I think that's me. Thanks for joining us, Gary Taylor, cover healthcare facilities and managed care here at Cowen. My pleasure to introduce Humana. Most of you know, one of the largest Medicare Advantage Health Insurance and Provider companies in the U.S. Over 17 million members in its insurance segment, also provides primary care, other related healthcare services via CenterWell, over 230 primary care centers, a growing value-based care home model, operates, you know, Humana at Home. We have Chief Executive Bruce Broussard with us today. Good morning. Thanks for joining us.
Thanks for having us.
A lot of stuff going on in Medicare, at least from a regulatory perspective, right now. Maybe just first, walk us through the journey that Humana has been on a little bit over the last year or so, where you made this concerted effort to find savings across the enterprise to invest that in benefits. It appears you've done that very successfully, given the amount of enrollment growth, you know, that you're gonna see this year. Is there anything about that that's surprised you? And what's sort of your reaction to the amount of enrollment growth that you guys have been able to generate for 2023?
Maybe just to put in context. Last year, we ended 2022 with a below expectation enrollment, 4.5% or so growth, which is unusual for us. We've been growing greater than market since really since the 2015 time frame. We needed to really step back and reinvest in the product. We fell back a little bit, but the market also was very aggressive in 2022 and came back in 2023, sort of our way. A few things that we've done to invest in the product. First, we invested in where our core product is through the Part D giveback area. We invested in the duals through a Healthy Food Card, and that has been successful.
Then the third area is we really expanded our supplemental benefits, specifically in the dental area. Those three things really helped us grow in the marketplace and just position the product. The second thing that helped us this year, and probably was really one of our surprises, is just the dependability of the brand. The brand last year and the aggressiveness of some of the growth by some of our competitors, they really outran their plan coverage in. They result really frustrated the brokerage community, and that brokerage community is looking for a dependable brand. They're looking for a brand that has strong retention, the ability to predict that retention. Included in that was our Stars performance this year and the ability for them to see multi-year in that.
I think the combination of our product positioning, our service, and our Net Promoter Score, along with our Stars and our relationship and the investment that we've made in the brokerage community this year, has created this ability not only to compete by the product itself, but also the ability to have dependability over multiple years.
How would you best summarize some of the changes you made in the distribution channel with the brokers? I, you know, I think you felt in 2022 that electronic channel kind of, you know, let you down and you wanted to, you know, shift to some degree away from that. How would you summarize what you've done and how well that's gone?
Yeah.
Apparently, it's gone pretty well, but.
Yeah. A few things there. First, we really didn't run away from the telephonic channel, which is really what we saw a lot of churn in. We really worked with them to not only focus on sales, but focus on retention. I think that's good for their business model along with our business model. We, you know, worked with them in giving them incentives to not only get paid for the sales, but also get paid for retention. That was a good investment. The second thing that we did is we really invested in the field brokerage channel, both our internal and external, and the ability to do that in a way that creates consistency. Because what we find the lifetime of value in a more personal relationship is much greater.
The churn is less, the long-term value is greater for us. What we've invested in that, not only in the investment of servicing them better, obviously ensuring that we're competitive on a commission side, but also the ability for us to expand our relationships over the last number of years and especially last year.
When you think about, sort of the enterprise-wide, you know, value creation or cost saving strategy or however you describe that, do you think that, majority of that impact has been invested in, 2023 benefits, 2023 distribution channel changes? Or is there ongoing investment that can continue to play out in 2023 or 2024? In other words, you know, this kind of, we made a big shift, we got a big bang for the buck, and then we'll just back to normal from there. Do you think there's sort of multi-year legs?
Yeah.
To some of these changes that you made?
Obviously, the majority of it was invested in 2022 and for 2023 benefits, the Distribution Channel and Marketing. Every year, we have the opportunity to continue to invest through our leverage areas, which would be in our trend vendors, continued clinical cost management. Second area would be in our administrative activities that we have productivity improvement, which those two areas drive a considerable value for us each year and allow us to invest in that. I would say what 2022's investment for 2023 really positioned us in the marketplace to be where we want to be. Maintaining that position is very critical for us, and you'll see the company work very hard to maintain that position going forward as compared to our competitors. I think we're in a really good position.
I think when you combine that with our Stars performance as compared to others, it really positions us to compete well in the foreseeable years.
Gotcha. How do you feel, I think you've raised your enrollment guidance at least twice, since you initially gave it. We're in the quarter that core individual
I think it's 3x , but.
Oh, 3 x. Okay. 3 x. I think we're gonna be up almost 17% year-over-year there. I get this question a lot. Is there a level of growth that is too much? You know, you might end up growing twice the market when it's all said and done, and CMS gets its files together, and we can actually see the real enrollment growth. Is there any concept around adverse selection or, you know, maybe the benefits were too rich or anything that level of enrollment growth that give you any pause?
No. We feel very comfortable with the growth today and managing it for a number of reasons. I think overall, we look at a very minimal impact on our Medical Loss Ratio being maybe 10 basis points or so. Very minimal impact for us. You know what? Over the years, a new member is usually breakeven to a little bit positive. The second thing that's unique for 2023 is that we had a really great growth in our core markets with the Part B giveback. The Part B giveback, what we're seeing, attracts a more healthier customer. The other aspect is that we have had good growth in the duals area, specifically for the Healthy Food Card. In our estimate for 2023, we assumed a very high utilization of the food card.
Mm.
What we're seeing in our trends and our admissions per thousand to date is very consistent with our expectations on it. We feel really good about the year, we feel good about the book that we have, and it's very manageable. On top of that, our ability to manage just the volume has been very well executed. Our Net Promoter Scores for the first few months have been really solid from a service point of view. Our hold times have been meeting our standards. We don't see any kind of dilution in our service, and we aren't seeing it in the utilization either.
Gotcha. It's not intuitive to me. I guess two things on the Part B giveback piece. One, it's a far less common benefit than I sort of naturally, I don't know, inherently assume when we sort of look through everything last year, we find it's not really as common of a benefit, but it's not intuitive to me why that attracts a healthier customer. Is there a thesis on it that o r is it just, or it just is, you know, we just observe that.
They usually have lesser benefits.
Okay.
Because the obviously the premium is much less, it's a negative premium.
Yeah.
Therefore, you have to position and price it that way.
Okay.
There's not as richness of benefits.
There's a trade-off, and they're taking that trade-off.
It's like If you want to put an analogy, it's similar to the Part D low premium plans that you have.
Okay.
Usually you get a healthier population there.
Gotcha. That's interesting. Just going to the CMS files for a second. We keep, y ou know, you've guided this enrollment growth, but CMS keeps putting out the files, and we're not yet seeing what you think you have. Now we're told, you know, the March file will be fully corrected. Is there anything to add on that, why CMS doesn't have the numbers together yet? Or-
No.
You're just-
No.
You, you know who signed up, and you're solid on-
Yeah, yeah.
Your guide.
For the February file. January was a little messy.
Yeah.
In February, they've caught up.
Approved. Yeah.
It showed $500,000 for us, and that's what we were estimating it to be, but.
Okay.
We're in good shape.
Okay. Before we take, you know, before we dive off the cliff here into all the regulatory stuff, let's do one more. Let's do something else different first. Last week or the week before, you announced you're exiting your commercial business. It's not the largest part of the, you know, company by any respect. Just kind of walk us through that process, you know, how you got there, why now? I mean, it hasn't been a significant contributor to earnings for some time. You know, why now have you decided to exit?
A few things there. First, as we've over the years, we've really tried to optimize that, yeah, that business, both from a cost point of view and also from a just a pricing point of view. When you optimize, you're not making investments, and also you're shrinking the book. A few years ago, we decided that we really need to exit it as a result of just not being competitive in the marketplace and also the opportunity costs it had for us as an organization. You know, we have a rich opportunity in our Medicare Advantage. We are, you know, growing in our Medicaid business quite well. Our CenterWell provider assets are doing quite well. This was a distraction from resources for the organization, both capital and in addition, people resource.
In addition, we weren't investing in it to keep it competitive. We decided to exit it. The question we, you know, went through and answered, is it better to sell it or is it better to exit and just take the Statutory Capital? We went through an abbreviated process to see if it made any sense to sell it. We came to the conclusion it did not for a few reasons. First, just the length of the justice process is long, and we felt that it was going to be elongated for that one reason.
The second, the contracts are fairly short, and they're year contracts, so if you're putting the book up for sale, it's usually gonna mean that you're gonna lose probably a good bit of your customers during that period of time. Because you'd announce a transaction that would go through the justice process. You have stranded costs and fixed costs. Therefore, we'd looked at it and said, "We're gonna be, you know, holding on to this book during this process. We're gonna have to probably lose some customers." We went through the calculus, and it made more sense to take out the, you know, $700 million or so Statutory Capital and do it really quick.
Gotcha. The accounting for that is not gonna be as discontinued. Your GAAP accounting is still going to reflect it, but I think have you been able to get all of the street to sort of successfully move to sort of a non-GAAP, you know, metrics? Okay. Okay. Gotcha.
The intent is for it to be non-GAAP.
Got it. That sale is gonna free up $500 million or $600 million?
About $600 million or a little less than that.
Over 18 months or or before the state, you know, releases it or whatever. Okay. Let's move to some of the MA regulatory questions, because I think since the RADV rule came out and the advance notice came out, it's probably 85% of all my incoming calls are about, what do these rules mean? How do they impact, the Medicare carriers? Let's start just with advance notice. You know, CMS puts out -2.3% all in. That included on average about a point of Star Rating decline, which you won't have.
Just sort of we think, just from the get-go, maybe for Humana, maybe it's a little more like, you know, -1%, but still quite a step down from what we've seen in recent years and maybe the weakest rate update in almost a decade. Maybe just high level, you know, a negative rate update, how does that impact your 2024 outlook that you've provided?
The maybe just some context about the Rate Notice. First, the Rate Notice should not for the investors take any pause in the support for the program. If you were to take out the Medical Education component of that, the Indirect Medical Education, and take out also the Risk Adjustment, I know we'll get into that detail in a minute. The Rate Notice would have been very similar to what it has been in the past. These two adjustments, which are more one-time versus a long, long-term adjustments, are similar to the, to what we've seen in the past. I would say first, it still has the support both within Congress and within the general public. As we look at the Rate Notice and think about the positioning for 2024, there's a lot that goes into that.
Mm-hmm.
We're not in the time to share how we're going to approach it, but just a few things I think investors should think about. One is, as you mentioned, our Stars performance will carry us farther than others in the 2024. Second, the growth that we've had in 2023 far exceeds what we were estimating in our $37 commitment that we made in our Investor Meeting in September. Therefore, you know, that gives us a great running room for that. Our positioning with the distribution as being channels of being very dependable, having really good retention, I think really sets us up for a strong 2024, irrelevant of the Rate Notice.
How we deal with the Rate Notice in each of the markets, because it is geographically very dispersed. How we deal with that, I think, will be something that's in what we've done with in the past. I mean, we've dealt with this with the ACA implementation. We dealt with this in 2016 and 2017 when they had recalibration with the Risk Adjustments similar to what they're doing now. We've been able to deal with it. What we found in those years is that actually we do better. We do better as a result of our position in the marketplace, our ability to compete, our relationship with the distribution side of the equation. We feel really good about it. The details will, you know, be coming over the next 3 or 4 months.
Better in terms of share gain or versus what would happen in the?
We usually grow greater than the market.
If you just think about, and you, and you could even throw in the health industry fee that came in and out of the numbers, I think, 3x , you know, with all the holidays as a small example of sort of addressing, you know, those essentially like an adverse rate, you know, impact inside your bid strategy and your benefits. Every year is a balance between emphasizing, you know, benefits and therefore likely enrollment, you know, versus margin. It would seem, if the advance notice stands, everybody has to. Well, you have that same balance to do, but it sure seems to lean towards, you know, I wanna protect margins, I wanna do less in benefits. I would think instinctively that would have some impact in terms of industry enrollment growth.
I mean, on the face of it, do you think it's unrealistic to think the industry growth slows to some degree in 2024? If everybody's trying to rein in benefits a little bit to protect margin, maybe you're doing less of that than others. Is it reasonable to think you could have a slower growth year, or you think that's not necessarily true?
Obviously, it's industry and company.
Yeah.
Those are two different questions. On the industry side, we still see a robust growth. Now, is it at the 9% or is it at the 7%? I think, you know, that's something to debate on. I really believe that MA has such a great value proposition over Medicare Fee-for-Service, that people will choose MA.
Mm-hmm.
You know, in our analysis, it's about a $184 difference on a PMPM basis between Medicare Fee-for-Service versus Medicare Advantage. A much stronger value proposition. What's being proposed does not deteriorate that anywhere close to what the value is. We see a really good opportunity to continue to grow as an industry. As I mentioned before, we've found in the years that there's really pressure on the rate notice, we do much better, and I feel that 2024 will be that one.
Interesting. You know, the streets become sort of conditioned to think the final notice is always a little better than the advance notice. I think in the last five years, it's improved, you know, 100 basis points or so, although usually I think that's tweaking a little bit of Fee-for-Service normalization, a little bit of USPCC trend, whereas this year, the biggest negative weight inside the rule, inherent in the rule is the Risk Score Model Change. Any reason to be more or less optimistic about the final rule getting a little better? Maybe specifically on the risk score, we had a KOL panel yesterday that was optimistically speculating maybe a 2-year phase-in. Last time the risk score model changed materially was a 3-year phase-in.
Anything yet to share to be optimistic that the rule improves or gets phased in? I think the industry has a health equity angle that it's suggesting that the risk score model impacts, you know, some populations disproportionately. I mean, we've got three weeks to go, I guess, or a month almost, but anything there that you're optimistic about yet, or you think for now we should just assume?
I would say a few things. I would say first, you know, yesterday we submitted our comments to CMS on the rate notice. You know that we're now done with the comment, moving into their analysis of it. I would say that CMS is listening and taking input from both the industry and from the general public. Congressionally, I think there is also activity that's there, not from a regulatory point of view, just from Congress, you know, understanding what it's doing to their constituency. I think there's a lot of conversation going on between CMS, the administration, congressional and the industry, and that's always a positive. It's always positive to have that. What that ultimately turns out to be, I think, is speculative.
Mm-hmm.
You could see a phase-in based on history, that could make some sense. It's not as blunt, obviously them seeing them putting their feet in the ground and saying, "No, it's gonna be just a, you know, an implementation," and you know, all of it. I do believe there's calm heads that are working to try to get what needs to get done according to CMS, but to do it in a way that is going to not, hurt the beneficiary in any material way.
Just going to the Risk Score Model specifically, what we've been hearing from some of the actuaries and some of the plans is that -3.1% that's embedded, that's supposed to be sort of the industry average. For some plans, for some risk-bearing providers, that number is double-digit negative, for others, it's double-digit positive, that there's a really wide range. My understanding is CMS sort of gave you a tool where you could just plug in all the patients you had and sort of see where you land. Is there any comment there yet on how the risk model specifically has impact on your patient population?
We ran the same analysis, both using their tools but also using our internal tools, and came very, very close to what their estimate was. For us as an organization, it is aligned with what they had published. You're right. The dispersion of impact is very high. And the dispersion, the commonality of that is if you have a high risk score, you're going to be impacted more.
Mm-hmm.
That's sort of the commonality. What does that mean? Usually, that means the higher chronic conditions, and populations like duals and under-resourced populations are gonna be impacted most because their conditions usually are high, therefore they have higher risk scores. Providers that have high risk scores, you know, the more value-based oriented providers will probably be impacted more than the ones that have lower risk scores and less oriented to the more complicated conditions. That really looks into geographic areas. Places You know, South Florida would be an example of that, California, Nevada, some of Texas would be an example where the geographic impact would be greater.
Yep.
The unique thing of some of those geographic markets is that they also have higher benefits. Therefore, the ability to reduce the benefits without significantly impacting the value by when compared to Medicare Fee-for-Service has a lot more options to it.
Yeah.
You do have this dispersion, and that's why I said it's not as easy as just a plain 3% or 4% change in the rate. I think there's gonna be a lot of science that's gonna have to go into how you adjust your benefits going into the 2024 timeframe.
Does the Risk Score Model Change and sort of that dynamic of, you know, higher coded, more chronic patients, dual, et cetera, which obviously has been a big focus of the industry to grow into that because one, it's highly reimbursed, but it's also very target rich in terms of medical savings opportunity. Is the risk score model change significant enough to You think it has any impact on your value-based care strategies that you guys have been pursuing? Is there anything to rethink there or you think it's just, you know, we live with it and we rock and roll?
Yeah.
Yep.
And move on. You know, Gary, the trend of value-based payment is a trend that will be with us for quite some time, and it's a line that's like this.
Yep.
Now does that line go straight up? It goes like this and it has little bumps here and there. We saw this in 16 with some recalibration in the diabetes area. I would say that we are highly committed to that payment model. We're highly committed to that population. This is just a change that you have to manage then.
Got it. You had alluded to this a little earlier, but, you know, 2025 from Investor Day, $37 per share earnings target. We're not gonna have a chance to talk about RADV. We talked about advance notice, but that $37, you still feel solid about that? If not a slight tailwind because of how much enrollment growth you've had in 2023?
Yeah. We feel good about it, where we are today. I guess Susan remarked a few weeks ago, we're just getting done with our first two quarters since announcing it.
Yep.
We're gonna stay firm on the $37.
Okay. Well, thanks for joining us.
Thank you.
Really appreciate it.
Good luck with your conference.