Humana Inc. (HUM) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Wells Fargo Healthcare Conference. I'm Steve Baxter, the Services Analyst here. We are pleased to be joined by Humana, a leading health plan focused on Medicare Advantage and increasingly its portfolio of services capabilities. From the company, we have Bruce Broussard, CEO; Susan Diamond, CFO; and Lisa Stoner, from Investor Relations. So thank you very much for being here today. We really appreciate it. Yes, of course.

So just to kind of get this one out of the way, we saw you put out 8-K this morning. Obviously, utilization has been in a huge amount of focus over the past couple of months. Can you give us the latest on what you're seeing on utilization front since you provided us an update on the second quarter call?

Yes. Sure, absolutely. And as you said, we reaffirmed guidance this morning. As we said in our second quarter call, we were really pleased to see with our gene claim restatements that they sort of validated the moderating trends, particularly in the non-inpatient space that we had been expecting. And we knew going into the second quarter call, there were some open questions about that in light of what some competitors had indicated that they were seeing in terms of trends and whether the higher percentage trend year-over-year would, in fact, continue or moderate, which we had anticipated, which was really more a function of the curve of the prior year PMPMs that we were seeing as we came out of the COVID surge in the first quarter. So as we said on our second quarter call, the June paid claims validated that the estimates that we had relied on, that did assume more moderating trend levels, although on an absolute basis, an expectation that, that higher non-inpatient PMPM would continue. We did see those trends emerge and those were further validated and supported by the July claim restatements that we saw. As we did say at that time, we were seeing a little bit of an uptick in the inpatient side. And we have continued to see that, within recent weeks. Things have been relatively comparable to what we described in the second quarter with the exception of we have seen a further slight uptick in the inpatient side related to COVID, which is consistent with what you've probably seen and read about in the news lately. I would say that's still within the range of what we would have assumed in terms of our estimates that allowed us to provide our second quarter update and then the reaffirmation of guidance this morning. We did within our estimate to assume that we would see an uptick in COVID, although we had assumed that it would occur in the fourth quarter. So arguably, this is probably a pull forward of what we would have otherwise expected to see in the fourth quarter. We'll certainly continue to moderate it. But all in, I would say the claims and the latest information continues to support the estimates that we've been sharing.

Got it. That's very helpful. And then just as you've developed guidance for the back half of the year, could you just remind us how you approach things like seasonality, workdays, kind of cadence around like whether physicians are taking holidays. Just remind us how you kind of built all then into your guidance this year?

Yes. I would say the seasonality for holidays, you do see that typically in July and then a little bit just in this summer with vacation schedules, which is pretty consistent and we say that nothing surprising in terms of what we've seen so far. You'll certainly see some of that around the holidays that will occur in November and December. And then otherwise, you do have received workday seasonality pattern this year, where you see a higher number of workdays in the first half versus the back half. So that is something we would always consider and contemplate in our claim estimates. In terms of the trend we're seeing, as we've described, we continue to anticipate that the higher non-inpatient trend and then the slight uptick in inpatient will persist through the end of the year. So we're not counting on that to mitigate. We are assuming that, that will continue, whether that's due to improved productivity or health care capacity of some kind, but that, that -- we're not expecting that to abate and frankly, through '24 as well, we're assuming that, that will continue through '24.

And you spoke a little bit about this on the second quarter call, but as you've had more time to look at it. In terms of the higher utilization, could you just tell us a little bit about whether there's pockets of your membership, whether it's the population that you're experiencing growth in this year, whether it's risk versus non-risk populations. Any kind of different dynamics we should think about in terms of the way utilization is playing out?

Sure. I mean, we certainly do have with the mix of membership that will impact sort of what we assume in our estimates. And as we've mentioned, really pleased to see the higher agent share that we've benefited from within our stronger enrollment this year, which the last number of years, we have not garnered our fair share. So that was a priority for '23 and really pleased to see that. And from a long-term perspective, just given the way the reimbursement model works, arguably, that population is underfunded in the first couple of years. And then once they switch to full risk adjustment, then you have disproportionate margin and growth potential for that cohort. So that higher enrollment this year, which we didn't initially anticipate and Bruce shared some comments here on the second quarter call about the uptick in share that we've seen, that will put some pressure on the MER. They do have overall lower claims PMKM but also meaningfully lower revenue, but it does put some MLR pressure, which we've contemplated in our forecast. But certainly, a positive to see that, and then we'll see some improvement in the years to come. Otherwise, I would say -- and I apologize, remind me of your first question?

It was just going to be whether you saw a different [indiscernible] patients trends across the...

I would say broadly the trends that we're seeing are broad in nature. They're not disproportionately in a certain geography or certain population. I would say just slightly elevated across the board. We have commented that we are not seeing it as much in the risk space. It's more in the non-risk space, which given some of the category trends that we've pointed to in terms of elective surgeries, ER and observation phase, those we would argue that the risk-based providers tend to manage better in normal course, which could be a reason why we're just seeing less of it in the risk space than the non-risk. But otherwise, we would say no single driver and more broad in nature and just a slight elevation relative to what we would have expected.

And then thinking a little bit about 2024, Bruce, I think we were all waiting to hear what you guys thought about industry growth potential for membership in MA in 2024. Can you give us a little bit more color on why you expect industry growth to remain strong in 2024 with the potential for benefits to pull back at the industry level? I would love to -- obviously, there is a relative value of MA remains quite high. But to the extent that's also informed by potential Part D conversions, maybe an above average rate. Would love to just hear what gives you the confidence in that industry level growth for it.

Well, as you mentioned, we continue to see the value proposition between Medicare Advantage and Medicare fee-for-service to be significant, about $2,400 in value. And so, we continue to see individuals wanting that value through the MA side. The second thing that we've seen and changes that we've faced over the last decade or so and in the structural and in payment models is that we've seen growth in the 2011 to 2015 time, time rising, we saw a lot of changes and then that continued for the next 3 or 4 years after that. And we saw growth and growth from 25% to 35% of the industry there. So even in times of change, the value proposition continues to stay high. And we look at that this year as being the same. And when people enter MA, they really don't have a historical perspective of the individuals that are there currently. And what we've seen and the way we've structured our benefits is to really try to understand what the top benefits are and not alter those as much and put value, where they consider to be significant value there. So we'd continue to have a strong view that this will be another good growth year for MA because of the value proposition, managing the changes in a way that's more consumer-friendly. But that being said, there will be shopping that happens and that shopping, I think, will endure to individual companies that have the benefit package that has the most value.

Okay. As you think about potential evolution of the Part D market, I guess what kind of feedback are you hearing and maybe from the broker channel on them, how they might be approaching people that are traditionally approach coverage with supplemental coverage in Part D, like do you think there's going to be a meaningful shift there into MA for the next few years? I guess, how do you see that plan?

Yes. We've seen just over the years, a shrinking Part D industry, and it's being really a result of people going to MA, and we continue to see that being a trend. This year and next year, there's just substantial changes happening in Part D. And so the predictability of it is a little lower. Obviously, the benefit of the move because of -- has a significant change for the -- in the favor of the consumer that is also being subsidized by the federal government through the subsidy program. So I would say what -- sort of wait and see over the next few years on how it changes. But I think the value proposition overall for MA continues to pull from the Medicare fee-for-service and diluting Part D overall.

Got it. And then as you guys approach 2024 in your bids, obviously, a lot of moving parts around the utilization experience you're having this year. Also the desire to potentially realize some of that above-market growth potential. Like how did you manage the dynamics between ensuring that margins are going to be where you need them to be to grow at your 11% to 15% EPS rate next year and also deliver on above-market growth in a year where you're kind of repricing?

Yes. Obviously, the risk adjustments that were brought on the share also creates the complexity of it. A few things there. As I mentioned just on the previous question, is prioritizing what the value is to the customer, to be most important and how we structured the benefits there. And so we really were very thoughtful around how do we create as much stability within the benefit structure, but still being able to support the financial profile of our company. And I think we've done a really good job on that. The second thing that we've seen is just the brand of Humana over the last 18 months has really caught hold, and we see a really strong relationship with our brokers as a result of the stability of the -- of our benefits, but also the forecasted stability specifically through the STARZ program and then being able to foresee a stable benefit going forward. And then the second thing that we've also seen is the service side and our Net Promoter Score has really given that security that if someone does come to our company, that the changes, I mean, that they are going to feel supported and the service is going to meet the needs of the customer, and they've been concerned in some of our competitors that there's just been some -- the ball dropped a few times. And then the customer gets frustrated and it gets frustrated at the recommendation of the broker. And then the last thing I would say is just not only focusing on the customer side and then in addition, the broker is -- the third thing that we see is just the ability for us to continue to grow as a result of our value-based relationships and the stability of that and the growing of that combined with our STARZ program gives us that competitive advantage in the way we can price.

Okay. And then as you guys have gotten a better sense with the competitive landscape over the past few weeks and gotten feedback from brokers, what are you hearing? I guess, how does what you're hearing compared to what your initial expectations might have been? And then is there anything to call out, whether it comes to maybe some competitors are potentially retrenching around the duals and maybe the non-dual space. Feels like there's more white space free on 2024. I'd love to just hear how that's...

Yes. I would say in the duals area, that these [ snaps ] there's probably a little more investment than what we thought there. We're still competitive and feel very comfortable with it, but we were surprised a little bit just in some of the investments and changes, people organizations have made. So that area is our wait and see, but we feel comfortable that we're still going to grow well, but maybe just not at the level that we first anticipated. In the non-dual space, I think this is an area which is the largest part of the market, we feel really good about it. We think the positioning -- and then Susan was talking about the agents the share is really a result of our product positioning. And we see that continuing in 2024.

Okay. Is there any reason to think that the mix of agents could change in a meaningful way for next year? Obviously, that does have a pretty significant impact on the P&L. I guess, how are you guys thinking about the agent dynamics for next year?

Yes. So I would say, as Bruce mentioned, we have seen where some of our competitors have emphasized duals in the business for 2024, which makes sense. It's a smaller population, so if you're going to put some investment to work, you can have more impact in that smaller population, and it continues to grow given the potential for penetration there. So while we haven't seen the landscape data and we're anxious to see that once CMS releases at the first of October, our guess is that there's probably been more degradation than across the non-dual benefits in order to fund some of the -- what would have otherwise we would expect higher benefit degradation in the [ decent ]. So we're anxious to see that. But arguably, given the strength of how we're positioned in '23 and how we took a very balanced view to continuing to transition ourselves for broad growth in '24, I would expect that we will continue to do well within the agent population. And we've assumed that as we think about 2024, that much like we saw in '23, they will continue to do well with that agent population and as I said, the long-term and lifetime value potential for that population is very attractive. So we were very conscious of setting ourselves up for the opportunity for disproportionate growth, if we do, in fact, see the level of shopping that Bruce referred to that we would anticipate, given the disruption that the risk adjustment model will likely introduce.

Got it. And just to follow-up on that. I guess, can you talk a little bit about how the mix of membership growth that you see in 2024 could potentially influence, where you might land or where you might think about landing in terms of the 11% to 15% EPS growth that you're targeting for next year?

Sure. And typically, we wouldn't comment on '24 this early in the year. We did choose to provide some commentary on the second quarter call just recognizing that given we acknowledge we did not fully price for the higher trend that we were seeing late in the bid process. As we've had more time to evaluate sort of the source of that trend and how it might persist into '24 and then for us to also assess all of our other line of business performance, the continued progress that we're making on productivity initiatives, we've got some positive tailwinds from investment income and other things. As we were able to assess all that, we felt comfortable at least reaffirming that we would expect to be within our historical 11% to 15% EPS growth range for '24 and that was really more to eliminate any concern that we might be below that range, which is some of the concern that we were hearing from investors. So I wanted to reinforce confidence in that. I would say, again, still too early to comment specifically on where we might be for '24, and we would typically give a little bit more commentary on our third quarter call, which we'll do this year. But I would say 2 of the main things that we'll continue to watch is certainly the current year emerging trend, how does that ultimately complete for the year relative to what we've expected and how do we consider that? And then certainly, the level of membership growth and then the mix of that growth, as you suggested. And so to the degree we do see, disproportionate share in agents and different geographies and plan designs we want to assess as we think about what is then the implication to 2024. We remain committed to the targets that we laid out for 2025, including the $37 of EPS. And as we've always said, outpacing the market in MA growth is one of the most positive things we can do in support of that goal. So all of that is very positive, but we acknowledge we have to continue to watch the trend, see how that emerges for '24. And then ultimately, that will have the opportunity, if we need to, to take any further pricing action in '25, we certainly have the opportunity to do that.

Got it. And then obviously, a big part of being able to sustain this year's financial targets, it's been leaning a little bit more on the SG&A leverage side of things. I guess just give us an update on how you're thinking about that going into 2024 and 2025, do you consider that those savings largely become permanent, and that's kind of the new baseline that we're thinking about. Is there anything that we should be mindful that needs to reestablish itself as you move into 2024 and 2025?

Yes. Obviously, we've been really pleased with the additional productivity progress that we've seen. Obviously, our value creation goal was very successful, delivering slightly more than the $1 billion of savings we targeted on a run rate basis for '23. As we had acknowledged as we shared progress against that goal, there were a number of things that we knew would provide incremental benefit into '24 and even '25 that just took longer to implement. So things that require technology enablement, workflow redesigns and some other things. So all of that work has certainly continued and led us to believe even at the time that we did pricing, that there was more opportunity for '24 than just the 20 basis points of operating leverage that we had committed to in the targets we laid out in 2022. So that was something that we certainly were able to consider in our '24 pricing, which, as we said, was one of the ways that allowed us to mitigate what maybe would have otherwise been higher benefit changes that, again, should position it hopefully for strong growth again in 2024. As we've continued that work, we've continued to see additional opportunity to streamline operations, leverage a variety of tools where we do think for at least the next year or 2, there is some disproportionate opportunity for further productivity beyond just the 20 basis points. And that's, again, another lever that has allowed us to offset this higher trend that we've seen this year without compromising membership growth or ability to continue deliver the EPS progression that we've committed to. So I would say we continue to feel really good about it. I think our leaders continue to feel really good about it. And I'd say, the next year to some further disproportionate opportunity and then we'll probably be more of a mature basis, where we'll see more of the incremental 20 or so basis points going forward.

And then as we think about star ratings, we'll get sooner for payment year 2025. I believe the companies have some data back on that. Obviously, you don't have the final ratings or I don't think the cut points yet either. But I would love to just get a better sense of maybe how you're thinking about 2025. I know in 2024, you were able to increase the star rating on your largest contract, which gives you a bit more of a buffer. But any early thoughts on how we should be thinking about 2025 stars would be helpful.

As you mentioned, we've gotten our first look at it, and we said this in the second quarter call, we feel comfortable that we're going to continue to lead the industry and STARZ. And in the next few days, we'll be able to see the cut points and understand that further. But what we've seen, we've -- in our results, both on our satisfaction scores in the [ heatest ] area, especially, we've just -- continues to just reaffirm our confidence.

And then switching gears a little bit. You mentioned on the second quarter call that Medicaid was running, I think, a bit favorable to your expectations is one of the things that allowed us to deliver it despite the higher MA utilization. I guess when you say Medicaid is running favorable, I guess, kind of what does that mean? Is it the membership side? Is it the acuity side of things maybe is not transition in? I know you guys have new contracts are implementing as well. I'd love to just get a quick update on how your Medicaid business has performed and continues to perform.

Yes. On that, the -- we're running ahead on the redeterminations in a slight way, but we continue to believe that our retention will be about 20% and as it all shakes out. And then so our performance is a little bit favorable as a result of their redetermination. But probably the larger part is the utilization. It has seen a better utilization in the Medicaid area, and that has persisted for the last few quarters. What we know at some point in time, there will be a pricing that will then be reflected and adjusted for that, which normally happens both when it's positive or negative, but we feel that we'll be in the normal cycles that goes through in the repricing side of that -- of Medicaid.

Okay. And the company has done tremendously well on Medicaid RFPs over the past few years. And I think that's probably been a pleasant surprise that everyone you've had as much success as an nonincumbents you've had. What do you think has allowed the company to win these RFPs? What's the feedback you're getting from states and why they're choosing you?

There's a few things that relates to it. First, I think just as I've mentioned the customer side, the brand stands out as really taking care of vulnerable populations, and that has always been sort of where we've lead with, but a part -- the specific components of it. I think my microphone is going in and out here, so I'll speak down like this, I don't have another. But I think the components that are probably most important would be the area of social determinants about. We've really sort of led the industry in that. Our value-based relationships are another area, where it's been stand out. And then I would say the third is been our clinical programs and our relationships with the state agencies. That sort of stood out and when they reference us in our existing relationships that we have. We just had a great support from our referencing. And so I do believe it's a combination of those, but it really stands, where we have been able to compete on the Humana Medicare Advantage side.

And then to ask about CenterWell and the primary care business, obviously, there's going to be a bit of a transition on that side of the business as you move into the risk model. I guess from Humana's perspective, I guess, how are you expecting the risk model transition to work? I know you've expressed confidence that over a multiyear horizon, I believe you think you can offset the changes that are coming. But I guess, how does this work from your process? What are the key levers that you're going to need to focus on to be able to drive towards managing through that over time.

Yes. As we've mentioned in the past, we've just taken an estimate from a report that this industry there -- the industry analysis of how providers will be impacting between 10% to 20% has been sort of the estimate. We -- and that's of revenue. We have probably in the lower part of that estimate there. When we've looked at it and our teams are working hard to mitigate all of it over the 3-year implementation. About 1/3 of it is going to be result of the planned design changes. So the payer side will pick up about 1/3 of that through the benefit changes. The other 2/3 will be a combination of cost structure, just leveraging the cost structure and gaining more productivity out of that clinical changes in the way the processes work there, gaining some more efficiencies in the physician area and in the nursing staff. And then the third area will be around risk adjustment and being able to really understand what is the proper way to document and then with the new rules being there considering all the changes and both the ones that are being modified, but also being dropped off. But we've -- just I'm sorry to -- but we feel very confident that we can mitigate all the changes.

And just to include with, we've said it will take time. So right, we aren't just seeing a headwind in 2024 within our primary care business, not material overall to Humana. But we do think with the mitigation strategy that they've created within the 3 years over which the full impact will be implemented by the end of that, that they will be able to fully mitigate that if they can execute against the plan that they design. But we are anticipating a headwind in 2024 and then further in '25 until the full mitigation can be realized.

Okay. So it's not like it's 1/3 phased in and you have 1/3 offsets in the first year and then 1/3...

It will just take some time for some of those changes that Bruce mentioned before, you maybe to realized.

And then as you think about the build-out of that business longer term and the company's plan to eventually buy back from Welsh Carson and then consolidate on to the balance sheet. Is any of the pace of expansion or the timeline towards those transactions? Is that in any way impacted by this risk model transition?

Yes. So we designed that structure, where the intent has always been to bring those assets back on balance sheet at the time they reach breakeven profitability. So that is something we will watch. If we find that -- especially that first cohort because of the risk adjustment model phase-in, we may decide to push that back a year before we bring it back on balance sheet. Now again, within the mitigation plan that we've talked about, growth of patient panels is one of the most significant levers we have. And so a lot of focus on can we further accelerate growth within those panels. We're successful in doing that, and it's possible that we could stay on the original timeline. But if need be, then we do have the flexibility where we can push that out and would not have any material impact to Humana overall, and something we'll continue to watch and have talked with Welsh, Carson about that as we watch and see how the mitigation plan is executing.

Okay. And then just thinking about the other areas of the CenterWell and the home health side, there's obviously a lot going on. Yes, the fee-for-service business, I think you mentioned there's like a little bit of pressure on certain aspects. So like recertifications, for example, you also have a big initiative where you're rolling out value-based care as well and some EBITDA contribution targets that you have set out. I'd love to just hear an update on how home health is going post the acquisition and kind of where you guys are in that part of your strategy.

Sure. So I would say, as you pointed out, there are some challenges within the fee-for-service business, both on the reimbursement side, where the company is seeing strong new admission growth. But across the industry, I think the home health agencies on the fee-for-service side are seeing some pressure then on the recertifications, where health plans are implementing utilization management and other strategies that are then offsetting some of that new admission growth. We obviously saw the preliminary rate notice that was negative, and I would say, more negative than we would have anticipated. We'll have to see ultimately if there's any adjustments made in the final rate notice. But we are anticipating that we will see a negative ultimate rate impact for 2024. I would say all of that just reinforces for us the belief we've always had that we need to migrate from a fee-for-service model to more of a value-based model broadly within home health. We certainly have the work that we continue to support on a full value-based model to support the Humana membership under a capitated model. We have a little over 800,000 members being supported by that model today with the intent to get to 40% within a couple of years. We've also continued to expand sort of discrete capabilities like managing DME more broadly and have nearly almost all of our individual MA members covered by that model today on the DME side. So we'll continue to take progress there, while the team also looks at ways to introduce value-based payment models and principles even in the fee-for-service world, whether that's through case rate, payment models versus a pay-per-visit model, which then re -- sort of enforces and aligns the incentives on really focusing on overall total cost of care and health outcomes even in a fee-for-service space, while we continue to migrate the membership under a more traditional full value-based model. Underlying all of that is the need to really improve the clinical model relative to what we see in the fee-for-service world today. So a lot of work continues to be done there. It's still, I'd say, early innings, a lot still to be learned about exactly what interventions are needed, what we need to bring to bear and what capabilities we need, but that continues to be an emphasis within Humana, so we can accelerate the value creation within the home health space.

And then within pharmacy, there's obviously a very dynamic period. There's a ton going on between like the IRA, Alzheimer's drugs, GLP-1s, biosimilars. I guess what is the company the most focused on in terms of managing through, I guess, like what are the biggest opportunities for the company from like a growth perspective maybe within CenterWell? And I guess, what are you watching the most closely when it comes to the trend or medical costs on the health plan side of the business?

Yes. There's really 2 sides to that. One is on just the pharma side of both the science and the changing and status of the drugs and then the second is really end up in a mechanism that CMS was set up. And those 2 dynamics are really coming to a head over the next few years and is creating the complexity you're talking about. On the payment side, we continue to see a very high orientation in lowering the cost of drugs. You see that in the negotiation, direct negotiation concept of that. You see that in the area of moving more rebates or the DIR to the area or taking it away to the maximum amount of pocket being introduced and then at 8,000 moving down to 2,000 in 2025. So you just see this orientation, how do you bring the drug cost down that's really in payment structure. What we did see this year is the -- and the subsidy really is increasing, keeping premiums at a rate that is not going to reflect all the changes. So the consumer is actually seeing some stabilization there. I think that what our estimate is that like subsidization has gone from approx [ $50 ] a PMPM to close to $30 PMPM, we anticipate getting up to $100 next year as a result of the maximum amount of pocket expense changes. So you see that changing there. And -- but the customer isn't really feeling that change as much as they would. And they're seeing the benefit of the drug discount at the counter. The second part is in the area of both the science and you've mentioned a few of those. And we do see the introduction of biosimilars continuing to be an opportunity for the industry overall to lower costs with the early part of the introduction of HUMIRA and the biosimilar introduction really hasn't changed the market that much just because of both the cost side of it hasn't really been reflected as much in it. And then secondarily, we also see providers in patients not wanting to upset the [ apricot ] in their therapy. So we do see a more stable market, but we do anticipate in 2024 that will continue to be an opportunity to lower the cost of the drug down, ultimately being reflected in the premiums for the customer and bringing that down. Alzheimer's, we continue to see very little pickup there. We've gotten a few approvals that have gone through, but we don't see a lot of pickup, but that's a disease that I think over time, we're going to see eventually the science take on, and we're going to have to incorporate that in the cost of drugs and ultimately the premiums, whether it's Part D or a Medicare Advantage area. So a lot changing. A lot of dollars moving around, I would say, from a premium point of view, were some of this will be reflected in the premium, but the stabilization of the subsidy that is being provided is keeping some of that premium at a rate that's very manageable from a consumer point of view.

And then just thinking about the regulatory or the legislative backdrop. I would love to get a sense of what you're focused on there, like when you're having conversations in D.C., what are you advocating for and as we think about the rate cycle for the next couple of years, in terms of known items, obviously, we have to phase in of the risk model over the next couple of cycles. Do you feel like that creates like a little bit more stability, where that's obviously a disruptive change, but it's unlikely that there would be incremental changes layered on top of that. I guess, how is the company thinking about that?

Yes, I would say there's really a few areas, where we are oriented to that we believe will be reflected in the regulatory side. Most of those are [indiscernible] processes. We do believe pre-authorization will continue to be a focus and taking friction out of the system, so to speak. And we believe that's the right thing to do. We just think, how it is implemented in the rules and all the changes that are there. Is it manageable and both from a point of view of the provider and the payer side. So that's an area, where we know that there's going to be continued active conversation with. We do believe marketing and just broker payments and the -- and just the sales side, we'll continue to have increased regulation around it and continue orientation to how to make it both more efficient, but in addition, make it much more less confusing for the customer. And so we do see that as being an area of orientation. On the rate side, we've seen over the years plus or minus all the way from a plus [ 2 to ] plus -- minus 2. And I think we will continue to stay in that range. Obviously, that's not pro forma for any of the risk adjustment side of it. But I think that's the range we're going to see in that. It is manageable. And as we've said many times before, we've seen different administrations pick either side of that equation. But you do feel it's manageable.

And I guess the last question, just a quick update on [ Rad ] at the beginning of the year. It was all everyone was focused on. I think it kind of got quiet for a while when people saw some of the cost estimates coming out of CBO or coming out of the budgetary process around that. Obviously, you guys are in the news a little bit last week there. Let's get an update on how you guys are thinking about [ Rad ] there as you've been able to spend more time on the issue?

Yes. We can -- we -- let's just maybe talk about our filing last week and just some perspective on that. We've been fairly vocal as the industry. It's not having a fee for service adjuster is a negative, that's not how the program was established. We wanted to understand the audit process, not having the fee-for-service suggestion, we wanted to understand the audit process. And we have always been somewhat confused why the industry didn't have a chance to comment on the ultimate notice that was given because that's usually a traditional way to approach it. And as we've gone through since the announcement in the winter, and studied it and really have had little engagement and a little understanding of -- from the agency on how the audit process would work and some of those details, we just came to the conclusion that it's just there's a lot of unanswered questions, and we felt that it would be best to utilize legal means to get those questions answered because we didn't feel we were getting the questions answered in a way that was timely and really the audits will start soon, and we will have some retroactive risk there as they start moving into the 2018 audits.

All right. Well, thank you so much for your time. I really appreciate all the insights.

Well, very timely. You finished right on time. Thank you.

Thank you.