ELEVANCE HEALTH, INC. – 10-Q – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(In Millions, Except Per Share Data or as Otherwise Stated Herein)
On
restated articles of incorporation to change our name from
27, 2022
ticker symbol "ELV" on
or "
of Financial Condition and Results of Operations ("MD&A") refer to
Health, Inc.
its direct and indirect subsidiaries. References to the "states" include the
This MD&A should be read in conjunction with the accompanying consolidated
financial statements and notes, our consolidated financial statements and notes
as of and for the year ended
Annual Report on Form 10-K.
Results of operations, cost of care trends, investment yields and other measures
for the three and nine months ended
indicative of the results and trends that may be expected for the full year
ending
Overview
humanity. We are the largest health insurer in
medical membership, serving over 47 million medical members through our
affiliated health plans as of
of the
independent health benefit plans. We serve our members as the
licensee for
for
(excluding 30 counties in the
(in the
(excluding the
a majority of these service areas, we do business as
Blue Cross and Blue Shield
Cross
licensees as well as other strategic partners. Through our subsidiaries, we also
serve customers in numerous states as
Health
Care, MMM,
pharmacy benefits management ("PBM") services through our
("IngenioRx") subsidiary. We are licensed to conduct insurance operations in all
50 states, the
As part of our name change to
that over the next several years we will organize our brand portfolio into the
following core go-to-market brands:
•Anthem Blue Cross/
•Wellpoint - we intend to unite select non-BCBSA licensed Medicare, Medicaid and
Commercial plans under the Wellpoint name; and
•Carelon - this brand will bring together our healthcare brands and
capabilities, including our
under a single brand name. We now refer to our
Carelon. In
There are currently no segment changes associated with this branding strategy.
Our branding strategy reflects the evolution of our business from a traditional
health insurance company to a lifetime, trusted health partner, and given this
evolution we are in the process of reviewing and modifying how we will manage
our businesses in the future.
For additional information about our organization, see Part I, Item 1,
"Business" and Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations," included in our 2021 Annual
Report on Form 10-
-42-
--------------------------------------------------------------------------------
K. Additional information on our segments can be found in this MD&A and in Note
15, "Segment Information" of the Notes to Consolidated Financial Statements
included in Part I, Item 1 of this Form 10-Q.
COVID-19
The COVID-19 pandemic continues to evolve, impacting the global economy, causing
market instability and uncertainty in the labor market and putting pressure on
the healthcare system, and it has impacted, and will likely continue to impact,
our membership, benefit expense and member behavior, including how members
access healthcare services. The full extent of the impact of the COVID-19
pandemic will depend on future developments, which are highly uncertain and
cannot be predicted at this time. We will continue to monitor the COVID-19
pandemic as well as resulting legislative and regulatory changes to manage our
response and assess and mitigate potential adverse impacts to our business. For
additional discussion regarding our risks related to the COVID-19 pandemic and
our other risk factors, see Part I, Item 1A, "Risk Factors" included in our 2021
Annual Report on Form 10-K.
Business Trends
We made the decision to modestly expand our participation in the Individual
on-exchange products through state- or federally-facilitated marketplaces (the
"Public Exchange") for 2022 after also expanding in 2021. As a result, for 2022
we are offering Public Exchange products in 122 of the 143 rating regions in
which we operate, in comparison to 103 of 143 rating regions in 2021. Our
strategy has been, and will continue to be, to only participate in rating
regions where we have an appropriate level of confidence that these markets are
sustainable, given consideration to factors including, but not limited to,
expected financial performance, regulatory environment and underlying market
characteristics. Changes to our business environment are likely to continue as
elected officials at the national and state levels continue to enact, and both
elected officials and candidates for election continue to propose, significant
modifications to existing laws and regulations, including changes to taxes and
fees. In addition, the continuing growth in our government-sponsored business
exposes us to increased regulatory oversight.
Our IngenioRx subsidiary markets and offers PBM services to our affiliated
health plan customers throughout the country, as well as to customers outside of
the health plans we own. Our comprehensive PBM services portfolio includes
features such as formulary management, pharmacy networks, a prescription drug
database, member services and mail order capabilities. IngenioRx delegates
certain PBM administrative functions, such as claims processing and prescription
fulfillment, to
Corporation, pursuant to a five-year agreement. With IngenioRx, we retain the
responsibilities for clinical and formulary strategy and development, member and
employer experiences, operations, sales, marketing, account management and
retail network strategy.
Pricing Trends: We strive to price our health benefit products consistent with
anticipated underlying medical cost trends. We continue to closely monitor the
COVID-19 pandemic (including new COVID-19 variants, which may be more contagious
or severe, or less responsive to treatment or vaccines) and the impacts it may
have on our pricing, such as surges in COVID-19 related hospitalizations,
infection rates, the cost of COVID-19 vaccines, testing and treatment and the
return of non-COVID-19 healthcare utilization to historical utilization
patterns. We frequently make adjustments to respond to legislative and
regulatory changes as well as pricing and other actions taken by existing
competitors and new market entrants. Product pricing in our Commercial &
Specialty Business segment, including our Individual and small group lines of
business, remains competitive. Revenues from the Medicare and Medicaid programs
are dependent, in whole or in part, upon annual funding from the federal
government and/or applicable state governments.
Medical Cost Trends: Our medical cost trends are primarily driven by increases
in the utilization of services across all provider types and the unit cost
increases of these services. We work to mitigate these trends through various
medical management programs such as care and condition management, program
integrity and specialty pharmacy management and utilization management, as well
as benefit design changes. There are many drivers of medical cost trends that
can cause variance from our estimates, such as changes in the level and mix of
services utilized, regulatory changes, aging of the population, health status
and other demographic characteristics of our members, epidemics, pandemics,
advances in medical technology, new high-cost prescription drugs, provider
contracting inflation and healthcare provider or member fraud.
At its onset, the COVID-19 pandemic caused a decrease in utilization of
non-COVID-19 health services, which decreased our claim costs in 2020. As the
pandemic continued through 2021, our non-COVID-19 healthcare utilization
-43-
--------------------------------------------------------------------------------
experience gradually increased and largely normalized. Our COVID-19 related
healthcare expenses increased during 2021 as new variants (Delta and Omicron)
emerged and vaccinations and boosters became available.
The COVID-19 surge quickly declined during the first quarter of 2022, with
COVID-19 inpatient authorizations, provider-based tests, visits and vaccinations
all decreasing to lower levels by the end of the first nine months of 2022;
concurrently, non-COVID-19 healthcare utilization throughout the first nine
months of 2022 recovered from lower levels earlier in the year. We expect the
fourth quarter of 2022 will have higher claim costs related to a more normal flu
season as well as incremental COVID-19 related healthcare expenses compared to
the second and third quarters of 2022. The ongoing cost and volume of covered
services related to the COVID-19 pandemic may have a material adverse effect on
our future claim costs. We continue to closely monitor the COVID-19 pandemic and
its impacts on our business, financial condition, results of operations and
medical cost trends.
For additional discussion regarding business trends, see Part I, Item 1,
"Business" included in our 2021 Annual Report on Form 10-K.
Regulatory Trends and Uncertainties
Federal and state governments have enacted, and may continue to enact,
legislation and regulations in response to the COVID-19 pandemic that have had,
and we expect will continue to have, a significant impact on health benefits,
consumer eligibility for public programs and our cash flows for all lines of
business and which have introduced increased uncertainty around our cost
structure. These actions, which are or have been in effect for various
durations, provide, among other things: mandates to waive cost-sharing for
COVID-19 testing, vaccines and related services; financial support to healthcare
providers; and mandates related to prior authorizations, payment levels to
providers, consumer enrollment windows and telehealth services.
The current public health emergency ("PHE") has been extended to
Medicaid eligibility recertification will resume when the PHE ends, meaning that
if the PHE ends in
recertifications resume, we expect a decline in our Medicaid membership. At the
same time, we expect growth in our Commercial risk-based and fee-based plans,
including through the Public Exchange, as members exiting Medicaid in our
fourteen Commercial states seek coverage elsewhere.
The Inflation Reduction Act of 2022 (the "Inflation Reduction Act"), which was
signed into law in
business including an extension of the American Rescue Plan Act of 2021's
enhanced Premium Tax Credits ("PTC") through 2025; providing a one percent
excise tax on repurchases of stock made after
limited set of prescription drugs in Medicare Parts B and D beginning in 2026;
instituting caps on insulin cost sharing in Medicare Parts B and D; redesigning
of the Medicare Part D benefit; adding a requirement that drug manufacturers pay
rebates if prices increase beyond inflation; and delaying implementation of the
enhanced PTC will likely allow for growth in Individual exchange market
enrollment, as Medicaid eligibility recertifications resume, supporting
continuity of coverage for more people.
The health plan price transparency regulations issued in
begin disclosing in
regarding negotiated rates for all covered items and services between the plan
or issuer and in-network providers and historical payments to, and billed
charges from, out-of-network providers. Additionally, beginning in 2023, we will
be required to make available to members personalized out-of-pocket cost
information and the underlying negotiated rates for 500 covered healthcare items
and services, including prescription drugs. In 2024, this requirement will
expand to all items and services.
The Consolidated Appropriations Act of 2021 (the "Appropriations Act") has
impacted and in the future may have a material effect upon our business,
including procedures and coverage requirements related to surprise medical bills
and new mandates for continuity of care for certain patients, price comparison
tools, disclosure of broker compensation, mental health parity reporting, and
reporting on pharmacy benefits and drug costs. The requirements of the
Appropriations Act applicable to us have varying effective dates, some of which
were effective in
enactment of the Appropriations Act.
-44-
--------------------------------------------------------------------------------
Since its enactment in 2010, the Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, as amended
(collectively, the "ACA"), has introduced new risks, regulatory challenges and
uncertainties, has impacted our business model and strategy and has required
changes in the way our products are designed, underwritten, priced, distributed
and administered. We expect the ACA will continue to significantly impact our
business and results of operations, including pricing, minimum medical loss
ratios and the geographies in which our products are available, and as a result
of future modifications of, and guidance by federal regulatory agencies related
to, the ACA and our businesses more broadly. We will continue to evaluate the
impact of the ACA as any further developments occur.
For additional discussion regarding regulatory trends and uncertainties and risk
factors, see Part I, Item 1, "Business - Regulation", Part I, Item 1A, "Risk
Factors", and the "Regulatory Trends and Uncertainties" section of Part II, Item
7, "Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our 2021 Annual Report on Form 10-K.
Other Significant Items
Business and Operational Matters
As mentioned above, we began operating as
name change is intended to better reflect our business and our journey from a
traditional health benefits organization to a lifetime, trusted health partner.
clinical, behavioral, pharmacy and complex-care solutions that promote whole
health.
On
("Integra"). Integra is a managed long-term care plan that serves New York state
Medicaid members, enabling adults with long-term care needs and disabilities to
live safely and independently in their own homes.
On
its Medicare Advantage plan, Medicaid plan and other affiliated companies. MMM
is a
its Medicare Advantage and Medicaid members with a whole health experience
through its network of specialized clinics and wholly owned independent
physician associations. This acquisition aligns with our vision to be an
innovative, valuable and inclusive healthcare partner by providing care
management programs that improve the lives of the people we serve.
On
myNEXUS is a comprehensive home-based nursing management company for payors and,
at the time of acquisition, delivered integrated clinical support services for
Medicare Advantage members across twenty states. This acquisition aligns with
our strategy to manage integrated, whole person multi-site care and support by
providing national, large-scale expertise to manage nursing services in the home
and facilitate transitions of care.
For additional information, see Note 3, "Business Acquisitions," of the Notes to
Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
In 2020, we introduced enterprise-wide initiatives to optimize our business and
as a result, recorded a charge of
expenses. We believe these initiatives largely represent the next step forward
in our progression towards becoming a more agile organization, including process
automation and a reduction in our office space footprint. In the fourth quarter
of 2021, we identified additional office space reductions and related fixed
asset impairments due to the continuing COVID-19 pandemic and recorded a charge
of
information, see Note 4, "Business Optimization Initiatives," of the Notes to
Consolidated Financial Statements included in Part I, Item 1 of this Quarterly
Report on Form 10-Q.
Litigation Matters
In the consolidated multi-district proceeding in the
Court for the Northern District of Alabama
Cross Blue Shield Antitrust Litigation ("BCBSA Litigation"), the BCBSA and
Cross
approved a settlement agreement and release with the plaintiffs representing a
putative nationwide class of health plan subscribers (the "Subscriber Settlement
Agreement"), which
-45-
--------------------------------------------------------------------------------
agreement required the Court's approval to become effective. Generally, the
lawsuits in the BCBSA Litigation challenge elements of the licensing agreements
between the BCBSA and the independently owned and operated Blue plans. The cases
were brought by two putative nationwide classes of plaintiffs, health plan
subscribers and providers. The Subscriber Settlement Agreement applies only to
the putative subscriber class. No settlement agreement has been reached with the
provider plaintiffs at this time, and the defendants continue to contest the
consolidated cases brought by the provider plaintiffs.
In
compliance with the Subscriber Settlement Agreement, in
Company paid its remaining
account, for an aggregate settlement payment by the Company of
notices of appeal of the final approval order were filed by the
deadline. After all appellate rights have been exhausted in a manner that
affirms the Court's final order and judgment, the defendants' payment and
non-monetary obligations under the Subscriber Settlement Agreement will become
effective. For additional information regarding the BCBSA Litigation, see Note
11, "Commitments and Contingencies - Litigation and Regulatory Proceedings -
Blue Cross Blue Shield Antitrust Litigation," of the Notes to Consolidated
Financial Statements included in Part I, Item 1 of this Quarterly Report on Form
10-Q.
Selected Operating Performance
For the twelve months ended
increased by 2.2 million, or 4.9%. Our membership increase was primarily driven
by organic growth in our Commercial & Specialty Business segment, and in
particular in our Group fee-based membership, and organic growth in our
Government Business segment primarily driven by the continued temporary
suspension of Medicaid eligibility recertification during the COVID-19 pandemic.
Operating revenue for the three months ended
increase of
Operating revenue increased primarily as a result of higher premium revenue in
our Medicaid business, including due to membership growth from the continued
temporary suspension of Medicaid eligibility recertification during the COVID-19
pandemic, the acquisition of Integra in the second quarter of 2022 and the
acquisition of Ohio Medicaid members through the purchase of a Medicaid contract
in the first quarter of 2022. Premium rate increases to cover medical cost
trends and membership growth in our Medicare Advantage and Commercial &
Specialty Business risk-based businesses also generated higher premium revenue.
Finally, the increase in operating revenue was further attributable to increased
pharmacy product revenue in our IngenioRx segment, resulting from growth in
membership and higher script volume.
Operating revenue for the nine months ended
increase of
This increase in operating revenue was primarily driven by higher premium
revenue in our Medicaid business, as noted above, the acquisition of MMM in the
second quarter of 2021 and the retroactive reinstatement of a Medicaid directed
payment program. Membership growth and premium rate increases to cover medical
cost trends in our Medicare Advantage and Commercial & Specialty Business
risk-based businesses also generated higher premium revenue. Finally, the
increase in operating revenue was further attributable to increased pharmacy
product revenue in our IngenioRx segment resulting from higher script volume,
the acquisition of Ohio Medicaid members through the purchase of a Medicaid
contract in the first quarter of 2022 and the acquisition of Integra in the
second quarter of 2022.
Net income for the three months ended
of
in net income was primarily due to operating gain increases in our Commercial &
Specialty Business, Other and IngenioRx segments, partially offset by increased
intangible amortization in 2022 related to recent acquisitions and the
rebranding of our products, as we expect to retire certain trade names in the
future, and a decline in our Government Business segment operating results.
Net income for the nine months ended
of
net income was primarily due to operating gain increases in our Government
Business, Other and IngenioRx segments, partially offset by losses on financial
instruments in 2022 as compared to gains in 2021 and increased intangible
amortization in 2022 related to recent acquisitions and the rebranding of our
products, as we expect to retire certain trade names in the future. Our
Commercial & Specialty Business segment had a slight decline year over year.
-46-
--------------------------------------------------------------------------------
Our fully-diluted shareholders' earnings per share ("EPS") was
three months ended
EPS of
for the three months ended
1.5%, compared to the three months ended
for the three months ended
shareholders' income, as well as from the impact of fewer diluted shares
outstanding.
Our fully-diluted shareholders' EPS was
nine months ended
compared to the nine months ended
the nine months ended
shareholders' income, as well as from the impact of fewer diluted shares
outstanding.
Operating cash flow for the nine months ended
CMS payments received in the current year, partially offset by the Subscriber
Settlement Agreement payment made in
Membership
The following table presents our medical membership by reportable segment and
customer type as of
membership by product. The medical membership and other membership data
presented are unaudited and in certain instances include estimates of the number
of members represented by each contract at the end of the period. For a more
detailed description of our medical membership, see the "Membership" section of
Part II, Item 7, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" included in our 2021 Annual Report on Form 10-K.
September 30
(In thousands) 2022 2021 Change % Change
Medical Membership
Commercial & Specialty Business:
Individual 800 769 31 4.0 %
Group Risk-Based 3,988 3,946 42 1.1 %
Commercial Risk-Based 4,788 4,715 73 1.5 %
BlueCard® 6,453 6,166 287 4.7 %
Group Fee-Based 20,184 19,370 814 4.2 %
Commercial Fee-Based 26,637 25,536 1,101 4.3 %
Total Commercial & Specialty Business 31,425 30,251 1,174 3.9 %
Government Business:
Medicare Advantage 1,969 1,853 116 6.3 %
Medicare Supplement 945 947 (2) (0.2) %
Total Medicare 2,914 2,800 114 4.1 %
Medicaid 11,319 10,391 928 8.9 %
Federal Employees Health Benefits 1,625 1,629 (4) (0.2) %
Total Government Business 15,858 14,820 1,038 7.0 %
Total Medical Membership 47,283 45,071 2,212 4.9 %
Other Membership
Life and Disability Members 4,796 4,695 101 2.2 %
Dental Members 6,655 6,637 18 0.3 %
Dental Administration Members 1,577 1,486 91 6.1 %
Vision Members 9,628 7,974 1,654 20.7 %
Medicare Part D Standalone Members 274 438 (164) (37.4) %
-47-
--------------------------------------------------------------------------------
Medical Membership
Medical membership increased in both our Commercial & Specialty Business and
Government Business segments primarily due to organic growth. Our Commercial &
Specialty Business segment experienced organic growth in our Group fee-based and
risk-based membership as sales exceeded lapses. BlueCard® membership increased
due to favorable membership activity at other BCBSA plans whose members reside
in or travel to our licensed areas. Individual membership increased due to our
Public Exchange expansion in 2022. Our Government Business segment organic
growth was primarily driven by the continued temporary suspension of Medicaid
eligibility recertification during the COVID-19 pandemic. In addition, Medicaid
membership was positively impacted by the acquisition of Ohio Medicaid members
through the purchase of a Medicaid contract in the first quarter of 2022 and the
acquisition of Integra in the second quarter of 2022. Medicare Advantage organic
growth due to sales exceeding lapses also contributed to the overall Government
Business segment growth.
Other Membership
Our other membership can be impacted by changes in our medical membership, as
our medical members often purchase our other products that are ancillary to our
health business. Life and disability membership increased primarily due to new
sales of disability products, partially offset by lapses and negative in-group
change of life membership. Dental membership increased primarily due to sales
exceeding lapses in our Group risk-based accounts and penetration increases in
our Federal Employees Health Benefits ("FEHB") program, partially offset by the
loss of a significant Group fee-based account. Dental administration membership
increased primarily due to increased sales to other BCBS plans associated with
the FEHB program. Vision membership increased primarily due to the launch of a
new entry level vision product in our Group markets. Medicare Part D Standalone
membership declined as we discontinued certain legacy products.
-48-
--------------------------------------------------------------------------------
Illinois fines Celtic health insurance company $1.25 million [Chicago Tribune]
Genworth settles class action suit over steep universal life increases
Advisor News
- Nearly half of retirees lack a structured decumulation strategy
- 83% of financial advisors are happy they switched firms
- Reducing debt is Americans’ No. 1 financial priority for 2025
- How financial advisors can help clients improve financial stability
- More than half of Gen X investors support parents or children
More Advisor NewsAnnuity News
Health/Employee Benefits News
- AP Top News at 12:58 p.m. EST
- UnitedHealthcare CEO is killed in a 'targeted shooting' outside a New York hotel, officials say
- Luma Financial Technologies Partners with Advantage Insurance Network, Inc. (AIN) to Enhance Annuity and Life Insurance Access
- Union County to hold the line on taxes
- NAIFA: Medicare Advantage cuts to agent commissions ‘extremely detrimental’ to beneficiaries
More Health/Employee Benefits NewsLife Insurance News