Great. Well, good morning, everyone. Thanks again for joining us at our conference. My name is Nathan Rich. I cover the managed space here at Goldman Sachs. We're very happy to have Elevance Health here with us today. I'll do a quick round of introductions. We can get into questions. To my left, Felicia Norwood, President of the Government Business. We have Morgan Kendrick, President of the Commercial Business, and Steve Tinnell from Investor Relations. I think, you know, maybe starting at a high level, you know, could you maybe give us your view of how utilization has trended to start this year? You know, one of the themes we heard about yesterday is, you know, continued kind of robust demand for, you know, procedures, I'd just be curious, from your perspective, what you're seeing and any notable differences across the lines of business that you oversee?
Sure. Yeah, thanks for, thanks for the question, Nate. Thanks for the opportunity to be here as well. I'll tackle that from the enterprise lens, and I can give you a little bit of color by business as well. You know, overall, I think we've been pretty consistent in sort of providing updates, especially this quarter, just being in a number of conferences. Trend year to date, I can take that through May, you know, very much in line with expectations, sort of across the board. I would say that comment really does pertain to each line of business as well, Commercial, Medicare, and Medicaid. Nothing very aberrant or very different from what was planned.
You know, when we've talked about some of the puts and takes, you know, you asked a little bit by business, talking by business and by service line, if you will. You know, we've talked about, you know, there's obviously a lot of inputs into trend every year, and some of them are better than others. This year, you know, we're seeing some favorability in categories like inpatient and ER, and I would say that that's across the board, you know, Commercial, Medicare, and Medicaid. The one area of pressure that we have called out that, you know, remains the case is pharmacy and commercial in particular. I'd say you're not really seeing that as much in care and Medicaid, but, you know, we expected an elevated trend in pharmacy.
It's just a little bit higher than we had planned, but again, seeing offsets in more of the inpatient, ER-type categories. Overall, not very different than expected. Maybe on the margin, a little bit better all in, and, as you know, we raised guidance coming out of Q1. Felt really good about the quarter and the start of the year. Yeah, I think we're sitting in a strong spot, and, as it relates to some of the commentary you referenced about, you know, procedure volumes and such, I think the one really important point is there continues to be a fairly significant shift from inpatient to outpatient in terms of the procedures we're seeing, Commercial, Medicare, and Medicaid, frankly. It's, you know, it's a few years in the making, but that remains, you know, one of the dynamics that I think is happening sort of beneath the surface. It's maybe a little less obvious.
You know, I think that, you know, one of the things that has come up kind of related to that is just demand for elective care. I guess, you know, just thinking about, like, the sheer volume of procedures that may have been missed over the past couple of years, you know, how are you thinking about whether and, you know, when that might come back into the system, if at all?
Yes. I would say, in general, we've been tracking this very closely, and, what's pretty interesting, if you look, you know, over the last sort of three years through the pandemic, is that there wasn't, you know, sort of, long-term deferrals or a big bolus of, you know, care that just wasn't happening. You saw more short-lived sort of bouts, and they were really around those big spikes in COVID, where, procedures would get, frankly, rescheduled or kicked out some number of months. You tended to see, you know, a lot of makeup-type activity on the back of it in the sort of the months right after those COVID spikes.
As we sit here today, kind of continued, with the message that we don't really expect a big bolus of sort of makeup care, frankly. I'm not so sure that that's necessarily what we're seeing. You know, we're comfortable with that dynamic, I'd say, Nate. I think a lot of that was more short-lived and episodic throughout the different, you know, COVID spikes, really.
Got it. Okay. maybe moving to the Medicare business. so the 2024 bids were due last week. a lot of focus, obviously, on the rate environment for next year, amid some of the changes that the CMS put in place. I guess, maybe how does that translate into your view of what market growth will be? As you thought about, you know, your bids for next year, you know, what did you kind of prioritize from a competitive positioning standpoint?
Felicia?
Yeah, sure. We certainly just submitted bids on June fifth. We spend a lot of time trying to take a look at the competitive landscape, what happened in the previous AEP, where we wanna be as we go forward, and as you said, there have been a lot of changes. I think our strategy this year was not meaningfully different than it ever is, which is we try to really take a look at a balance between membership and margin. Our strategy for Medicare Advantage continues to be pretty consistent, which is to go deeper in our blue states. I mean, today, when you take a look at how we are positioned, we are trying to get to a top three market position in our blue states, and been spending a lot of time working there.
We have that top three position in six of our 14 Blue states today. We're trying to get to nine of our 14 Blue states by 2027. We focus once again on a couple of things. One, you know, supplemental benefits, which are incredibly important to our Medicare Advantage members. Medicare Advantage members really choose the value that you see here in these programs, which is why they represent almost 50% of the selection that goes into our Medicare programs now. Supplemental benefits continue to be a focus. At the same time, we wanted to make sure that we continue to be very disciplined around this whole health approach that we've been trying to take. Then we looked at our markets in terms of where we wanted to make progress on the blue side.
Most important, we are very much focused on the dual-eligible population. When we look at strategically how we are positioned from a government business perspective across Elevance Health, we have deep market penetration in our Medicaid states in over, you know, 25 or so markets. We have long-term services and supports members that are in Medicaid, representing over 327,000 members. Those individuals are very much, you know, able to transition to Medicare Advantage plans in light of the supplemental benefits that they provide and the supports that you can do there around drivers of health.
Strategically, we try to be very mindful of the competitive environment, provide stability across supplemental benefits where we could, but really being very disciplined around margin improvement in our Medicare Advantage program, which is what we talked about, you know, heading into to this season, and certainly looking to do the same thing as we head into 2024.
Great. Maybe just to follow up on that, I guess, one, at a high level, can you maybe help us think about how you thought about the utilization trend for next year and what's embedded in your bids? Then, specifically, I think given the potential for some of the new Alzheimer's therapies to get full approval and not being kind of put in the CMS benchmark, how that could potentially impact your MA book next year? Is that something you would think would hit the significant cost threshold and maybe be covered on a pass-through basis? If you could maybe just elaborate around your thinking there.
Do you want to take that one, or do you want me to?
I'm happy to take that. Nate, as you'd imagine, every year there's a myriad inputs into the bids, right? Trend is absolutely one of those things. I would say, it's, we don't have a crystal ball like anybody else, but I think we feel really good about the assumptions that were created there. With respect to Leqembi, in particular, 'cause I think the drug that you're probably referencing, though I know there's maybe one or two others, but certainly one at least, on the back of that, something that we have good line of sight into. We expected the FDA approval. It seems like that's what's happening. I guess that becomes official early July, but we did make assumptions for that inside of our bids.
We feel really good about those assumptions. I spent some time with the team, you know, looking at all the inputs as well and the sort of variance around it, and I would say we're generally comfortable. I think some of the key points that I'd highlight there is that, you know, the drug is really for earlier stage Alzheimer's. When we kind of look at our diagnosed population and, you know, who would actually be sort of in the, you know, the right class for that therapeutic, it's, you know, it's more limited than I think you might otherwise think at the surface. So that's part of why I think we're frankly quite comfortable with the inputs there. As you know, in 2025 and beyond, that would go into the benchmarks. For 2024, we've dialed it into the bid.
Okay. Makes sense. Margins for the Medicare business. I think you plan to be in the 3%-5% target range this year. I think you have also talked about margin expansion year-over-year versus 2022. I guess, is that right? Can you maybe just elaborate on what you saw in the first quarter relative to expectations, and do you feel like you're still on track for those targets for the full year?
Yeah, I mean, I will say, you know, when we take a look at Medicare, we've certainly been trending below our 3%-5% margin range. That continues to be, though, our long-term target. When we think about where we are positioned overall, I think we've done a lot of work to focus on margin. We're seeing improvement year over year, which we feel really good about. I just think we need some more work to get to that 3%-5% range, but I think we're on track in terms of doing that.
Okay. I guess, are you still on track for margin improvement on a year-over-year basis this year?
We are.
We are, yeah. That's the expectation. You know, some folks in the audience may have seen, you know, a sell-side note go out recently. You know, we weren't sort of proactively looking to highlight individual markets, but sure enough, now that that information is out there, as, you know, many can tell, some of the issues that we face in MA were, you know, sort of more isolated to an individual market we are in. You know, there's some unique dynamics going on. That market's obviously Puerto Rico, so it's literally on an island. We feel really good about our ability to contain that for 2024. You know, the good news is we spotted that really early. The bids for 2024 repositioned it, so we feel really nice.
There's going to be a really nice trajectory on the island itself, and that was sort of one of the, you know, sort of the lesser points of what happened in Medicare year to date. I would say the mainland, quite good. Still expect margin expansion for the year. There's quite a bit, you know, going on beneath that. Yeah, I think, in terms of, you know, the issue in Puerto Rico, 24 bids, I think, will address it pretty well.
That's obviously a big duals market. Was there anything unique to that population that you've seen kind of this year or expect going forward?
I don't know that I would say it was unique to duals, but, you know, there's a confluence of things, right? Like, really nits and gnats when you look at each one of them in isolation, but in the aggregate, all related to the island. You know, there's a little bit of trend there that's worse. There's a little bit of a mix shift that was unfavorable, that showed up in the PMPMs, elevated levels of supplemental benefit utilization. The good news is some of that's seasonal, right? Dental, vision, and hearing, it's an annual, you know, cap in terms of the benefit structure, and it looks like a lot of that was pulled forward, as best we can tell.
We've got plenty of cost of care initiatives that are ramping right now, going into place on the island to ensure that, you know, the, frankly, the cost structure is appropriate and there isn't, you know, fraud, waste, and abuse occurring. Working closely with providers on that. Yeah, the confluence of things, Nate, but, you know, Puerto Rico is sort of the source of that pressure inside of MA year to date.
I'd say equally important, though, having enough visibility as we were constructing our 2024 bids. The pressures that we were seeing with respect to supplemental benefits gave us an opportunity to step back and understand what we wanted to do around our bid strategy for 2024. Seeing it early enough to be able to drive the impact in terms of improvement in margins as we head into 2024.
Okay. Yeah, that's a good point. Maybe a few questions around Medicaid, then we'll move over to commercial. I guess, you know, two months into the redetermination process, I think a relatively small number of your states, six or so, have actually started the redetermination process at this point. I guess, you know, some of the data that's come out has showed the majority of disenrollments are based on procedural reasons versus a person being deemed ineligible. Can you maybe just discuss this dynamic and kind of what you're seeing play out on the ground as the states start to go through this process?
Yeah. I will say, through June, we actually are up to closer to 21 or so states.
Okay.
In July, we'll have another five or so left.
Okay.
As you said, great concerns, you know, and certainly pointed out in the letter that came from the Secretary of HHS yesterday, in terms of what's going on across the country with respect to what people call procedural issues, administrative issues in terms of eligibility, which is the last reason you want someone losing coverage. Upwards to 80% of what we're seeing in some states is tied to individuals not retaining their Medicaid coverage because of these administrative reasons. The secretary has certainly suggested that states step back and try to understand what kinds of things they can do to mitigate some of this impact. We've been asking and have been getting some cooperation in many states around flexibilities that allow us to help with completing applications for members, allowing community-based organizations and others to help with applications for membership.
When it's all said and done, states were not prepared from a staffing or other perspective in terms of the volume of what they're seeing, and I think visibility around that is certainly coming to the fore right now. We are doing everything that we can in terms of collaborating with our state partners to make sure that people who are actually eligible for Medicaid retain their coverage. It's another thing if a person isn't Medicaid-eligible, but when you think about the issues here for administrative reasons, these are individuals, many of whom are continuously eligible for Medicaid coverage. What you will see invariably, unfortunately, is that members will recognize that they don't have Medicaid coverage, and then two or three months from now, you'll see what we call the boomerang effect.
Once individuals either go to try to get a prescription filled or go see a doctor, they realize that that piece of mail that they probably didn't open, or something to that effect, really represented their Medicaid coverage eligibility information that they needed to complete. The stories are out there with individuals who are calling states or online for three, four hours, just trying to get through to someone who can help them. The challenge is for all of us, and I think the partnerships that we have with our states, is to see what we can all do collectively to really mitigate this impact from some of the most vulnerable people in this country when it comes to Medicaid coverage. HHS will certainly advocate for more flexibility with our state partners.
We will all be working closely together, it's certainly concerning when you're seeing some of the numbers now around the administrative challenges that are presented in these populations that we're trying to serve. Our people are out there every day, literally, in storefronts, which we've set up in some places, working with our community-based organizations, faith-based institutions, our Federally Qualified Health Centers, signs in doctor's offices, billboards, commercials, doing everything we can to reach this population. It is absolutely gonna be a lumpy process as we go through this. And certainly, the best counsel is to try to spread this out because t he understaffing and state resource issues are a challenge across the board, and we certainly don't want to see individuals penalized on something so critical to their overall healthcare because of administrative reasons with respect to the state processes that are in place.
Okay. maybe a little bit higher disenrollment in the immediate term, and hopefully that normalizes, you know, as quickly as possible.
Sure.
I really do think that that depends on the state, Nate.
Yeah.
It's really fascinating, right? I don't think we have the time to get into the weeds on.
Yeah
... the range of outcomes, but, you know, we're tracking it all, and I would say, there's nothing we've seen to date that's different from what we've expected early on. I think that's the key point right now.
What's the communication been like with the states around rate setting? Is Acuity pool a shift? Like, you know, how proactive do you think kind of those, kind of key, your key states will be in terms of, you know, acknowledging changes to the risk pool, if and when it happens?
I'll say very good communications with our state partners on the rate-setting process. As you know, acuity is now a standard input into the rate-setting mechanisms that we have with our state partners. As we sit here today, we have visibility to about 93% of our rate revenue for 2023, we're in a good place in 2023 with respect to our rates, and certainly as you're already starting on the seven ones and then going to the back half of the year, we get more and more visibility into what rates look like for 2024. Very good and strong communications. We have certainly done a much better job of building the tools we need to have information around individuals that are continuously enrolled versus individuals who are left, giving those inputs to our state partners. I would say the collaboration has been incredibly strong between us and all of our various states as we've been going through these processes.
Got it. To maybe tie in the commercial now, want to maybe talk about the recapture opportunity and then move into the core commercial business. I think you've talked about 8 million lives potentially being subject to redeterminations in the blue states that you're in, a portion of that could become members of yours on the exchanges. I guess, you know, given how you started to see this process play out, you know, what do you think the timeline is like for, you know, those members that maybe don't have coverage, are ineligible for Medicaid, would end up winding, you know, looking at an exchange product?
Right. Nate, you know, it's a little more than 8.5 million the b eneficiaries in our 14 Blue markets. You know, when we think about our capture rate, we think there's, you know, 40%-45% of them may remain with Medicaid.
There's a vast majority that are gonna go back to commercial business, whether it's an employer or an individual on the ACA. ACA seems to be likely, certainly with the subsidies and the enhanced subsidies, for them to join there, but we've got a massive commercial business in those geographies. You know, what I like about it is, if you look at the 14 markets, we've got leading share of employer business in all of those markets. So that is a natural catch, catcher's mitt, so to speak, for those on the commercial group side. If you think about the ACA business, we've had a very intentional approach for the last three years as we've sort of gotten back in a responsible way, into the ACA business to really we're in 95 rating areas across our 14 geographies.
We hold the leading pole position in a large number of those, where people actually live for this. We're seeing that come through. It's very early, and as Felicia indicated, it really started ramping in June. We have information through July that sort of compares our annual open enrollment period to our special enrollment period, and we are seeing an enhancement in those markets that have gone through. The only catalyst, the delta between the two, of OEP and SEP, is the actual event of the redetermination activity. There's something there that's ticking up the receipts that are coming in for the ACA business, and more will flesh out over the coming months. We feel really good about it. You know, in a normal situation where an individual loses coverage, they've got 60 days to make a change to another policy.
With Medicaid redetermination, the beneficiaries have until July of 2024, theoretically, to make a decision, so it could come later. We are seeing spikes in receipts for those markets that have gone, which are giving us some thoughts around the speed in which that'll happen, but that's very early right now for the act.
Got it. Okay. Steve, you know, one of the things that I think investors have been concerned about is just the, you know, maybe potential for, you know, dual coverage between someone being with an employer, maybe on the exchanges, as well as having Medicaid coverage. Can you give us your latest thoughts around, you know, the data that you've looked at and what you're seeing on that front?
Yeah, absolutely. You know, I'll start just by level setting for those who haven't heard us in our comments on this in the past. You know, it's fascinating when you look back pre-COVID, there's always a double-counted population, so the phenomenon itself is not new. Historically for Anthem, if you looked at our Medicaid business versus our commercial side, you typically see about 1% of our Medicaid members show up in commercial. You know, with redeterminations on hold now for three years, that number has, you know, gone up commensurately, so you're now talking a few percentage points of total Medicaid. Then, you know, we've extrapolated that based on our local market share and embedded it, frankly, in the guidance we've provided, right?
The projections we have for the aggregate net new, you know, Medicaid beneficiaries on the program, 40%-45%, we've said, are likely to still be eligible for Medicaid when this first redetermination cycle is said and done. Mind you, everybody's being rechecked, right? Nobody's eligibility was checked for three years, so everybody's getting redetermined. When we think about the PHE-related growth, we expect about 40%-45% will still be Medicaid eligible by the end of this process, call it mid-year 2024. 20%-25% go to ACA, 20%-25% employer-sponsored. If you stack those up and add them up, it leaves 5%-20% uninsured or previously double-counted, and that captures, you know, our extrapolation of what we've seen in terms of the double-counted population.
I would say that population, in and of itself, not a material issue or risk, in part because, the risk-sharing mechanisms that have been in place for three years now have really prevented, you know, health plans' ability to, quote, "over earn" on this, you know, potential lower utilization or the potential, you know, dynamic where you might have somebody who uses more of the commercial benefit but is, you know, getting, you know, effectively counted in two pools.
Got it.
We've been in a pretty large payable position for a few years now, relative to those risk-sharing mechanisms with the states. You know, that I think that's one of the most important dynamics to consider in this context broadly. We don't know exactly who's gonna leave or not, but we're watching that population in particular and making sure we're looking at the acuity of the leavers versus stayers and, you know, staying vocal with the states in the process as well. To Felicia's point, the rate environment remains quite strong in that regard as well. The states are, you know, being good, great partners for us. So far, so good on that dynamic.
Cool.
Yeah.
Morgan, I wanted to ask about the 2024 commercial selling season.
Mm-hmm.
Can you maybe just talk about how it compares to 2023 from a size standpoint? Obviously, you know, still a tight labor market, you know, employers want to have competitive benefits. Any particular areas of focus that you're seeing from that customer base?
You know, I would say we're. It's interesting, the pipeline emerged a little later than normal. The decisions have shifted later as well. You know, when we talk about the 2024 cycle, we're just entering it for what I would call our local business, the upmarket of the local business. Then we'll get into the bread and butter through the balance of the summer and early fall. The national business is sort of that barometer up front, which this year, it's interesting because, you know, we've had several years of just record growth in that segment. It's all cyclical based on the renewal cycle of these employers. Most of them are on a minimum of a three-year cycle, many of them are five years. Some of them haven't been to bid in 10 years.
When they actually hit, that's when the activity comes. This year, we've had a number of our cases that were on cycle. I would tell you, when we think about, you know, growth starts with retention, and the retention has been incredibly strong. To your point about the tight labor market, you know, I've said this, the market has coalesced around three dynamics. It's around affordability, experience, and simplicity. You know, we've seen this dynamic of employers consolidate for simplicity, but they're not doing it for that sake only. If it leads to the right financials, they'll do it. We're still seeing that happen in this cycle, albeit it's slightly smaller than before. The same dynamics are pulling through on our business, so high levels of retention. We're winning where we have the right value proposition tied up.
When you think about in times of uncertainty and when you've got a talent challenge, people really focus on that experience piece as well. I think there may be a slight tilt to the economics. How does the affordability of the whole package look? That plays well for us. Certainly every one of them, it's a competitive marketplace, like how things are shaping up. It's not indifferent, it's just the market dynamics and size are indeed different year by year, just b ased on cycle.
I guess, you know, obviously, one of the things that are topical from a cost standpoint is, you know, the new drugs for obesity.
Right.
I guess, can you maybe talk about, you know, employers' kind of appetite to cover those for their employee base, and what you're doing to maybe help them manage utilization and the cost of these new therapies, you know, that are coming to market?
Clearly, on the GLP-1s?
Yeah.
When we think about that, certainly for diabetes, pre-diabetes, comorbid cardiovascular illness, they're fantastic, and we cover those, of course. We have two of our markets that require covering those for weight loss. Certainly, those laws that were put in place many years ago also allow for UM protocols. It's just not wide open. We have the appropriate protocols in place. We have not had a customer specifically ask as a self-funded employer to actually cover them for weight loss, but those things are batted around when we start seeing, you know, long-term effects of the drugs, both good and bad, how they want to look at that as to as part of their total human capital strategy. That said, we feel good about where they are now. We feel good about the UM protocols that have been put in place. All of the pricing for those drugs are built into our forward view, so we're not concerned about a spike that's unknown.
Mm-hmm.
When we get into the back half of this year. Clearly, California and New York are the two that mandate it by law, and both of those require or allow for UM protocols, and when we see the UM protocols, they actually have an appropriate effect. The drugs are being released for those that have the morbid obesity, as well as the pre-diabetic conditions as well.
Yeah. I guess from a kind of philosophical approach to coverage, you know, if the cardiovascular outcomes trial data is successful, like, how does that maybe change the potential patient population as well as your approach to coverage of those medications?
I think it just goes just like we look at all of the other drugs when we come out. We look at the data as it comes out, and we make the decisions on the long-term effects and the benefits of the drugs for the patients.
Okay.
Yeah.
Then maybe one on margins for the commercial business.
Yep.
You know, obviously, you know, still a ways below the kind of 10.5%-11.5% longer-term target that you kind of had under the old framework, that I think you guys are still striving for over time. I guess, can you maybe talk about kind of how you balance working towards that margin goal while maintaining kind of competitiveness in the market, and, and the type of improvement, you know, we should maybe expect on an annual basis as you work towards that?
Yeah, we're pleased with the results we've seen so far, and this activity began in sort of the back half of 2022, and most notably in the January 2023 business, when we had a north of 50% of our large group risk business. This issue on the price rationalization was most notably on large group, fully insured. We feel good about where that landed. Certainly, it came with some retention because it's a fine, delicate balance, to your point, of the leavers versus the stayers, and what do those cases look like, and what does it do to the overall margin profile of the business? It proved and yielded the result that we wanted, so our objectives have remained unchanged, albeit we have the combined health benefits business. We feel good about the directory going forward.
Steve, I don't know if you've got anything you want to add on the specifics or the expectations year-over-year, but where we are for 1/1, how we're pricing for 7/1, and how we're tracking that, I feel really good.
Yeah.
The other?
Yeah, I mean, I'd put it in the context of, you know, the broader Health Benefits segment.
Yeah.
You know, commercial this year is, you know, the biggest driver we have of the margin expansion, you know, we were committed to. You know, we've always talked about this being sort of an 18 to 24-month exercise.
Right
... in terms of the large group risk, you know, business and the margin degradation that occurred during COVID and, you know, getting back to those pre-COVID type levels. That continues to be a driver. That'll continue into 2024, but that's not just the totality of it, right?
Right.
There's also a dynamic where we've talked about growing fee-based profitability for our enterprise, which, to be fair, includes Carelon, but with an enterprise lens, over 50% growth in our, you know, profit contribution from fee-based membership through 2027 is another target we have out there. As folks know, that tends to be higher margin rate type revenue that'll come into, you know, the commercial part of the Health Benefits segment as a driver as well. Efficiency on the admin side. You know, we've invested quite a bit in digital, and to be frank, you know, you're not yet seeing those benefits in earnest in the P&L. We've not yet scaled them and taken out some of the more experimental type investments we've had in the last few years. That's gonna be on the come as well, and that's all just in commercial.
You know, of course, we could talk about Medicare as well, if you want to kind of broaden this out. On the commercial side, there's a number of drivers, frankly, that are gonna help us get back to that target, you know, pre-COVID, frankly, where we were.
Right.
Got it. I guess maybe just to build on that, just to be clear, I think the long-term target for Health Benefits margins for 2027 is about 100 basis points higher than where we are today. I guess, what does the pace of that look like? Then maybe if we could tie in Carelon here, as more risk is transferred to that entity, Does that change at all the pace of margin improvement you'd see in HCB relative to what might show up in Carelon?
Sure. Yeah, good question. I'll help you level set the numbers, too. For 2022, you know, in our Q4 press release, we provided that pro forma table for the new benefit structure, or new segment structure, I should say. The Health Benefits segment has showed a 4.5% margin for 2022. You know, with the long-duration targeted improvements change, that's gonna restate a little bit lower, 6 basis points or so. The guidance was 25-50 basis points of expansion off that 4.5% level. You know, we're targeting this year, landing in the range of 4.75%-5% in terms of the Health Benefits overall segment margin. Our target is to be in the range of 5.5%-6.5% in 2025 through 2027.
Okay.
Right? You know, let's say we end up in, solidly in that range, we're pretty close to 5%, to your point. There's another sort of 50-150 basis points of margin expansion over the ensuing few years. Some of that's the commercial large group pricing, you know, just continuing into 2024. Some of it's obviously Medicare margin improving, as Felicia just referenced. Like I said, we're very much committed to our 3% - 5% long-term target pre-tax margin range for Medicare. We will get the business in that range, in that horizon. You know, on the Medicaid side, there's maybe a little bit of normalization that plays out, you know, from where we are, but you have faster growth in Medicare, which on a long-term basis, should be a slightly higher margin business.
Those things are offsetting, and net-net, you know, government, you know, provides a little bit of opportunity over that time frame as well. Really across all of those businesses in the OpEx side, you know, I just referenced the digital comments I was making earlier. There are real opportunities to run more efficiently from where we've been. All of that's gonna contribute, Nate, on our way to getting there. We haven't sort of, you know, been very specific on 2024, but as you can imagine, a lot of these drivers persist. You know, maybe premature to put a stake in the ground, but, obviously, if we're ending close to five and trying to get to five and a half in 2025, that gives you a sort of a roadmap for, you know, where we think we'll be in 2024 and so on.
That's helpful. Then maybe in the couple minutes that we have left, I do wanna hit on capital deployment. I think the company kind of targets 50% either towards investment in M&A, I guess, you know, could you maybe talk about where the focus is in terms of the additional capabilities that you would want to acquire? I don't know if Morgan and Felicia have a wish list that they want Carelon to do. Yeah, just any kind of framing of that would be helpful.
Yeah, absolutely. You know, for our capital allocation framework, it's not changed very recently, but to do a quick recap, you know, we target 50% of our free cash. We call it flexible deployment, the first earmark under that is M&A. You know, it's opportunistic. We try never to box ourselves into a corner and feel the need to buy anything in any given year. We try to be really disciplined on what we do, if there aren't good opportunities, you know, that could be reinvested in the business pretty easily, or from year to year, we could be more opportunistic on buyback, for example.
The framework is meant to be, you know, call it, any number of years, three or five-year rolling average should end in these ranges, 50% is M&A, again, with a sort of flexible earmark, 30% is buyback, 20% is a dividend. We do think over time we'll be in those ranges. On M&A, the strategy is really to be programmatic. You know, we've done a number of bolt-ons on both the health plan side as well as on the Carelon side. I think you should expect us to do more of those kinds of deals. You know, I don't think we are talking anything transformative, to be clear, but, you know, we also flex up and do some of the larger deals.
I guess, I'd highlight, like, Louisiana and MMM as examples of where, you know, we've spent a little bit more, where some of the Medicaid deals are maybe more bolt-on. With respect to Carelon, you know, the focus is on capabilities that really will help us better address whole person health, and I think, you know, in terms of where we're going in the long term, you know, I'd point back to some of the comments at Investor Day around physician enablement and really working through, you know, what it'll take to take on, you know, full cap risk, basically, in a risk-bearing entity inside of Carelon, you know, using the assets we have, and frankly, better integrating them. I think that's the real exciting aspect of the strategy, Nate.
In the short term, you might see us tuck in more sort of, you know, capabilities and point solutions, but all in service of that broader point of how do you later connect them, and really with a focus on, you know, patients with complex and chronic conditions, whether that's D-SNP or higher acuity populations in Medicaid. It's a big area of focus for Felicia and our Health Benefits side. We see a lot of growth there. Of course, there'd be pull-through and synergies on the Carelon side, you know, that's sort of first and foremost there. Not at the expense of bolt-on health plans. We like those deals, too. I think Louisiana, we're really excited about. We expect to close that one later this year.
That'll be really interesting for us, not just on the Health Benefits side, give us a 15th Blue state, but also, you know, good pull-through on Carelon. You know, we can bring the PBM in-house, start to penetrate some of the Carelon services through the asset as well. That's the lens through which we look at it. Pipelines are bust. That team's very busy. That's exciting time.
Awesome. I think we're out of time. Felicia, Morgan, Steve, thanks so much. I really appreciate it.
Absolutely.
Thanks, Nate. Thanks for having us.