Elevance Health, Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Elevents Health 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 Elevance Health's third quarter 2024 earnings call. This is Steve Tunnell, Vice President of Investor Relations. And with us this morning on the earnings call are Gail Boudreau, President and CEO. Mark Kay, our CFO. Pete Itayan, President of Carillon. Morgan Kendrick, President of our Commercial Health Benefits business. and Felicia Norwood, President of our Government Health Benefits Business. Gail will begin the call with a brief discussion of the quarter and our revised outlook for the year and recent progress against our strategic initiatives. Mark will then discuss our financial results and outlook 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, LVentsHealth.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.

Thank you, Steve, and good morning, everyone. We appreciate you joining our earnings call. Today, we will review our third quarter financial results, discuss our outlook for 2024, and provide an update on the operating environment. During the call, we will also highlight fundamental drivers of long-term growth for Elevance Health, which remains strong. For the third quarter, adjusted diluted earnings per share were $8.37, which was below our expectations, primarily due to elevated medical costs in our Medicaid business. The impact on the third quarter and our full-year outlook are being partially offset by focused medical management, the work we are doing with states to reflect the acuity of our members in rates, and proactive actions we are taking to enhance operating efficiency, which will strengthen our business for the long term. We are navigating a challenging and dynamic operating environment and have reduced our full-year outlook to prudently reflect these challenges. Given third quarter results and our expectation that timing disconnects between Medicaid rates and acuity currently facing the industry will continue, we have reduced our outlook for adjusted diluted earnings per share to approximately $33. Importantly, we are not leveraging the future to achieve short-term gains. We are investing to position Elevance Health for strong growth over the long term. The issues impacting the Medicaid business are time bound, and our state partners are working constructively with us on rate renewals. We're confident that rates will ultimately reflect the underlying acuity of our members, albeit on a lag, as states often use data that is more than a year old in setting rates. These short-term headwinds are a byproduct of the large scale and unprecedented mix shifts associated with the end of the public health emergency. Over the long term, Medicaid Managed Care is an attractive business that is integral and complementary to our other health benefits and care line businesses and offers significant growth opportunities, notably serving specialized populations where we provide distinct value with our unique capabilities. Across our health benefits business, we are diligently executing on our growth strategy. Our Medicaid team is working tirelessly with our state partners and we appreciate the collaboration. While the rate increases we've received are the highest in the past decade, they are still inadequate to cover 2024 cost trends that we now expect to be three to five times historical averages. We're confident that rates will reflect the acuity of our members as enrollment continues to stabilize, and we're acting with urgency to deliver significant operational efficiencies and appropriately manage the cost of care. Partnering with states as they expand managed care to beneficiaries with chronic or complex conditions aligns well with our specialized whole health solutions and is an important part of our growth strategy. In partnership with Blue Cross Blue Shield of North Carolina, we're pleased to be expanding our service to North Carolinians through the recent award of a sole source foster care contract covering nearly 60,000 new members. This marks the second sole source foster care win in 2024. In Medicare, we're taking deliberate steps to ensure the long-term sustainability of our business. We are now two days into the 2025 annual election period and are pleased with our positioning overall. We remain disciplined in our approach to 2025 bids, building on the actions we took to position our Medicare Advantage business for sustainable performance heading into 2024. For 2025, we took a balanced approach to margin and membership, prioritizing the benefits seniors value most to mitigate the impact of CMS's rate cuts on beneficiaries and promote access to high-quality, comprehensive, and coordinated care for our members. Given the benefit reductions and meaningful market exits we made heading into 2024, we maintain greater stability in our offerings for 2025. And as a result, we expect to grow individual Medicare Advantage membership in line or slightly better than the broader market in 2025, led by products where we have strong, sustainable market positions. Medicare Advantage star quality ratings remain a key enterprise priority, and we're committed to our long-term goal of achieving and maintaining star ratings at the high end of all plans in our markets. For payment year 2026, we improved our own performance across nearly 60% of star measures and are pleased to be the only large payer to offer multiple five-star plans. Unfortunately, we will see the percentage of our members and plans rated four stars or higher decline due to significantly higher cut points. The entire decline in our four star member mix was due to one of our larger H contracts narrowly missing a four star rating by four ten thousandths of a point. We have challenged our initial scoring with CMS and are considering all of our options. Our commercial businesses are performing well and are on track to achieve their financial targets. We anticipate further growth in 2025 to be driven by increased penetration of our best-in-class products and services, given momentum in both of our individual exchange and national account businesses. For the largest employers, we offer differentiated value in innovative and attractive solutions and our focus on whole health In partnership with Caroline is resonating in our individual exchange business we're delivering particularly strong growth with membership up more than 30% year to date. As we look to 2025 we're expanding our individual and family ACA plans in three states Florida Maryland and Texas under the well point brand. which will complement our existing presence in these states while driving growth for our health benefits and Carawan segments. Focused geographic expansion enhances our ability to serve as a lifetime trusted health partner to consumers in our communities. Turning to Carawan, we're making significant progress in scaling our enterprise flywheel for growth. Carolin Rx continues to expand its customer base while diversifying its value proposition. Earlier this month, we closed the acquisition of Kroger Specialty Pharmacy, which is aligned with our strategy of controlling the levers that matter in delivering whole health affordably. Meanwhile, innovative solutions such as our Specialty Rx Savings Navigator, weight management solutions, and Ensure Rx continue to gain traction and drive savings for our clients. Growth in Caroline's services remains strong, and we are on track to exceed the upper end of our initial outlook for low 20s percentage revenue growth. This includes external growth above our initial targets for 2024, a proof point in first demonstrating our value proposition internally before driving growth externally. Caroline also recently entered into an agreement to acquire CareBridge, a value-based manager of home and community-based services for chronic and complex members that will serve as the foundation for Caroline's home health business. And we're excited to continue to serve all its customers and members. Caroline Services is expanding its capabilities to manage a growing proportion of healthcare spending, supporting the long-term growth of the business and by extension, the value it creates for health plan customers. Despite the challenges of the current environment, we're investing to position Elevance Health for sustained growth over the long term, including through the application of AI-driven solutions that are enhancing member and provider experiences, reducing costs, and driving more efficient processes. We expect to realize operational and financial benefits in 2024 and greater impact in 2025 and beyond. For our members, we're integrating AI across touchpoints to provide personalized digital service, improve access to care, and further increase satisfaction. We're also improving provider interactions and reducing costs by streamlining administrative tasks automating onboarding, and enhancing contract administration. And for our associates, we're investing in tools that increase productivity, reduce manual tasks, and enhance efficiency across the organization. These are just a few of the AI applications we anticipate in the coming years as we focus on programs that can have the greatest impact, guided by a mission to provide unmatched value to our members, providers, and associates. In summary, our businesses remain fundamentally strong, and we remain confident in the flywheel for long-term growth we're building with our complementary businesses. The issues impacting Medicaid are time-bound, and we're acting with urgency to improve performance and ensure adequate rates that reflect the acuity of our members. We are confident that we're making the right investments to position Elevance Health for strong and sustainable growth over the long term in service of consumers across all age and income levels, and that we will emerge from this period of unprecedented change stronger and even better positioned to serve the growing need for care management and cost containment in our healthcare system. Before closing, I would also like to thank our dedicated associates for their tireless commitment to our mission and for the work they do each and every day to deliver for all of our stakeholders. It is their dedication and passion for those that we're privileged to serve that is reflected in our ongoing recognition as a great place to work for the fifth consecutive year. With that, I'd like to turn the call over to Mark Kay, our CFO. to provide more details on our operating results and outlook.