top of where we are just our forward view of trend. I think the opportunities, which are large and Pete talked about it a bit, and I think that's sort of an upmarket. And I'm not necessarily talking about $0.5 million and above, but maybe that 30,000 to 100,000 lives national business, which we have a number of those. Nearly half of the RFPs that came in the cycle requested an integrated pharmacy medical solution. So I think that opportunity, and we're working together on what does that solution look like, but the appetite certainly is indeed there. And I think the way the market is reacting is attributing to the resilience of the way the assets are indeed resonating in the market.

Okay. I wanted to ask on the exchange business as well. [indiscernible] in the space kind of talk about some strong enrollment on the exchanges on the back of redetermination. Can you maybe just talk about what you're seeing from an SEP enrollment standpoint this year has played out?

We've done quite well in that business. And we've taken a very measured approach to how do we price this business. I mean we certainly aren't looking for membership over margin, and we're wanting to strike that right balance. And we've been able to do so far. That's our strategy again in 2025. When I look at the market growth in all of our geographies, which includes coming out of the Medicaid business, we're outpacing the market. So we're taking share in the markets that we are and we know within our markets, we still have opportunities to improve our competitive position economically. So we think there's still runway just in that. And where our Medicaid business and our Commercial business overlap, we've been somewhere in the 30% retention range and we overlap in 11 of our 14 geographies.

Okay. And I guess do you have a view on what the exchange business can kind of grow long term for Elevance? So maybe what the market will do, but also kind of when you think about your expansion opportunities, the ability to take market share, what type of growth you're kind of targeting for that business?

Right now, we're kind of continuing to -- in fact, we've grown our business nearly 30% year-over-year in the past 12 months. And we feel good that we will continue to grow that business now that we've seen it wane off. Medicaid redetermination went back to steady point. And so we are continuing to grow. So we expect that to continue. I think it's becoming more and more of the general marketplace, not for just subsidy-eligible individuals but for anybody looking for individual health insurance. So I see this continuing to morph a bit perhaps, but be a very strong source of opportunity for us.

And can you maybe just talk about margins for the business today and kind of where you want to see them long term?

Our margins, as they're performing, our performance are quite healthy right now. We feel good about it. We look at the margins not only for the Commercial business but also in Pete's organization in the broader Elevance. So there are activities that Pete's organization does for ICA business, pharmacy, BH, things of that nature that are across the organization. So right now, our forecast is we're going to continue the trajectory that we are on with this business. And certainly, there's an opportunity to pivot if indeed ever necessary.

Okay. Great. And then -- the enhanced subsidies, I think, are one kind of area of uncertainty just as we go through the election cycle. Maybe just -- what's your view on how that could potentially impact that market?

Clearly, if the subsidies are removed -- the enhanced subsidies are removed, the market, I think it will a little raise the uninsured, I do. And I think it could create some challenges there, but I think that's another opportunity to figure out how do we get after that population. And we've gotten some experience working collaboratively with the Medicare and Medicaid teams, all as one unit of how do we sort of get back to the conversation that we started with being a lifetime trusted partner. So we want to be in these markets. We think, given who we are, the scale and density and the geographies, we've got to serve all populations, and we still see continued opportunity for the organization.

And maybe, Nate, I'll just mention one thing on the subsidies. So a lot about how we're looking at that depends on how much the market grew as a result of them. And just remember, we're not in every state in our ACA business. We're in our 14 commercial states, which have grown much less than the national average, in part because we're not in 2 very large states that are not expansion states. And so while the market -- that's a market dynamic, probably compresses the market. I would assume our 14 states compress somewhat less.

Great. That's right. We're just about out of time. So why don't we wrap there. Thank you, everyone, for coming, and thanks, team for joining us.

Thanks, Nate. I appreciate it.

Thanks, Nate. thanks for having us.

Thank you.