Humana Inc.

Ladies and gentlemen, thank you for standing by and welcome to the Q3 2022 Humana, Inc. earnings call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question and answer session. To ask a question during the session, you'll need to press star 11 on your touchtone telephone. I would now like to turn the call over to your host, Lisa Stoner, Vice President of Investor Relations. You may begin.

Thank you and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, We'll discuss our third quarter 2022 results and our updated financial outlook for 2022. Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts. Joe Ventura, our chief legal officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public and media to listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the investor relations page of Humana's website, Humana.com, later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K our other filings with the Securities and Exchange Commission in our third quarter 2022 earnings press release as they relate to forward-looking statements and to note in particular that these forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in light of these additional uncertainties and risks along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our investor relations site. Call participants should note that today's discussion includes financial measures that are not in accordance with generally accepted accounting principles or gaps. Management's explanation for the use of these non-GAAP measures and reconciliations of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Thank you, Lisa. Good morning, everyone. We appreciate you joining us. Our third quarter 2022 results reflect the continuation of solid fundamentals and strong execution across the enterprise as seen throughout the year. We reported adjusted earnings per share of $6.88 for the quarter above our initial expectations. The strength of the quarter allowed us to raise our full year 2022 adjusted EPS guidance by 25 cents to $25 at our September investor day. We are pleased to affirm this recently raised outlook representing a compelling 21% growth over 2021. Susan will share additional detail on our third quarter performance and our full year expectation in a moment. We appreciate the opportunity to share our value creation framework at our recent investor day, as well as the subsequent engagement with investors over the last several weeks. We are excited about the company's future and our focus on executing against our strategy to deliver on the commitments communicated. As previously discussed, achievement of our mid-term earnings target of $37 in adjusted EPS in 2025 is underpinned by a return to at or above industry Medicare Advantage membership growth by 2024. Now that we've seen competitor plans for 2023 and the annual enrollment period is underway, we are happy to provide initial expectations for 2023 membership growth today. Based on our understanding of the competitive landscape, we are anticipating individual Medicare Advantage full-year growth of 325,000 to 400,000 members. This represents an expected growth rate of 7.1% to 8.7% in line with our expectation of high single-digit industry growth. As we've spoken about previously, we've made substantial investments in our MA product offering and are confident in our strong competitive position. Through targeted surveys and deep analytics, we've designed products to meet better meet our members' needs. For example, 100% of our dual eligible plans will offer the healthy option allowance, which allows our members the flexibility to direct funds to pay for healthy food, over-the-counter items, transportation, health supplies, rent, and utilities. We are differentiated in this benefit through the wide breadth and flexibility of spending categories, as well as the rollover feature we offer in many geographies. Outside our specific consumer segment strategies, we also improve plan offerings for our broader membership. For example, for our zero premium HMO and LPPO products, We believe we're at parity or above the key competitor plan value in approximately 80% of our markets. We also expanded the footprint of our zero premium LPPO product now offered in over 2,400 counties, a 34% increase year over year to better serve members looking for low cost options with network flexibility. All combined, we believe our plans are providing unique solutions to seniors' most urgent needs, providing both affordability and value, which is especially important given current economic conditions and knowing many seniors are on fixed incomes. Beyond our product investments, evolving our distribution capabilities remain a focus, and we are continuing to advance our omnichannel strategy. As we've previously discussed, we've been working closely with our external partners to improve sales quality through a variety of initiatives. We are confident that we'll continue to maintain strong partnerships and drive better quality through this channel, such as improved retention and better customer satisfaction. Meanwhile, we continue to enhance the capabilities in our internal channels, which tend to provide higher quality sales. We are leveraging improved analytics and artificial intelligence for all inbound calls to drive improved experiences for both our agents and our customers. We believe this, in combination with our refreshed marketing strategy, will result in an increase in internal sales of approximately 20% year over year. Our ability to maintain our leadership position in the MA industry is supported by our excellence in quality and customer experience. Our success demonstrated in areas such as our star ratings, where 96% of our MA members enrolled in plans rated four stars and above for bonus year 2024. Humana has now achieved the highest percentage of members in four plus star contracts across all our national competitors for five consecutive years. Our commitment to quality is also evidence in our CMS audit results, where we once again saw significant improvement in our overall results for CMS's recently completed triennial audit when compared to our 2019 program audit. And finally, we are proud that Humana has been named the best overall Medicare Advantage insurance company by U.S. News and World Report, which created an honor roll based on the Centers for Medicare and Medicaid Services newly released star ratings for Medicare Advantage plans. Additionally, Humana ranked as the best company for member experience and was declared the best company for low premium availability. The durability of our success in these areas reflect our differentiating capabilities, including highly diversified value-based care solutions and locally oriented provider relationship models, use of deep analytics and digital capabilities, first mover deployment of interoperability, as well as customer-centric products and solutions. The entire organization is focused on efforts to continuously raise the bar on quality and member experience so that our members can receive better outcomes and we will continue our relentless pursuit of maintaining our industry leading results. Turning to our billion dollar value creation initiative, I'm pleased to share that we have line of sight to fully realize the $1 billion goal in 2023. which will support the investments for MA growth in 2023 that I just described. The effort has required difficult choices, focused execution, and changes in the company which we have already started to show positive results that we expect to continue over the near and long term. While the formal $1 billion goal has been achieved, we are committed to ongoing improvement and operating leverage with a target of approximately 20 basis points annually on a business mix adjusted. Going forward, we intend to continue our historical focus on productivity, utilizing a framework that has been enhanced with the best practices learned through our value creation efforts. We are focused on running our business in a way that will create sustainability, driving operating leverage, while creating a culture that promotes continuous improvement workflow efficiency, and technology adoption to automate and assist our work wherever possible. We are encouraged by the early indications of this sustainable productivity framework. As an example, I'd like to highlight productivity efforts in our pre-authorization process where we're leveraging an in-house artificial intelligence solution to automatically match incoming faxes to the correct authorization request. This solution creates administrative efficiencies across millions of inbound images. We're also scaling this solution to multiple business units such as pharmacy and are also expanding the application of this type of AI to provide decision support to clinicians, which will result in improvements to authorization turnaround times, reduction friction for providers, and creating a better member experience. Before turning it over to Susan, I'd like to say thank you to our 63,000 employees that bring their best selves to work every day and make our success possible. I appreciate all they do for our members and patients. I would also like to thank our shareholders for their continued support. We are excited about the strong fundamentals of the industry we operate within, our competitive positioning in the MA market for 2023 and beyond, the scaling of our healthcare services offerings, and opportunities to compound our growth through local market integration and continued cost discipline and capital deployment. We look forward to delivering against the commitments we shared with you at Investor Day. With that, I'll turn the call over to Susan.