of our industry. Okay, we are live. Cool. So, hi, everybody. Lance Wilkes, healthcare services analyst for Bernstein. Thanks so much for either staying in here or for coming on in for Elevance. And, you know, just one comment I'll make before we do introductions, you know, as we kinda entered the year, Elevance is our top pick for 2024. And our posturing, I always talk with the clients on Tuesday, best ideas and different things like that. Like, our view is that the Elevance story, and the story I think you'll probably walk through, is the story that I would kinda characterize as if I had one stock that I was putting in a drawer for five and 10 years, this would be the opportunity.
And something we've been very intrigued with what I inappropriately call the Optum for the Blues strategy, but you'll-
Very different
... characterize it more appropriately. So with this, thanks so much for attending. Gail, if you wanna just give a quick introduction to yourself and the company.
Sure. Well, first, thanks, Lance. It's great to be here. I'm joined by Steve Tanal, who heads Investor Relations and our FP&A function, our planning function inside of Elevance Health. It might be helpful just to spend a few minutes to set some context for how we're thinking about the business. You know, I guess I'd like to start with, first, we're very pleased with the performance of each of our businesses. Coming out of the first quarter, hopefully, and you saw through our results, a very disciplined execution of our strategic initiatives. That first quarter gave us a lot of confidence, even though we're in a quite dynamic industry. We've seen a lot about that, talked a lot about the dynamism within the industry.
You know, that gave us confidence to be able to raise our full year guidance to greater than $37.20, which equates to a little bit more than a 12% growth rate. But with that, I'd like to spend a little bit of time talking about sort of 2024 and our view of that. And again, starting at the high level, we have been intensely focused on executing against our strategic initiatives, and that comes down to three things that we try to frame all of our conversations on, and this gets back to the flywheel for growth. You heard Lance talk about what we're trying to create inside of our Carelon businesses, and that very much is synergistic.
We have a very diversified portfolio, and that synergee, we think, is really the power, and I'll talk a little about the earnings power that creates for us, as we continue to build Carelon and continue to operate within the health benefits business. But again, going back to sort of the three core things, it is accelerating services and capabilities, very focused on the Carelon opportunities, and I'll share some of that and where we are. Second, investing in high growth opportunities, and then the third is optimizing our health benefits business. So as you think about that, and again, getting back to the Flywheel for Growth that we've often talked about, let me talk about Carelon high level first.
Carelon Services, one of the big priorities we had was to accelerate external growth, and we're really pleased with the acceleration we're seeing to date, as well as what you'll see in the back half of the year and into 25, on top line revenue. And that both about the capabilities that we're bringing to market, some of the risk opportunities that we're seeing around oncology, mental illness, that we put into the market, and we think there's big scaling opportunities and external interest in those opportunities. On the CarelonRx side, we see the opportunity to scale the assets that we've recently acquired fairly quickly, and we've begun that process.
So again, we've talked about BioPlus, which is our specialty pharmacy offering, beginning to scale those inside of Carelon and then or inside of Elevance overall, and also looking with external partners to do that as well. And then Paragon, a recent acquisition where we see opportunities in the infusion space, again, to bring down our own cost structure inside of Elevance, but also to scale with partners. And we're excited about the recently announced Kroger Specialty Pharmacy acquisition that we hope to close this year. So those give us opportunities, again, around accelerating growth inside of Carelon, which again, helps to fuel our flywheel. Turning to the health benefits business really quickly, we saw very solid performance in the first quarter, and again, as I said in the beginning, very pleased with the overall performance.
Commercial, we continue to execute on the turnaround of the margin from the post-pandemic lows and have seen great traction of that over the last few years. And we're seeing nice growth in that business, as you saw through the first quarter, and that growth also coming from the individual ACA market, where we've had a very definitive strategy about being balanced and extending, and now we're in all of our counties and actually some market share growth inside of our Blue counties. So I think a very strong and positive story there. On the Medicare side, as an industry, you all know, we're all facing headwinds going into 2025 due to the funding mechanisms. We made some very deliberate moves in 2024 to reposition our business and feel very good about that repositioning.
As we get into talking about Medicare, you're gonna hear us talk about really balanced growth and earnings, balanced margin and growth in that space, and feel the moves we made in 2024, important positioning for us around where we wanna be in that business. Then on Medicaid, we also feel very good that we're executing on the guidance that we've been coming in with that. We talked about that quite in the first quarter call, and if I go back to that first quarter call, the other things we said are we are watching acuity very closely, and we're very encouraged by the constructive conversations that we're having with our states about rates and the overall business. So overall, I would say it's aligned with the guidance that we gave and again, feel good.
So in total, our health benefits business, we feel is operating in a solid place, and we feel good about that business. We also feel good about the overall medical benefit ratio that we gave at the beginning of the year and feel confident in that. So I think that sort of gives you a bit of perspective about the core of our businesses. And then I just wanna spend a minute on the announced relationship in JV with CD&R, around building an advanced primary care and enablement business. That is very much aligned with the strategy that we have had over the last several years, to build value-based care at a hyper-local level and to partner with care providers. And this was sort of the next logical step in our mind about accelerating that.
There are a couple things that I think make this unique, specifically for Elevance Health. One, very much partnership-oriented with care providers, hyper-local at the market level and across all lines of business, so Medicare, commercial, and Medicaid. Many of what you see in the market today is designed for a very specific business segment. We actually think it should be the other way, that we need to drive Value-Based Care across all patients that care providers see, and across all business segments. So this has been uniquely curated to do that. It will be payer agnostic. And we feel that we're bringing together really strong leaders, as well as very strong assets into this JV, that we can begin to scale, and it starts with scale. Once closed, it'll have 1 million members to start.
And again, the depth of our market presence in each of these three markets, we believe is very unique. So we're excited about that. We think it's a great partnership. We've worked with some of these assets already and have a really good insight into them. So we think that bringing this together is going to be a strong opportunity for us to accelerate value-based care. And at the same time, within our strategy in Carelon, we're building specialty enablement. So I've already shared a little bit, and we've talked about oncology, MSK, work we're doing around DME, and then, behavioral health, where we have an asset already and are becoming a leader in that space. And I guess I'd just like to close my remarks, punctuating a couple things that I think are really important as you think about Elevance.
One, we are very confident in the adjusted EPS guidance that we shared with you, and very confident in the medical cost ratio as well, as we think about the way we positioned our business. Feel very good about that. And as we look to the long term, the earnings power, the embedded flywheel that we are creating and the earnings power embedded in Carelon, as well as our benefits business, gives us a lot of confidence about our ability to continue to generate our goal of at least 12% of adjusted EPS on the long term. So again, two core things and two things that I just wanted to share with this group, 'cause again, we feel quite positive about the performance of our business and the progress we're making on our strategic initiatives, Lance.
Yeah. I think that's great, great framing for all of us. So, let's talk a little bit about the Carelon strategy and the Carelon execution. And interested... You know, to me, aspects of that strategy appear very executable because you're really acquiring sorts of businesses, that then you're gonna deploy to your fully insured, your self-insured, other payers out there. Can you talk a little bit about how that process of scaling the acquisitions is going? You know, and maybe the duration that investors should be thinking about from when you're kind of announcing, then close a deal, to when you'd start to feel the impacts flowing through kind of Carelon Services earnings or CarelonRx earnings.
Yeah. No, thanks, Lance. I think it's a great question, and it's something, quite frankly, that we're intensely focused on.
Yes.
And I would break it into two. I mean, you know, as you know, last year at our investor conference, we gave guidance around Carelon in total. And we sort of we see the Rx business growing at sort of low double digits on the top line, and we see the services business growing in the high teens to twenties. So just, that gives you a little bit of framing around the growth, that we see inside of Carelon. I'd like to break it into two areas. Let's start with the pharmacy assets. You know, we've been working on the pharmacy assets for a number of years, and there's, we think, significant potential both on taking the assets we have, scaling them across our very deep benefits business, and then, adding new capabilities.
So again, I'll go back to we identified specialty pharmacy as a huge and growing area. We identified infusion as another area. And the way we focus on this is things that we can take across our benefits business that are vended out today, or we use a third party, that we feel can help us change the cost curve inside of our benefits business, so make us more competitive there. But also have a very... You know, we look at the growth trajectory of, you know, these markets, and we felt that those areas were fast-growing, needed management and integration, and it's not just about pharmacy, for example.
So yes, we can scale in your question when we buy them. It kind of depends where they are, but, you know, we generally think, you know, we can start seeing some immediate benefit, but over the course of 12-18 months, you start to, you know, get that rollout of your contracts, etc. But I think it's not just about the asset itself, and I'll use an example in specialty pharmacy. You know, it's also oncology; it's about wrapping Carelon full-risk services. So the drugs are one component of that full-risk arrangement that we're selling in the marketplace and offering to our own business. So they go hand in hand. We're building programs and capabilities around those areas of specialty, in addition to just what we're doing on scaling, obviously, the pharmacy.
On the services side, I think it's an incredible opportunity because what we've been doing. Historically, our business, and we had many of these assets, and we've acquired more of these assets, sort of post-acute care, and have kind of built our business around the health, the insights part of it. So how do we, you know, generate more things around payment integrity and insights and data and analytics? And then, we've had about a behavioral health asset. So what we've done with those assets has been looking at them, are focused around whole health. How do we connect the dots? And then how do we bring the pieces together between pharmacy and services, and first offer them inside of Elevance Health, inside of our own businesses, because, again, we've got the depth to do that.
Our goal is to generally take out a vendor that we've used in the past, bring it in-house, put it at risk, and then create capacity. Those proof points are what sell in the marketplace. We know other payers, other Blue partners, embed it with our joint ventures that we have with some of the Blues. Again, I think those Carelon Services growth, and we're seeing about a 2x pipeline going into next year from this year. Nice growth this year. We had some really nice external sales. Post-acute, behavioral health, those are areas that are really important right now. Prove it inside, take it outside, and I think some of that's just the timing of the sales pipeline as sort of maturity.
But, you know, again, going back to, you know, we see Carelon Services growing at the, you know, high teens to low twenties, and with the current capabilities, and then as we round those out and build more programs around them, I think there's some big integration around whole health, too.
And to kind of frame where we're at and how the progress is going in sort of the cross sales, you know, the way you've described this historically has been that insourcing for your fully insured book-
Mm-hmm.
-you know, then selling into the kind of self-insured employer market and also to the external. You know, could you give any areas where you're seeing progress in that cross sales and the type of category, whether it's, you know, home health or post-acute or-
Sure.
behavioral or RX?
Yeah, so I'll break it down a little because I think cross sales,
Yeah
... it's a pretty broad term, and I think we've actually expanded our own internal definition of cross sell. So I'll talk about first, the traditional cross sell, which is, a number of years ago, we said: Look, we want to increase the profitability of our, self-insured, self-administered book. So to bring more of what I'll call the traditional services, you know, dental, pharmacy, and we're still working on that. We set a goal last year because we're growing our self-insured book very nicely, and we're actually consolidating from other carriers. I think we're very unique in that over the last several years, we're one of the only carriers who have gone from multi-source and national accounts to sole source, and I think that's a real strength of our combined capabilities.
Within that, our goal has been to basically increase the profitability on a per member basis by 50% by 2027, which is the goal that we shared at our investor conference. We're making really good progress. You can see it as we grow. We're growing our self-insured, and we're putting more services through that. Some of those are traditional services, like, you know, dental, adding more pharmacy. We've done really nicely on middle market pharmacy sales and have increased that pretty dramatically. Now, with our expanded capabilities around dispensing, specialty infusion, we're moving much more upstream and have had some very productive conversations. I think there, you'll start to see that later in the cycle, because those are 2-3-year kind of sales processes.
But again, we're in the mix on all of those and beginning, you know, now for the next few years in those conversations, so feel, feel very good. The other opportunity we have, which is a little broader, which is the capabilities that Carelon has. So, taking oncology risk, taking MSK risk, DME, at risk, for example, behavioral health on the severe mental illness area, in Medicaid, with states, we've launched a number of full risk programs, first inside Elevance Health and also now selling externally, and we've had nice pickup there. And that, that actually speaks to the growth you're seeing inside of Carelon Services.
So that, I think, is the new sort of cross-sell lane, how we are taking even things around specialty, packaging that, taking risk, and even selling it potentially into the self-administered market, on the commercial side. That's a little longer tail, but what we see is with other payers, other Blues, with our joint ventures, those are getting a lot of traction in Carelon Services world.
One of the things you guys have really been, I think, consistent and systematic about, has been the pace of acquisitions as you've built up, you know, these broad Carelon sorts of assets. So one of the questions, you know, it's a broader question. I'm gonna get into the value-based care initiative and PBM stuff in a moment, but at a higher level, do you see a changing and some sort of acceleration in the pace, the number of acquisitions, the size of acquisitions, even the fact that you're both gonna be doing things to build out this kind of new co value-based care? And, you know, you probably still have white space that you're gonna try to address, either in things in the PBM or things in the other parts of Carelon service.
Yeah. So I mean, just a little bit about our earnings algorithm. I think, you know, we've said our earnings algorithm is 2/3 organic growth, 1/3 capital deployment. Within that algorithm, you know, about 50% of the capital deployment goes to investment in the business and M&A, and the other, 30% to share repurchase, 20% to dividends. And if you think about that, we've been pretty consistent over time. Year to year, it might move a little bit, but we've been pretty consistent. But getting back to the pace of acquisitions, it's first the framing, right? About what are the market opportunities. So where do we think the big market growth opportunities are? And because we have such a deep health benefits business, where are the, where are the needs? Where are the things that will bend the cost curve?...
So we're not buying just to buy. We really have, you know, part of our strategic framework, again, going back to capabilities and services that fundamentally support changing the cost curve, improving the experience, being able to control more of the spend and bend costs is priority or improve quality. And having more control, I think, over the leverage you need in the health benefits business, there is a primary focus for Carelon. And we know those are big market opportunities. We've mapped out the space that, you know, and the growth vectors within healthcare services. And so that's, that's where we're focused. What you've seen us purchase are things that fit very much into our strategic alignment and things we know we can scale, things that we believe will provide better competitiveness for our health benefits business.
So again, pharmacy, we've all known that specialty is a huge area. We wanted to get into the dispensing space, have more control over our future. You know, our acquisition allowed us to have a significant presence in the limited distribution drugs, and then we also knew we could scale it fairly rapidly. So doing that infusion, another area that, as we looked at our cross spend again and sort of projected out areas, another area that we could then bring it together, and it would be synergistic. On the healthcare service side, now the, think about what I just said on the pharmacy side, specialty is a fast-growing area.
Same thing, you know, specialty drugs alone and controlling that is one piece of the equation, but honestly, it doesn't work without a program wrapped around it, and that, I think, works for everything we need. So what we're building our programs around oncology, and it's not just the drug, it's obviously value-based care enablement with specialty and how then we wrap around all the services and predict the risk. We start, severely mentally ill is another one. In our Medicaid business, it's a huge issue. Small percentage of the population, very hard to access.
We've put together, because of our deep expertise in Medicaid and working with severe and complex populations, and honestly, where, you know, Carelon Behavioral Health had its strength, how do we now take looking across health businesses, the population that needs medication, community input, knowledge about access, and also, you know, how does the drug come into that? 'Cause there's, you know, a serious use of psychotropic drugs and things like that in that space, so, and addiction, where we're a leader in addiction. So those are examples, I guess, of how we're bringing together capabilities. And getting back to your acquisition question, so we look at those things that will help accelerate the kind of capabilities that we've laid out on our five-and-ten-year game plan. And again, go back to the things, what are the first capabilities? How do you accelerate value-based care?
So, Value-Based Care, we made a commitment, 80% of our spend would be in Value-Based Care by 2027, 40% upside downside risk, where you really get, you know, the alignment. So I'll go back to the goal, maybe we feel that that is, we've well capitalized that, and the goal will be around opportunistic M&A and also, scaling those assets across our business. To give you a sense of kinda how we think about this, because I don't think it's, we say we want five acquisitions or four. We wanna really find the right fit, and we wanna be programmatic about it, I think is the other thing you should think about.
And, and, um-
Well, let's maybe, Steve, since,
Yeah.
If you want to add any comments about the acquisition strategy or?
Well, no, I think, I think you nailed it, Gail. I think what, what, what's really exciting to me, you know, just as much as a shareholder, as everybody in the room, is, is, is thinking about how we expand what we buy, right? So Gail talked about assets that are readily scalable. There's some really good examples of that. Obviously, the recent ones are in Rx, but you can think about myNEXUS as well. And I'll use the myNEXUS example because I think that's really the epitome of what Gail just described, where it was a vendor that we were using for a portion of our Medicare Advantage members to manage home health, capitated basis. What we saw there was they were doing a good job, better outcomes, better experiences.
So, you know, our MA business inside of the health benefits side endeavored to do more business with them, which is interesting. So you have that built-in scalable opportunity, and then when you looked at the assets and the clinicians that they had, it was apparent that there were service line expansions as well. It was sort of a question of, well, why wouldn't you do post-acute with the assets you've assembled? You can enter new markets as well and cover more of our MA base. And so I think that's those are some of the key things that we think about when we go into these. And in that case, you know, we took it from 800,000 MA lives to 1.2 in months, and now it's across all of our business, basically, ex-Puerto Rico.
So have since expanded that to post-acute management, and now it's wrapping in DME. All right, so service line expansion, scaling, and then selling external as you have the proof points. So I think Gail put that example out there as a-
That's great. So turning to the value-based care announcement, and I think you just framed that nicely. Can you talk a little bit about kind of your long-term vision for this, the size and scope and integration of that business? Both kind of when it'll be coming in, how pervasive it will be across you, and then how you might, you know, partner with other blues.
Yeah, no, thanks, Lance. I think it all starts with our, like, historic strategy of partnering with care providers in a hyper-local way in our communities, just because of who we are and the way we do business and the density of our footprint, and a deep commitment to value-based care. Now, again, 80%, we need to go to downside risk. And so there's a number of elements of the strategy, and what I would say about this partnership, it is one element in a multi-pronged strategy. It's an important element because we wanted to continue to have access to advanced primary care. We wanted to work with local care providers to enable them....
And one of the poles of the tent and getting to risk and upside down side risk, is getting care providers in the right structure, with the right tools, and ready to take risk. And we know that there's a lot of education, and a lot of work, and a lot of data that's required. And so we have been working in a number of these partnerships over the last few years to start to build the foundation in our local markets to do this. So this was a natural extension of, of that strategy. So again, we think what's important to us is that it goes across all three business lines, Medicare, commercial, and Medicaid, and be built for those.
So we will take the assets, which we think are very well-performing, good assets, continue to scale and build them, but be able then to expand them in an organic way across our book of business and with other payers to go see patients, regardless of that payment type. That really is not done. Most of the assets out there are very specific to a single opportunity, for example, in one business line, have been very custom-built for that. So we are looking at this more broadly. We like this because we know the skills of the team that we're partnering with. We've worked with them. Then our team, with our data and our membership, I think, also provide, you know, a launch path. We're gonna have 1 million members when we launch.
Again, if you think about the scale of that, it's a very important starting point. So that's one part of it, Lance. Then, you know, what we expect to continue to expand that organically. We do think it'll be very attractive to other payers as part of the space. We're seeing nice traction in the employer market already with one of the assets, where employers are very interested in getting a couple things. They want guaranteed access to primary care. And I think that's very important. They want integrated digital tools, which are built around this asset. They want the same experience we often talk about in Medicare Advantage, where we've curated these provider groups that you haven't really seen in the commercial marketplace.
I think that's what makes this unique, and there's a lot of interest from employers about becoming part of this. So, I mean, I'm very optimistic about, I think, the potential there. But that's one leg of the stool. The other leg is what we're doing inside of Carelon, again, around value-based care. We'll continue on that journey, in addition to just what we're doing here with this group. And we're also building specialty enablement, 'cause I think that's really an important part of spend, and I've touched on a couple of those: oncology, around DME, around MSK, through assets we have around behavioral health integration. And again, how do we tie this all together for whole health?
Because doing this all in silos isn't all that effective, but doing this and being able to support that, we're willing to put these programs together and go at risk, I think, is a differentiator in the market. So ultimately, we will own the assets around that in the part of the joint venture, but feel this is the right way for us to scale it and really bring it to market and work collaboratively. And again, we've been at this, it's not new. We've been at it for a number of years. Had this question a lot about what are we doing in the space and how are we gonna approach it.
We felt for us, given our footprint and our expertise, our depth, that this was the right answer, and our goal of being hyperlocal again, but also a partner to care providers, was really important, and being more focused on the enablement side as well. Yes, we've owned care providers, but it hasn't been the dominant strategy for us. We feel that this kind of is a great blend and will advance our high-performance network strategy as well as our value-based care.
Yeah, so really comprehensive description of it. One question I'd have, in talking with investors, I've kind of posited that the shift we'll remember from health insurance to HMOs and ultimately becoming managed care, and that transition, and if you remember the diversity of HMOs that existed back then, both geographically, types, and things like that, kinda suggests that value-based care might be that next big change in the system. Managed care companies all see it. Like, you lived through this, so you know, you're not gonna get disrupted like Met and Prudential did.
But as you look at this, do you perceive in the comment on Carelon still focused on value-based care, do you perceive that this is one thing that you'll ultimately have inside, and you will make other initiatives, and ultimately you'll own all these things and combine them? Or is this gonna be the vehicle by which you do kind of primary value-based care, and then you'll be doing, like, specialty value-based care, subcap sorts of arrangements in Carelon?
Yeah, you know, I think, I think it's a little bit of both. I mean, I don't think there is. If you just had a really great analogy, which is the world of HMOs, the world of value-based care. There's a lot of flavors in this. I think they're enablers and tools of a better performing healthcare system, and that's what we're all trying to achieve here, which is not subsegment healthcare, but bring it back together. Because patients don't experience healthcare in segments. But we also know that when individuals have very specific needs, they need focused, integrated, synchronized care, which doesn't always occur in our fee-for-service system. So our goal ultimately starts with: How do we deliver true whole person care? And that is, as I've said many times, not just the only medical side, but also the social drivers.
And we see a lot of that, particularly in our government-based business, around, you know, food as medicine, transportation needs. And so it's bigger, it's bigger than, like, trying to parse it. The way we've tried to orient ourselves is always thinking about connecting the dots, and I do think that that's where our data and our integration in building this across different businesses is important because you might be in Medicaid today, in an individual exchange tomorrow, in Medicare the third day. And a care provider doesn't necessarily see you across what coverage you have. They see you as their patient and whatever conditions you have. So I think that's the first kind of paradigm we need to break, all of us. And then second, we're trying to organize ourselves around, let's first start with advanced primary care and get people access, connect that.
But we also know there's very unique needs that advanced primary care isn't that well adapted to serve, that need very specific programs, navigation, and support, and that's where the specialty integration comes. So while I'm not answering specifically, because I don't think it's that linear, I think it is-- all gets back to how do we connect the dots? How do we use information between these care providers to integrate care, not duplicate it, and allow the patient to have more say in their care truthfully, so that they have data at their hands? And I think that's the true commerc-- you know, consumerization, where people can navigate their care and can come in between. You know, so if you're a patient who has cancer, yes, you have intense support around that, but you also have other conditions.
We know behavioral health very much affects individuals diagnosed with cancer. Oftentimes, when we build these programs in the industry, we don't bring in the behavioral health component. We're looking to how do we integrate this across our own businesses? And I think that's where Carelon plays a really unique and distinctive role in integrating that, and we can see that because of our benefits businesses and, you know, what we see from the data there. So that actually fuels our innovation, and fuels where I think we're gonna take this. And, again, I think value-based care is absolutely the way to go, and we're at, you know, early innings still. We've talked about it for a while, but there's an opportunity to really prove it drives differentiated outcomes, and we begin to see that in great coordinated care.
Let me shift over to Carelon Rx and your broader PBM and pharmacy strategies. You've obviously in-sourced a number of traditional capabilities, but kind of like your journey has been kind of changing vendors, building a whole front end of a PBM, now starting to add in more and more sorts of capabilities. You've got your CVS contract that'll be, you know, running up at some point. What's your strategy for what you need to own, what you want to be owning, and maybe a timeframe for that as you think of that space?
Yeah, no, I think you actually framed really well. We're interested in owning the value levers. So a number of years ago, we began to build Carelon Rx, and what you've seen us do systematically and purposefully, add capabilities that help us support, again, the integration of whole health and where we think we can best support our businesses. And so, you know, specialty care, huge opportunity, opportunity in dispensing, infusion, those are the areas that, you know, we've got a big runway to scale them, inside of our own business. So from that, we're very interested, again, in owning the value levers and those, again, that can be integrated to our whole health strategy.
And so I think we've been very consistent and programmatic about doing that, and we'll continue to do that because we feel like that's gonna be the most important part of, you know, how we really deliver on our, you know, our purpose, which is much bigger than being an insurer or even a service deliverer. It's to improve the health of humanity. And you do that by integrating care and taking your assets and looking at them in a unique way. And so there's a lot of steps along the journey, but we feel really good about the progress, and the scaling capability, and we'll continue to look at other things that fill the gaps for us, in pharmacy and in services.
Maybe if I could just add on to that one financially.
Yeah.
You know, there are a couple words to describe the approach, and I'd say be thoughtful, disciplined, capital efficient-
Yeah
... you know, comes to mind through all of this, you know, and the CD&R, you know, partnership is a good example. And Gail mentioned how that's really just one piece. If you think about Carelon today, there's CarelonRx, there's Carelon Services. Services, we think about in three pillars: Carelon Insights, behavioral health, care delivery, and enablement, and then there's the Rx piece. And so, you know, the CD&R partnership is a good example of just one of those three pillars and services being built off balance sheet with scale to start. That will be, you know, a large scale platform when we ultimately acquire it back in. You know, we will own it in roughly five years from that first close.
We'll probably start consolidating it in about three years, but that will become, you know, the core of the platform, the care delivery and enablement business at scale. And so, you know, these pieces will work with each other, as Gail described, but not in every case. I think it really depends on sort of the local market dynamics.
Super. That, that's very helpful. In the pharmacy space, one of the other interesting opportunities for you there is, as you, as you've kind of been improving and optimizing your capabilities and the financial impacts to you, you have a very disparate Blue landscape out there.
Mm-hmm.
Right? And so you guys, you know, do some things for some folks, and certainly Blue Cross of Idaho is one you'd announced previously, do things with partners. You've got, you know, individual Blues or contract with individual big three pharmacies. You've got kind of the aggregation of Blues that contract as a lump. How are Blues reacting to the types of capabilities you're buying? What do you see as a potential pipeline either? And should we be thinking about as a sales pipeline, or is that characteristically more like a partnership pipeline, or how do you see that?
Yeah, I think it's a little bit of all of the above. Again, and it's very distinct by the type of Blue. You know, we've embedded some of these capabilities in our JV partnerships. Would be a great example of kind of an obvious way we do this and we're really pleased about that. You know, we just announced a win in Kansas in the Medicaid space, which is with our partner Blue there. So I think those are the kinds of things that come along, and then we're seeing a lot of interest from other groups in the capabilities we've acquired because they don't have them. They vend them out as well, and I think that's part of it.
I wouldn't lose sight of the, you know, for we're working together also with the Blues around the synergy, collaborative.
Sure.
And I think that's a very positive thing for all of us. And how do you sort of change, how do you use the collective scale of the Blues to drive, I think, much better outcomes? And I think that also offers an opportunity for our assets to play in that. So there's, I think, a number of different ways we can do this. And again, inside of Blue, but also we have a lot of runway with our own employer contracts in terms of selling those services into them. So I think it's both. So we see a really nice, robust pipeline for CarelonRx, and the more capabilities we add, quite frankly, the more interest upmarket becomes for our clients who are also looking to integrate. We're seeing a lot more interest in integration of medical and pharmacy.
We've talked about that for a long time. But I think it's starting to play out as you get more capabilities, as you think about wrapping programs around, you know, the, the drugs that are, you know, very high cost in the specialty space, and they don't work alone. They need to be integrated with your care management programs. And I think that's, that's actually changing, sort of how employers are thinking about how they integrate their pharmacy versus standalone.
Gotcha. Let me ask a couple of near-term questions, and then I've got one or two longer ones that hopefully I can fit in, too. On the near term, 2024 utilization, this has been an interesting question to ask this week. You know, what are you observing as far as maybe, you know, and now that you're kind of further past the first quarter, what's going on with, like, core utilization? And then are you seeing any different sorts of trends within kind of books of business or anything like that?
Yeah. So, on the utilization side, I'd say from what we discussed in the first quarter call, very consistent. So there's nothing new to report. And, as you ask about, like, within the specific books of business, this is exactly what we talked about on the first quarter call, so I'll go back to that, which is commercial. I guess the headline is nothing new to see here. You know, feel it's tracking along, you know, our expectations and the guidance we gave. On the Medicare side, we had planned coming into the year, and again, we've talked about this already, to see some higher utilization, particularly because of the Two-Midnight Rule and some outpatient. We talked about that on the first quarter call. We planned for it and feel it's within, again, our guidance.
Then I've already talked a little bit about Medicaid, again, consistent with our guidance. You know, we again mentioned that there are some states around acuity just because of the natural part of the way redeterminations would work. Again, feel very comfortable around our overall guide on medical ratio, medical benefit ratio for the year. I guess my, you know, my headline here is nothing new to really talk about, pretty consistent-
Yeah
With what we've already said.
Great. And then the other big near-term topic next week, I guess, is MA bid for 2025. And one of the things that's most unique, and in talking with you about this, is from my perspective, I'd say that you were unusually disciplined relative to the industry for 2024. And that would include, like, some exits and some severe curtailment, like, of Puerto Rico. So how does that change how you look at 2025? Because obviously the industry is out there promoting, "We're cutting benefits, we're exiting counties," for some of the most impacted companies. How do you kind of look at the world from where you're at now?
So first of all, thank you for recognizing the discipline. You know, we are our focus around Medicare Advantage is for the long term. So we have talked about this pretty consistently around trying to find long-term balance of growth and margins. And I think that remained our focus. As you mentioned in 2024, we're looking at planning for the long horizon. We know there's the three-year phase-in of the risk model changes, and we also knew we had to make some positioning changes around some of our markets. And that, that in the United States and the continental US drove some, you know, some changes in our footprint around certain codes, etc.
So coming into the year, you know, we, we pretty much came down 175,000 MA members on purpose and still felt we, we grew where we wanted to grow, and feel really good about the positioning of the product. So as we look ahead, we actually feel very good that we positioned in 2024. We're disciplined, and what you will see from us going forward is that continued discipline, because again, we view this as a very good long-term market, and we want to make sure that we have consistency of benefits for our seniors and that we're thinking about stability in this marketplace. And I'm very encouraged that, you know, from the public commentary of others, that we will see some more rationalization around that.
But again, our message has been very consistent, starting with 2024, and you'll continue to see that consistency around balance for us across our portfolio.
Gotcha. And then from sort of a long-term growth outlook for MA, and maybe if you could kind of answer this in two sorts of ways. There's sort of an industry or a stock market question as to, well, how is the change in the rate environment, the penetration now being 50% changed the long-term trajectory for MA growth at a sector level? Then you're again in a unique position where your share in MA, you know, in Blue states is much smaller than your share in commercial. And so, you know, how do you look at how we should be thinking about the Elevance opportunity for growth and contrast it with kind of sector growth?
So, I'll start with the Elevance component of that. Again, sort of reiterating, we think it's a good long-term market. We really do believe that there's good opportunity for those who invest, are balanced, and think about growth and margin in the same breath. And I think that's kind of how we've tried to position our products thoughtfully. We've looked, you know, there's a lot of variability by geography and ZIP code in terms of how the risk model affects that, and by product type. And so we've been very, very disciplined and focused around what that looks like. But again, we do believe this is a really good long-term market. As we think about, like, you know, the areas that are quite interesting, you know, obviously, we've got a good position in the D-SNP products, and so that remains a very important position.
We look at our positioning around HMO versus PPO, historically more of an HMO company, and I think that's important. And then, you said it, we have a lot of opportunity in our Blue states. And again, a lot of what we've just talked about, what we're building on enablement in Carelon, that will help us, I think, in our MA business, in our Blue states, to get even stronger because of those capabilities helping to manage sort of risk adjustment and engagement and all of those things in our MA business. So those are synergistic, and we still see a big opportunity for agents. The overall market, you know, almost 51% of seniors have selected MA. It's a popular product. It delivers, it's got strong results. And so you ask, you know, what is the ultimate?
Now, there have been a number of public reports, Medicare Trustees Report and others that have come out to say, look, over the next few years, it's 57%-60%. I would just say, I think there's a lot of growth opportunity because I think it delivers a much more integrated, value-based program for seniors, versus fee-for-service, where you can see multiple doctors not have integration of your data, and I don't think you see the same-- you definitely don't see the same outcomes that you do in MA. We are all incented to ensure that the patient gets the absolute best care. We close gaps in care. We wanna make sure they stay healthy.
We, you know, we provide additional benefits for seniors who are income-challenged, and I think those kind of things make this program incredibly positive for seniors. And so again, I do think that there's still growth, and we still think that those who are balanced, as we've tried to be for the long haul, are gonna be the ultimate winners in the Medicare Advantage market.
Sure. Other long-term growth opportunities, talking about individual a little bit. You know-
Mm-hmm.
You, you guys were big in individual before the ACA existed. You were big in individual after that. You're still big in it, but you did kind of purposefully shrink your footprint and have maintained it, although now it's starting to grow at a much faster clip. Do you see a continuation of emphasis, and do you see a reattainment of kind of those prior 1.8 million members in individual, maybe not that exact number, but like a step function as you kind of bring people back? Do you think it's a solid program going forward, or is this, you know, still kind of waiting to see what the puzzle looks like?
Yeah, no, so first, we think the individual market is a very good market, individual ACA market, and we've done very well in it. I just, as I opened up in my comments, we've seen nice growth in that market. And you're right, a few years back, you know, we pulled back because of the uncertainty of what the market would look like. It wasn't because of our structure or our earnings. We actually were one of the few that never lost money in that market. We've always been incredibly disciplined. We just didn't know the uncertainty. I think now, like, we have a deep footprint, particularly in our Blue States, and we've gained market share in those states, and now we are covering almost all of our ZIP codes. So we've been...
Again, I think there's a theme around disciplined execution, and growing appropriately versus trying to take giant swaps and being in it for the long haul, 'cause that's our goal. We wanna stay in the market for the long haul. We think it's an incredibly well-performing market for us. And you'll continue to see us grow in the market this year and into next, because we believe it is a good opportunity, and we've got the right set of skills and toolsets to understand the, the network dynamics, the care management, obviously, with Medicaid redeterminations, individuals coming into this market. And we do think we're gonna see more of them come into this market, even longer than originally planned.
It's just taking longer for people to figure out how to access care, despite all of the outreach that we've done, I think, across the entire industry, but specifically with us. So overall, Lance, I think you're gonna continue to see us grow in this market. We like this market. And again, being balanced and disciplined, but it's been a really good market. We've seen accelerated growth, and you should continue to see that.
Great. Well, there's. I'm gonna sneak in one last question. But I think it's really a positive that there are too many good opportunities to talk about. AI, digital would be, you know, the next bet if I had another 10 minutes.
Mm.
But, but maybe just to give people a taste, Sydney, and what you're doing with, like, integration of pharmacy and things like that, it's just one example. What-- Can you talk a little bit about progress you're seeing with Sydney, adoption and progress you're seeing, maybe in moving a little bit of the market there?
Sure. Well, Sydney's always, it's been our front door, for our consumers, and I think we, you know, try to, again, bring the concept of integration and whole health to that platform. But more broadly, I think we're making pretty significant investments in how we use AI. Large language models, and we think about it in kind of three ways. And I do think it will be transformative for our industry, and it, we're already seeing the impact. So we think about it in a couple of ways: How do you affect the consumer experience? How do you impact productivity inside of your own organization? And then sort of, integration of care delivery. And just so you know, we're already doing this and seeing it. So in the simplest way, it's standardization of tools.
And we launched, for our entire enterprise, almost 60,000 of our associates are using sort of our internal tool called Spark, which is kind of like a ChatGPT-type tool with improving productivity, predictive analysis. And again, it's the democratization and getting people comfortable. We're also seeing it around improving business processes, so how we've embedded it into chat in our call centers, how we're taking large documents and simplifying them for our nurses as part of a nurse assist program. Those have been in place, and you're beginning to see the impact of that on productivity across our enterprise. And then the last, which I think is the most exciting, is taking full processes, you know, redesigning the end-to-end components of it and really rethinking how we do a lot of this work.
We've been, we've been very active in this space for some time. We've talked about it, but I believe it's sort of in these three tiers around transformation, and the first two, we're already seeing the impact. We're seeing it with our actuaries and our predictive models. We're seeing it with how we think about stars and predictive analytics. We're using it in, you know, where we project benefits in our bids on our underwriting. So I think there's a lot of important predictive uses, but also more to come. I mean, it's early days, but again, I think on Sydney, that has always been our front door, and we're embedding a lot of those elements to connect the pieces for our consumers.
Well, thanks so much for taking the time with us today. I hope you have a great set of meetings-
Thank you
... as well. Thanks, everybody, for-
Thank you
... for this.
Thanks again.