Humana Inc.

Good morning, and thank you for standing by. Welcome to the second quarter 2023 Humana, Inc. Earnings Conference 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 1-1 on your telephone. You will then hear an automated message advising you your hand is raised. To withdraw your question, press star 1-1 again. Please be advised that today's conference is being recorded. I would now like to hand the conference over to Lisa Stoner, Vice President of Investor Relations. Please go ahead.

Thank you and good morning. In a moment, Bruce Broussard, Humanities President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our second quarter 2023 results and our financial outlook for 2023. Following these prepared remarks, we will open up the lines for a question and answer session with industry analysts. Jo 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, and our second quarter 2023 earnings press release as they relate to forward-looking statements along with other risks discussed in our SEC filings. We undertake no obligation to publicly address or update any forward-looking statements in 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 GAAP. 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, and good morning, everyone, and thank you for joining us. Today, Humana reported financial results for the second quarter of 2023 with adjusted earnings per share of $8.94, in line with our expectations. Results for the quarter include the impact of the higher than anticipated Medicare Advantage utilization recently disclosed, which has stabilized and is tracking in line with our updated expectations. And we're supported by in line to slightly positive results from all other lines of business. We reaffirmed our full year 2023 adjusted EPS guidance of at least $28.25, which was an increase by 25 cents with our first quarter earnings release and reflects a 12% increase over 2022. In addition, we are pleased to raise our guidance for full-year individual MA membership growth by an additional 50,000 members. We now anticipate adding approximately 825,000 members in 2023, reflecting an impressive 18% growth rate. Our ability to deliver on our targeted earnings growth rate in 2023 while also achieving significant membership growth is supported by our continued focus on making disciplined investments driving productivity, and delivering consistent quality, including stars and net promoter score. In a moment, Susan will provide additional details on our second quarter performance and full year expectations, including a deeper dive into utilization trends. But first, I'd like to take a few minutes to reinforce the strength of Humana, including our differentiated capabilities that enable our leading platform while highlighting the continued advancement of our integrated care delivery strategy. I will start with the strength of our MA platform. The industry-leading individual MA growth we've achieved in 2023 creates significant momentum as we move into 2024 and advance towards our 2025 adjusted EPS target of $37. The growth we've seen in 2023 far exceeds initial expectations and as previously shared represents high quality growth supported by better than expected retention and a greater proportion of our new sales coming from competitors than initially planned. We anticipate capturing 40% of the industry growth in 2023, increasing our overall market share by 170 basis points to just over 20%. at year end. As part of the growth, we've seen a substantial increase in age-ins as a percentage of total sales. While full year sales are anticipated to be 44% higher in 2023 than in 2022, age-in sales are expected to be 75% higher year over year, representing a significant contributor to our successful sales performance. The improvement in sales to agents further speaks to the quality of our growth, as retention for agents runs approximately 5% to 8% better as compared to our overall new membership base at their first re-enrollment cycle. Further, agents initially run a higher benefit expense ratio than average new member, as the MA program is structured such that a plan only receives demographic related risk adjustment payments for these individuals for the initial 18 months, which does not align with their health status and related risk, resulting in a larger margin expansion opportunity on these members over time. Our leading membership growth achieved in 2023, strong fundamentals and best-in-class quality positions as well to sustainable grow or above the industry rate. As we look ahead to 2024, we believe the MA industry will continue to see strong growth, fueled by MA's compelling value proposition compared to original Medicare, providing incremental benefits valued at approximately $2,400 annually. Throughout the 2024 MA bid preparation process, we were conscious of the disruption in shopping as likely to occur in the market due to the benefit reductions expected in the industry as a result of the negative rate environment and the star's headwind for certain competitors. As a result of this disruption, we believe Humana has the opportunity for another robust year of membership growth. Our 2024 product strategy was informed by extensive consumer and broker research and in-depth analytics regarding what Medicare eligible consumers prefer. We focused on preserving benefits identified as most important, continuing to provide differentiated offerings that focus on improving health outcomes, and selectively enhancing our products with improvements such as increasing the number of members in 2024 that will be on a zero premium plan. We are also prioritizing maintaining product value for duals, those eligible for Medicare and Medicaid, given the unique healthcare and social needs of this vulnerable population. Input from our clinical analytics and health equity teams helped inform product design choices that will continue to support the needs of our diverse customer population. Importantly, we will enter the 2024 selling season in a position of strength, supported by momentum from our compelling 2023 growth and our continued industry-leading quality. This strength is bolstered by strong relationships with our broker partners, as well as ongoing efforts to diversify our channel mix. This diversification includes the growth of our internal payer agnostic channel, which was reinforced by our acquisition of IFG last August. We leveraged our best-in-class sales process and technology to quickly and efficiently integrate IFG, leading to a significant year-over-year channel growth with selling agents increasing by 26% and MA application volume more than doubling. We also take pride in the consistent recognition we receive from organizations such as U.S. News & World Report and Forrester for our excellent customer experience and member-centric approach. All in, we are excited about the opportunity ahead. Turning to Medicaid, our track record of organic success in this space continues, and we are pleased to recently announce that Humana has been recommended by the Oklahoma Health Care Authority to deliver healthcare coverage to Medicaid beneficiaries across the state, which is anticipated to start in early to mid-2024. After successfully implementing the Ohio and Louisiana contracts in early 2023, we look forward to beginning to serve members in both Indiana and Oklahoma in 2024, bringing our total Medicaid footprint to nine states and approaching approximately 1.5 million members by year end 2024. Now moving to our Centerwell care delivery capabilities. We continue to expand our Centerwell primary care platform now operating 250 centers serving 272,000 patients. Engaging and retaining patients is critical to driving improved health outcomes and advancing towards our $3 million contribution margin target in each center. We've seen improvement in both of these areas, with retention improving 220 basis points year over year, while the percentage of patients that have been seen at least once as of June 30th increased from 78% in 2022 to 87% in 2023. Further, we remain on track to end the year at the high end of our previously communicated annual center growth of 30 to 50 through a combination of de novo build and programmatic M&A. And I'm pleased with their progress our primary care organization is making to advance our clinical capabilities, driving operational efficiency, and implementing other actions that we believe will largely mitigate the ultimate impact of risk adjustment model changes that will be phased in over the next three years. In home, we continue to accelerate our value-based strategy, now covering approximately 830,000 members of our MA members under a value-based payment model covering home health, DME, and infusion services, and expect to expand this in 2024 and beyond as we are on track towards our goal of covering 40% of our MA members with a value-based model by 2025. We are seeing solid results from this model. In North Carolina and Virginia, where the model was implemented in late 2022, Centerwell home health hospital admissions rates are approximately 210 basis points lower than other providers. In addition, our home business also now manages DME spend under a value-based payment model for an additional 4.5 million Humana MA members, delivering incremental value to our insurance segment. We expect positive enterprise value creation from the value-based home health model in 2023 and remain on target to drive $110 to $150 million of annual enterprise value creation by 2025. Within Centerwell Pharmacy, we continue to advance our clinical capabilities and are seeing a year-over-year increase in adherence measures. We've seen an increase in adherence to hypertension, hyperlipidemia, diabetes, medications ranging from 20 to 30 basis points year-over-year, which helps STARS and clinical outcome measures. Across these three categories, we continue to see that Humana members who've utilize CenterWell Pharmacy have fewer inpatient admits per thousand as compared to non-CenterWell Pharmacy users. In addition, our CenterWell specialty pharmacy demonstrates improved patient outcomes by driving longer therapy durations and higher adherence levels. As an example, patients in the Oncology Center of Excellence have a 1.8 times longer duration and a 200 basis points better adherence than patients not engaged with the center of excellence. Expansion of our center wall assets complement the integration of our individual health service businesses and local markets, which will create further value for our shareholders and for our customers. Before turning it over to Susan, I'd like to give a brief update on the integration work we currently have underway. Our belief is we can deliver greater member and patient satisfaction retention, and clinical outcomes for these members. This is based on our ability to further integrate clinical and operational workflows while delivering a more seamless experience for our common members and patients. As an example, we estimate drug costs, review plan benefits, and screen for patient assistance programs for members in our wholly-owned centers. In addition, our CenterWell home health and primary care teams review high-risk patients, and collaborate on a more comprehensive care plan, prioritizing health-related concerns that go beyond the original home health orders, greatly reducing risk of complications and unnecessary ER visits and avoidable admissions. The primary care physician, social worker, and home health nurse work in coordination with the health plan to take advantage of plan benefits to address health-related social needs like food, housing and security, transportation needs, and social isolation. We will continue to innovate and advance towards a more integrated clinical model that leverages our collective Humana and CenterWell capabilities to deliver improved experiences and health outcomes for our members. We are encouraged by the early results of our integration work and are actively expanding our focus markets from two in 2022 to more than 20 by year end. We look forward to sharing more on this important work going forward. In closing, I'd reiterate that Humana's fundamentals are strong and we are confident in our ability to navigate through the near-term impacts of our higher than expected MA utilization. While continuing to advance our strategy, and importantly, we remain committed to our 2025 adjusted EPS target of $37, reflecting a 14% CAGR from 2022 to 2025. Our confidence in our ability to deliver on this compelling earnings growth target is supported by our impressive 2023 membership growth, strong MA positioning in 2024, consistent quality scores, and continued growth and integration in Centerwell, all of which is complemented by our continued focus on productivity and disciplined capital deployment. With that, I'll turn the call over to Susan.