Elevance Health, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Elevins Health fourth 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 Elevance Health's fourth quarter 2022 earnings call. This is Steve Tennell, Vice President of Investor Relations, and I am joined this morning on our earnings call by Gail Boudreau, President and CEO, John Galina, our CFO, Peter Haitayan, President of Carillon, Morgan Kendrick, President of our Commercial and Specialty Business Division, and Felicia Norwood, President of our Government Business Division. Gail will begin the call with a brief discussion of some of the highlights of the quarter and year before turning to our recent announcement of the acquisition of Blue Cross and Blue Shield of Louisiana and a number of other updates on key strategic initiatives. John will then discuss our financial results and outlook for 2023 in greater detail. After our prepared remarks, the team will be available for Q&A. 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, ElevanceHealth.com. We will also be making some forward-looking statements on this 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 Elevance Health. These risks and uncertainties can cause actual results to 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.

Thanks, Steve, and good morning, everyone. Today we're pleased to share that Elevance Health delivered strong fourth quarter results, closing out another year of growth consistent with our long-term targets and considerable progress in our transformation to become a lifetime trusted health partner. In the fourth quarter, Elevance Health delivered GAAP earnings per share of $3.93 and adjusted earnings per share of $5.23. For the full year, we reported GAAP earnings per share of $24.81 and adjusted earnings per share of $29.07, reflecting growth of 15% year over year from our adjusted baseline of $25.20 in 2022. 2022 marks the fifth consecutive year in which we grew adjusted earnings per share within or above our 12 to 15% long-term target growth rate. This reflects the focused and sustained execution of our strategy to optimize our health benefits businesses, invest in high growth opportunities, and accelerate capabilities and services. Elevance Health ended 2022 serving more than 47.5 million medical members, up nearly 2.2 million members year over year, including more than 1 million new commercial and over a million new government members. Investments in enhancing the customer experience, delivering innovative, customized whole health solutions, deepening digital engagement, and prioritizing health equity all helped to deliver strong growth across customer segments. Membership growth, coupled with expansion in both the scope and scale of Caroline's business with our health plans, helped to propel double-digit growth in CarolineRx and Caroline Services. In total for the year, Elevance Health produced nearly 14% growth in operating revenue and double-digit growth in adjusted operating earnings. Now I'd like to discuss a number of recent developments, including the acquisition of Blue Cross and Blue Shield of Louisiana that we just announced on Monday. Like our Anthem Blue Cross Blue Shield family of plans, Blue Cross and Blue Shield of Louisiana is deeply rooted in its local community, serving Louisianans for almost 90 years. And like our health plans, Blue Cross and Blue Shield of Louisiana is committed to improving the health and lives of the people of Louisiana. Our organizations are well aligned in our mission and purpose and have worked together in partnership through our Healthy Blue Alliance, serving Medicaid and dual special needs plans in Louisiana for a number of years now. Upon closing, Blue Cross and Blue Shield of Louisiana will be our 15th blue state providing us with deep local roots in a new market, while we bring national scale and access to our portfolio of innovative solutions and capabilities to support the community. We're looking forward to accelerating Blue Cross and Blue Shield of Louisiana's strategy to make an even greater difference in the health and lives of the 1.9 million individuals they serve. Blue Cross and Blue Shield plans are at our best when we collaborate. Together, the Blue System provides health benefits to nearly 115 million consumers across all 50 states. There are many untapped opportunities to leverage our unique scale. One recent example is Synergy Medication Collective. Earlier this year, we became a founding investor in this new contracting organization, founded by a group of Blue Cross and Blue Shield affiliated companies. The collective focuses on improving affordability and access to medical specialty drugs that are injected or infused in a clinical setting. Synergy will seek best-in-class medical drug pricing, leveraging our collective industry-leading specialty drug spend to enhance affordability and drive toward value-based care. representing another example of Blues partnering for progress. Inside Elevance Health, we are also directly addressing fast-growing areas of cost trend. In November, we announced the acquisition of BioPlus, the largest independent specialty pharmacy provider offering a complete range of specialty pharmacy services for patients living with complex and chronic conditions. BioPlus will enhance our ability to deliver on our whole health promise and enable us to leverage our resources and scale to deliver greater affordability and access to critical medications. Over time, it will allow us to bring specialty pharmacy fulfillment for our members in-house at what is a dynamic time in this field given the anticipated growth of biosimilars. Upon closing, BioPlus will become part of Carillon Rx, our pharmacy services business that we rebranded at the beginning of this year. With the addition of specialty pharmacy, we will expand the scope of the services and capabilities inside of Carillon, and by extension, the proportion of overall healthcare spending that we manage or address. The acquisition of BioPlus furthers our commitment to scaling healthcare services to address the needs of health plans, beginning with our own. Of Caroline's nearly $41 billion of revenue in 2022, approximately 60% came from partnering with our health plans. Meanwhile, in 2022, Caroline achieved the goal we set at our March 2021 investor conference of managing at least 20 percent of our consolidated benefit expense by 2025. This is three years ahead of schedule, a testament to the growing suite of capabilities within Carillon. Carillon has made significant progress since our last investor conference, and we look forward to providing shareholders an update on our long-range planning at our next investor conference which will be held on Thursday, March 23, 2023, in New York City. Increasingly, we are evaluating and growing our enterprise through two primary businesses, health benefits and healthcare services. And we're continuing down the path of scaling Carillon by addressing the needs of our commercial, Medicare, and Medicaid health benefits businesses. Beginning with the first quarter of 2023, we will evolve our external reporting to better align with this approach and begin to report Carillon split between CarillonRx and Carillon Services while we combine our commercial and government health benefits operations for reporting purposes into a single health benefit segment. Our new reporting structure will allow stakeholders to more clearly track the progress we are making against our enterprise strategy and better reflect how we evaluate our business results against our enterprise strategy today. John will discuss this more in his remarks, and you can also find a pro forma view of quarterly and full year 2022 results for the new reporting structure as a supplemental table in this morning's press release. Now I'd like to touch on a few recent highlights before discussing our outlook for 2023. During the fourth quarter, we were pleased to become the first managed care organization in the nation to earn the full three-year health equity accreditation from the National Committee for Quality Assurance for all of our own Medicaid health plans, covering nearly 90% of our Medicaid membership. This recognition demonstrates that focus and resolve yield results. We have long been dedicated to countering health inequities across our enterprise and through partnerships with care providers. We continue to work toward health equity through policy and practice in pursuit of better outcomes and experiences for all, and ultimately to improve the health of humanity. Our Medicaid team is prepared to uphold that commitment by ensuring access to care for underprivileged populations through continuity of coverage for all beneficiaries eligible for Medicaid who will be subject to the eligibility redeterminations this year. We look forward to working alongside state partners to help minimize loss of coverage due to administrative challenges and to ensure beneficiaries no longer eligible for Medicaid understand their coverage options. Our ACA exchange plans are now being offered in almost every county in our 14 blue states. We remain committed and prepared to ensure seamless transitions of those Medicaid members as they move into exchange plans or employer-based coverage. Across our health plans, we are optimizing our businesses. The pandemic brought with it substantial uncertainties. that resulted in margin compression in our commercial and Medicare health plans in 2021 that we didn't recover in 2022. It has since become apparent that COVID costs are not going to zero. And as we discussed last year, we've been repricing our risk in our commercial business, and we are enjoying improved reimbursement rates, risk adjustment revenue, and star quality bonus payments in our Medicare Advantage business in 2023. With January 1st renewals behind us in commercial and the 2023 Medicare Advantage plan year underway, we remain confident in the margin recovery previously discussed and for the improvement in our commercial and Medicare businesses to more than offset anticipated member attrition in our Medicaid business when redeterminations begin on April 1st. Our confidence in operating our Medicare Advantage business solidly inside our long-term 3 to 5 percent target margin range has been underpinned by our bid strategy, in which we took a balanced approach. While the AEP proved to be somewhat more competitive than we expected, we still expect to grow Medicare Advantage membership relatively close to our prior targeted growth rate in 2023. Turning now to our outlook for 2023. We expect adjusted earnings of greater than $32.60 per share, reflecting growth of over 12%. Our guidance reflects double-digit growth in operating earnings in each of our health benefits and caroline businesses that will be driven by the focused execution of our enterprise strategy, to optimize our health benefits business, invest in high growth opportunities, and accelerate capabilities and services. Our outlook contemplates a range of outcomes on Medicaid redeterminations, coverage shifts and retention, and our expectation for commercial and Medicare margin recovery from pandemic-era lows. John will discuss our assumptions in greater detail. The strong growth we achieved in 2022 would not have been possible without the hard work and dedication of our more than 100,000 associates. Our collective determination to improve lives and communities is unwavering, and we look forward to making a meaningful difference as Elevance helps. I would like to thank them for the important work they do and the impact they make every day. Now I'd like to turn the call over to John for more on our operating results. John?