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)
This Management's Discussion and Analysis of Financial Condition and Results of
Operations ("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
included in our 2022 Annual Report on Form 10-K. References to the terms "we,"
"our," "us," or "
Health, Inc.
its direct and indirect subsidiaries. References to the "states" include the
Results of operations, cost of care trends, investment yields and other measures
for the three months ended
results and trends that may be expected for the full year ending
2023
Overview
humanity. We are one of the largest health insurers in
terms of medical membership, serving greater than 48 million medical members
through our affiliated health plans as of
licensee of the
of independent health benefit plans, and serve members as the
Cross and Blue Shield
insurance operations in all 50 states, the
through our subsidiaries. Through various subsidiaries, we also offer pharmacy
services and other healthcare-related services.
As we announced in 2022, over the next several years we are organizing 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 brings together our healthcare-related brands and
capabilities, including our CarelonRx and Carelon Services businesses, under a
single brand name.
Our branding strategy reflects the evolution of our business from a traditional
health insurance company to a lifetime, trusted health partner. Given this
evolution, we reviewed and modified how we manage our business, monitor our
performance and allocate our resources, and made changes to our reportable
segments beginning in the first quarter of 2023. The results of our operations
are now reported in the following four reportable segments: Health Benefits
(aggregates our previously reported Commercial & Specialty Business and
Government Business segments), CarelonRx, Carelon Services (previously included
in our Other segment) and Corporate & Other (our businesses that do not
individually meet the quantitative thresholds for an operating segment, as well
as corporate expenses not allocated to our other reportable segments). In 2022,
we managed and presented our operations through the following four reportable
segments: Commercial & Specialty Business, Government Business, CarelonRx and
Other. Previously reported information in this Form 10-Q has been reclassified
to conform to the new presentation. For additional information, see Note 14,
"Segment Information," of the Notes to Consolidated Financial Statements
included in Part I, Item 1 of this Form 10-Q.
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 2022 Annual
Report on Form 10-K.
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Business Trends
In 2022, we made the decision to modestly expand our participation in the
Individual state- or federally-facilitated marketplaces (the "Public Exchange")
for 2023, after also modestly expanding in 2022. As a result, for 2023, we are
offering Individual Public Exchange products in 138 of the 143 rating regions in
which we operate, in comparison to 122 of 143 rating regions in 2022. 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
on a path toward sustainability, including, but not limited to, factors such as
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 CarelonRx subsidiary markets and offers pharmacy services to our affiliated
health plan customers throughout the country, as well as to customers outside of
the health plans we own. Our comprehensive pharmacy services portfolio includes
features such as formulary management, pharmacy networks, specialty and home
delivery pharmacy services and member services. CarelonRx delegates certain
pharmacy services, such as claims processing and prescription fulfillment, to
pursuant to a five-year agreement, which is set to terminate on
2024
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. 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. 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. Product pricing remains
competitive.
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, labor costs and healthcare provider or member fraud.
Drivers of medical cost trend in the first quarter of 2023 include decreases in
COVID-19 healthcare related expenses compared to prior year experience. The
Omicron variant increased COVID-19 healthcare related expenses in the beginning
of 2022, then quickly declined during the first quarter of 2022. COVID-19 claim
costs for the first quarter of 2023 were lower than the prior year. The ongoing
cost and volume of covered services related to the COVID-19 pandemic and a
future shift of government supplied vaccinations and treatments to privatized,
full cost price points may have an adverse effect on our future claim costs. We
continue to closely monitor the COVID-19 pandemic and its impacts on our medical
cost trends.
For additional discussion regarding business trends, see Part I, Item 1,
"Business" included in our 2022 Annual Report on Form 10-K.
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Regulatory Trends and Uncertainties
With the declaration of COVID-19 as a public health emergency ("PHE") in
2020
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 of our 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 Biden
administration renewed the PHE on
intend for the PHE to expire on
Under the Consolidated Appropriations Act of 2023 (the "2023 Appropriations
Act"),
a result, states were permitted to begin removing ineligible beneficiaries from
their Medicaid programs starting
expect a decline in our Medicaid membership. At the same time, we expect growth
in our commercial risk-based and fee-based plans and Medicare, including through
the Public Exchanges, as members exiting Medicaid in our 14 commercial states
seek coverage elsewhere.
The Inflation Reduction Act of 2022, which was signed into law in
contains a variety of provisions that impact our business including an extension
of the American Rescue Plan Act of 2021's enhanced Premium Tax Credits ("PTC")
through 2025; imposing a new corporate alternative minimum tax; providing a one
percent excise tax on repurchases of stock made after
allowing CMS to negotiate prices on a 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 the implementation of the
Medicare
likely allow for growth in Individual exchange market enrollment, as Medicaid
eligibility recertifications resume, supporting continuity of coverage for more
people.
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
since the enactment of the Appropriations Act.
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 are
now 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.
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. We also expect
further and ongoing regulatory guidance on a number of issues related to
Medicare, including evolving methodology for ratings and quality bonus payments.
CMS also frequently proposes changes to its program that audits data submitted
under the risk adjustment programs in ways that could increase financial
recoveries from plans. 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,
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"Management's Discussion and Analysis of Financial Condition and Results of
Operations" included in our 2022 Annual Report on Form 10-K.
Other Significant Items
Business and Operational Matters
On
and disability businesses to
provider of financial protection products and services for employers and
individuals. Upon closing, we and The Standard will enter into a product
distribution partnership. The divestiture is expected to close by the end of the
first quarter of 2024 and is subject to standard closing conditions and
customary approvals.
On
of Louisiana
healthcare plans to the Individual,
markets, primarily in the
mission to become a lifetime, trusted health partner as we bring our innovative
whole-health solutions to BCBSLA's members. The acquisition is expected to close
by the end of the fourth quarter of 2023 and is subject to standard closing
conditions and customary approvals.
On
subsidiaries ("BioPlus") from
acquisition, BioPlus was one of the largest independent specialty pharmacy
organizations in
CarelonRx, seeks to connect payors and providers of specialty pharmaceuticals to
meet the medication therapy needs of patients with complex medical conditions.
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
("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.
For additional information, see Note 3, "Business Acquisitions and
Divestitures," of the Notes to Consolidated Financial Statements included in
Part I, Item 1 of this 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 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 subscriber class. The defendants continue to
contest the consolidated cases brought by the provider plaintiffs.
In
Settlement Agreement (the "Final Approval Order"). In compliance with the
Subscriber Settlement Agreement, the Company paid
Approval Order were filed prior to the
appeals are proceeding in the
Circuit
affirms the Court's Final Approval Order, the defendants' payment and
non-monetary obligations under the Subscriber Settlement Agreement will become
effective and the funds held in escrow will be distributed in accordance with
the Subscriber Settlement Agreement. For additional information regarding the
BCBSA Litigation, see Note 10, "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
Form 10-Q.
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Selected Operating Performance
For the twelve months ended
by 1.3 million, or 2.9%. Our membership increase was primarily driven by growth
in our Medicaid business, increased sales to our commercial fee-based employers
and growth in both our Medicare Advantage and Individual Public Exchange
products, partially offset by attrition in our Group risk-based business.
Operating revenue for the three months ended
increase of
Operating revenue increased primarily as a result of higher premiums due to
membership growth in our Medicaid business, membership growth in our Medicare
Advantage business, premium rate increases in our Health Benefits business to
more accurately reflect current cost of care and growth in CarelonRx pharmacy
product revenue driven by growth in integrated medical and standalone pharmacy
customers.
Net income for the three months ended
income was primarily due to operating gain increases in our business segments,
increases in net investment income and lower net losses on financial
instruments. These increases were partially offset by increased amortization of
other intangible assets, higher income taxes and increased interest expense.
Our fully-diluted shareholders' earnings per share ("EPS") was
three months ended
of
three months ended
Operating cash flow for the three months ended
of April 2023's premium payments from CMS, timing of working capital changes and
higher net income for the three months ended
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Membership and Other Metrics
The following table presents our medical membership by customer type as of
other metrics. The membership data and other metrics presented are unaudited and
in certain instances include estimates of the number of members represented by
each contract at the end of the period. CarelonRx Quarterly Adjusted Scripts
metric represents adjusted script volume based on the number of days a
prescription covers. On an adjusted basis, one 90-day script counts the same as
three 30-day scripts. The Carelon Services Consumers Served metric represents
the number of consumers receiving one or more healthcare-related services from
Carelon Services who are members of our affiliated health plans as well as those
who are members of non-affiliated health plans. 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 2022 Annual Report on Form 10-K.
March 31
2023 2022 Change % Change
Medical Membership (in thousands)
Individual 942 818 124 15.2 %
Employer Group Risk-Based 3,798 4,028 (230) (5.7) %
Commercial Risk-Based 4,740 4,846 (106) (2.2) %
BlueCard® 6,607 6,370 237 3.7 %
Employer Group Fee-Based 20,278 20,148 130 0.6 %
Commercial Fee-Based 26,885 26,518 367 1.4 %
Medicare Advantage 2,053 1,921 132 6.9 %
Medicare Supplement 925 939 (14) (1.5) %
Total Medicare 2,978 2,860 118 4.1 %
Medicaid 11,889 10,919 970 8.9 %
Federal Employees Health Benefits ("FEHB") 1,632 1,632 - - %
Total Medical Membership 48,124 46,775 1,349 2.9 %
Other Membership (in thousands)
Life and Disability Members 4,771 4,679 92 2.0 %
Dental Members 6,743 6,649 94 1.4 %
Dental Administration Members 1,697 1,588 109 6.9 %
Vision Members 9,904 9,211 693 7.5 %
Medicare Part D Standalone Members 264 279 (15) (5.4) %
Other Metrics (in millions)
CarelonRx Quarterly Adjusted Scripts 75.7 73.0 2.7 3.7 %
Carelon Services Consumers Served 104.0 104.0 - - %
Medical Membership
Medical membership increased primarily due to growth in our Medicaid business,
increased sales to our commercial fee-based employers and growth in both our
Medicare Advantage and Individual Public Exchange products, partially offset by
attrition in our
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. Dental membership increased primarily due to new
sales in our
program. Dental administration membership increased primarily due to favorable
in-
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group change with other BCBSA plans associated with the FEHB program. Vision
membership increased due to sales exceeding lapses in our
risk-based accounts and increases associated with Medicare Advantage plans.
Other Metrics
CarelonRx quarterly adjusted scripts increased due to growth in our integrated
medical and standalone pharmacy customers.
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