Elevance Health, Inc.

Ladies and gentlemen, thank you for standing by and welcome to Anthem's third quarter earnings conference call. At this time all participants are in a listen only mode. Later we will conduct a question and answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star then one on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star then two. These instructions will be repeated prior to the question and answer portion of this call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the company's management. Please go ahead.

Good morning, and welcome to Anthem's third quarter 2020 earnings call. This is Chris Rigg, Vice President of Investor Relations. And with us this morning are Gail Boudreau, President and CEO, John Galena, our CFO, and Pete Haitayan, President of our Commercial and Specialty Business Division, and Felicia Norwood, President of our Government Business Division. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, antheminc.com. We will also be making some forward-looking statements on the call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of ANSA. These risks and uncertainties can cause actual results that differ materially from our current expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.

Good morning, and thank you for joining us for Anthem's third quarter 2020 earnings call. Today, we will discuss our third quarter results and expectations for the remainder of the year against the backdrop of the ongoing COVID-19 pandemic. We will also provide our preliminary view of the headwinds and tailwinds we project heading into 2021. This morning, Anthem reported third quarter 2020 gap earnings per share of 87 cents. and adjusted earnings per share of $4.20, down 14% over the prior year quarter. Our results in the quarter reflect the impacts of ongoing COVID-19 treatment costs, the continued return of a more traditional utilization environment, as well as our ongoing commitment to address financial imbalances for our customers and members. Since the onset of the health crisis, I've been incredibly proud of the way Anthem has continued to respond as a trusted health partner. Beginning with the earliest days of the crisis, we pivoted quickly and looked for opportunities to serve in new ways, to address the evolving needs of our customers and members, and to make a positive difference in the lives we serve. Armed with our purpose of improving the health of humanity, Anthem has continued to leverage our insights innovations, and partnerships to improve lives and deliver a simpler, more affordable, and more effective healthcare experience. The heart of Anthem is our local legacy and long-standing focus on the communities where we live and work. Today, those communities are struggling with issues around food insecurity and health disparities, social unrest, and economic challenges. Our focus on community health fueled by our $50 million commitment, seeks to eliminate health disparities and racial inequities. Our passion for this work is driven by our strong track record of addressing true, whole-person care through the social drivers of health. Throughout the pandemic, we have been connecting with our high-risk members, screening for key health factors around housing, food, and transportation. as well as ensuring that they have access to safety necessities such as face masks, hand sanitizers, and cleaning supplies. Food insecurity is not a new issue in America, but the pandemic has only intensified the problem. We know food insecurity is directly linked to the whole health of individuals, families, communities, and businesses. Together with our partner, Feeding America, we are calling on leaders across the country to join together to fight hunger and improve the health of our nation. Here in Indianapolis, we've committed with our partners to provide 10 million meals to local residents in need through mobile food banks and program outreach. Anthem has also partnered with Aunt Bertha, a leading social care network, to help connect individuals and families to free and reduced-cost social services in their communities. These programs include COVID-19 specific assistance with food, transportation, job training, and more in every zip code across the country. Supporting efforts to create a more just society is an ongoing priority at Anthem. In light of the health disparities and racial inequities laid bare by the pandemic, our work in this area has only accelerated. For our associates, we continue to reinforce our strong culture and drive an inclusive environment for everyone. And in the City of Indianapolis, we're lending our voice and commitment the Indy Racial Equity Pledge. This pledge spotlights our joint commitment with the local business and civic community to take meaningful action to address the issues of health and racial equity toward the goal of a more just community for everyone. We were also pleased to recently be named to Forbes' annual list of the most just companies, ranking number one in the healthcare sector the second year in a row. We know this year's flu season is going to be particularly challenging for our communities in combination with the rising spread of COVID-19. In response, Anthem has launched our Fall Flu Campaign, partnering with over 100 community-based organizations across our market to stand up more than 500 pop-up and drive-thru clinics, providing free flu shots in underserved neighborhoods. Anthem is continuing to lead and shape our industry for the digital future, and our experiences with COVID-19 have only accelerated our innovative efforts in this space. Our Sydney Health application, with more than 2 million unique downloads, is helping ensure our members get the care they need, where and when they need it. Sydney is delivering personalized engagement and real-time access to health information, telehealth services, and AI symptom-based triage. Psych Hub is providing a range of mental health resources designed to help consumers and their families cope with the pandemic-related stress brought on by social isolation, job loss, and other challenges. This resource hub is a collaboration among several national leaders in the mental health community. Telehealth usage has been strong, and we see that trend continuing, particularly for behavioral health services. Since the onset of the health crisis, telehealth now comprises 40 to 50 percent of all behavioral health services, compared to low single-digit utilization pre-COVID. At Investor Day last year, we shared our vision for modernizing our business by consolidating our system's platforms, automating and reimagining processes, and embedding digital and AI across the enterprise to simplify and improve the customer experience. The charge this quarter enables us to enhance our speed to market as an enterprise, streamline our operations, accelerate our digital journey, and ultimately deliver a better experience for those we serve. Our experience through the last several months of the pandemic saw us pivot quickly to operate virtually and challenge our ways of working. With the insights from this experience, we are reimagining our workplace with a reduced real estate footprint, more flexible work practices, and evolving our offices to serve as collaboration spaces when safely able to do so. Membership trends in the quarter were strong, despite the challenging economic environment. Medical memberships totaled 42.6 million members, an increase of 172,000 lives sequentially, driven by continued robust organic growth and market share gains in Medicaid and Medicare. This was partially offset by attrition in our commercial business as a result of the prevailing economic environment. the risk of a more significant deterioration in our membership is real. But thus far, our overall membership trends are outperforming internal expectations. Our commercial membership declined 0.9% sequentially, which beat expectations in both our risk and fee-based businesses. New account sales, supported by new virtual strategies and tools, outpaced lapses for the second consecutive quarter, despite the challenging environment. In the large group segment, net new large group risk sales have exceeded lapses in 11 of the last 13 months. Importantly, we remain disciplined in our pricing and go-to-market strategy, keeping an eye on long-term customer retention. While we expect to face a headwind from in-group changes over the next several quarters, our focus on sales effectiveness affordability, and offering a portfolio of product options to meet customers where they are continues to pay off. While the 2021 selling season looks different than most, our results year-to-date increase our confidence for sustained momentum in new sales growth powered by our focus on whole person health. Our Medicaid membership grew by nearly 390,000 lives in the quarter, and is up nearly 18% year-to-date due primarily to the pause on re-verification. The financial performance of our Medicaid business in the quarter was significantly impacted by retroactive prior period rate adjustments that totaled nearly $300 million. As we previously shared, our second quarter results were impacted by the broad-based deferral of normal healthcare utilization. while their experience in the third quarter reflects a considerable increase in COVID-related costs, which we expect to persist through the balance of the year, more than offsetting the impact of deferred utilization. We continue to work with our state partners to achieve reimbursement levels that are actuarially sound while earning a reasonable return on capital and margins in the 2% to 4% range. Turning to the Medicare business, Our growth of more than 16% year-to-date is outperforming the market average, and we expect another year of mid-double-digit growth in 2021. The recently released SAR scores for payment year 2022, however, are disappointing. Our pharmacy scores remain the single largest driver of our underperformance. As a reminder, our Medicare Advantage members transitioned to IngenioRx on January 1, 2020, which limited our ability to improve our pharmacy scores in the latest measurement period. We are intensely focused on our star ratings with significant improvement expected over the next year. We're seeing a strong start to the annual enrollment period, demonstrating that our multi-channel approach is delivering results. Digital platforms have long been an area of focus, even prior to the pandemic, and this year, we expect to gain a significant percentage of our sales through digital channels. The development of our Medicare Care Guide is just one way we are enhancing our members' onboarding experience with proactive outreach to help them understand their benefits and enhance the onboarding process and overall new member experience. Our 2021 offerings reflect our industry-leading supplemental benefits, which include the popular over-the-counter offerings, transportation, dental, and vision benefits, as well as benefits to address social drivers of health, such as food delivery and service animal care, positioning us for another year of above-market growth in Medicare Advantage. Importantly, we expect to see nearly 90% of our members in $0 premium plans for 2021. As we continue through the fourth quarter, our compassion and commitment to making a positive difference for all of our stakeholders will continue With that, I will now turn the call over to John for a more detailed review of our third quarter financial performance and our preliminary review of the headwinds and tailwinds we project heading into 2021. John?