Operator: Thank you. And ladies and gentlemen, our next question comes from Sarah James at Cantor Fitzgerald. Please go ahead.
Sarah James: Thank you. I wanted to understand your updated Marketplace assumptions for 2024. so you’re assuming some of the low acuity falls off on the Medicaid, I’m wondering if you’re assuming any of that risk profile evolved in the Marketplace as a whole in 2024? And then based on some of the recent implementation changes by the states that seem to increasingly favor keeping people insured in some form, what do you have built into your new 2024 revenue guide for the overall Marketplace market size?
Sarah London: Good morning, Sarah, thanks for the question. We are still assuming about 200,000 to 300,000 members in that catcher’s mitt opportunity. And as we’ve rerun all of the assumptions across that multivariate model I mentioned, that hasn’t really changed. And again, it’s really a result of the waterfall and assumptions about where those members go with large chunks of those members going to employer sponsored insurance or into the coverage gap. But I’ll let Drew talk a little bit more about what we’re building into our assumptions in terms of the acuity impact of those numbers.
Drew Asher: Yeah. So really pleased with the growth in the overall market. And as we’ve looked at data historically, as the market grows, the risk pool improves as well. I think the fortification of the enhanced APTCs, the Advanced Premium Tax Credits, was really helpful in solidifying this as sort of a market that’s going to be strong for many years. So I think that’s helped the risk pool. For us specifically, we’re growing well beyond the market. Obviously, there was a couple of competitor exits. Those members got first in the free market, and we picked up a fair amount of those, but those came in at our pricing, our clinical programs, our network construct, our products as if they were new members sort of off the street. And then we’re also gaining market share.
So we expect actually to be in a pretty large payable position for risk adjustment, and we’re accruing accordingly. And obviously, we will true that up once we get the first look of Wakely data in late June, early July. But pleased with some of the elements you look for. When you’re growing a lot, you look for signals and through the data. The percentage of subsidized population is up, up 3% year-over-year to 95%. That’s a good sign, we believe, for risk pools. And we can look at stairs versus levers. We had a 75% renewal rate into 2023. Those –the stayers are equaling the levers. So we’re cautiously optimistic on that business and the risk pool for 2023. And as Sarah mentioned, we did layer in a couple of hundred thousand of redetermined members coming into the Marketplace later in the year.
And so the member months aren’t that significant of a driver. And we factored in some variance around that into our revenue guidance already.
Operator: Thank you. And our next question today comes from Kevin Fischbeck of Bank of America. Please go ahead.
Kevin Fischbeck: Great, thanks. I wanted to understand the long-term EPS guidance a little bit because it was just a little bit confusing to me because you’re taking down this year’s say, next year’s EPS number, still talking about 12% to 15%. But I think, Sarah, you said that your view about the earnings power hasn’t changed. Does that mean that you think you’d be growing more like 15% off of this lower base, or is 12% to 15% the right way to be thinking about it? And then just to put a point on this PDR because the PDR is essentially taking whatever it is $0.25, $0.30 of losses from next year and booking it this year. So your $6.60 million guidance, is it right to think that that’s more like a fixed whatever that is $6.35 kind of real earnings base that you have to then overcome to grow 12% to 15% off of $6.60. So just trying to reconcile how you’re thinking about long-term earnings power in particular the PDR and how that affects growth into 2025. Thanks
Drew Asher: Yes, your math on the PDR is not wrong. And you’re right, you’ve got to step over that as you go into 2025, and we’ve thought about that. But I’d think of it more as not that linear because we’re making bid decisions strategically and deciding where to invest and where it will let go, certain pockets or PBPs, as I mentioned in the script. And so it’s helpful to know and to have the meaningful outperformance in 2023 as yet another lever. So I wouldn’t completely disconnect the PDR from us knowing that we’re doing well in 2023. As you think about what 2024 would have been absent the PDR. And then I’ll let Sarah sort of weigh in on the 12% to 15%.
Sarah London: Yes. Thanks for the question. And totally appreciated. When we think about the long-term, and I’ll roll back to even in the beginning value creation plan, we had a lot of confidence that there was more earnings power in this organization than we were delivering back to shareholders then. I think that confidence a year ago had only grown. The difference between then and now, I think, is a really more complete understanding of what it’s going to take to fully unlock that value and so we still have total confidence in that 12% to 15% long-term CAGR. I think our view is that we need to make some of these short-term both explicit and implicit investments in our business in order to make sure that we are set up with the most strength against that long-term algorithm. And as Drew said, we see the $6.60 or greater than $6.60 floor as the right jump-off point for that 12% to 15% adjusted EPS in the long-term.
Operator: Thank you. And our next question today comes from Gary Taylor at Cowen. Please go ahead.
Gary Taylor: Hey, good morning. Two quick questions. The first is I appreciate your commentary about receiving new data state files from the states to update your margin assumptions around Medicaid. So the question is, is that largely complete? Have you received updated state or lever files from all your states, or is it really more from the states that are very imminently beginning the redeterminations and we should maybe expect more material updates on that state information to come over the course of the year? The second is just on the IBNR days and dollars down a bit sequentially. I know there’s some other items in that line. Just wondering if there’s anything else through the call-out impacting that line on the balance sheet? Thanks.
Sarah London: Yes. Let me — I’ll hit the state files conversation and turn over to Drew. So we have — as I mentioned, we’re in all but five of our states. We either have received files or we have a process in place. The files that we’ve gotten have certainly been tilted towards the states that are already underway with their process or where their start dates are more imminent. And this actually rolls back to a conversation that we’ve had over the last year and half in this forum about how we were preparing for this process and the idea that as we got data, our ability to drop that into our model and then extrapolate from that where there were common themes. And whether we were seeing in those files, say, or in lever analysis that was in line with the macro analysis we did without the benefit of the actual files.
And so getting those file is, obviously, helpful in order to give us a view of those specific states, but we’ve also been seeing trends in those files, again, largely in line with our expectations but that has allowed us to update our extrapolations in the larger model. So that’s a long-winded way of saying that we feel like the data that we’ve received so far is what has allowed us to update our view and conservatism in 2024. But then we also think that it has given us a pretty solid view of 2024 and what will come in from other states. Now obviously, we need to some of that, but there’s been enough consistency to give us the confidence to share what we did today. And then I’ll turn it over to Drew on IBNR.
Drew Asher: Yeah. On the balance sheet, liabilities are up a fair amount from year-end 12/31/22. The accounts payable and accrued expenses are up, but that’s $1.3 billion of state pass-throughs. So our pass-throughs, the pure pass-throughs actually don’t go through medical claims liability. They go through premium revenue and — or sorry, premium tax revenue and premium tax expense sort of outside the IBNR process. So they don’t really impact DCP Now there are state directed payments embedded within medical claims liability, and we define those terms in our press release and we’ve had for a while. But IBNR is $17.5 billion or medical claims liability up from $16.7 million. You saw the DCP relatively flat. So feel good about the consistency of our reserving process.
Operator: Thank you. And our next question today comes from Lance Wilkes with Bernstein. Please go ahead.
Lance Wilkes: Yes. With the $0.55 decline in 2024, I think you’ve kind of sketched out how much of that is due to the conservatism and redetermination. Could you talk a little bit about how much is from the targeted investments in MA bids for MA in your bid strategy there? And how much is investment in infrastructure and of the investments in infrastructure. Could you talk a little more about the components of that? And how much of that is necessary for the Medicaid business and the core businesses as contrasted with Medicare Advantage?
Sarah London: Yes. Thanks, Lance. Great question. I was hoping you would ask that. Let me talk through sort of the core buckets of investment, and then I’ll hand it over to Drew to delineate the bridge a little bit more precisely. So as we’ve gone through the transformation work, the value creation work, particularly the platform consolidation work that we launched last quarter and then, obviously, the sort of updated analysis of product strategy, we see an opportunity in three main buckets for investments. And it’s important to note, and I’ll call out where some of them are specific to Medicare and other product lines, as you asked but it’s important to note that part of the reasons we’re making to make these investments now is because they will accrue to multiple lines of business.
So these are really enterprise-wide synergistic investments. The first is under the umbrella of customer experience. And so this is where in Medicare thinking about own distribution channels, which actually can accrue over the long-term, we believe, to our Marketplace business as well, really a business becoming a sold business rather than one that is just purchased and influence brokers in a different way. Provider enablement tools, which again, will help with VBC expansion in Medicare, but also will support the VBC expansion work that we’re doing in Medicaid and then those self-service tools which we see an opportunity across lines of business to sort of enhance our digital interaction with our members. The second major bucket is quality.
And again, this is one where Stars is a piece of this, but the underlying components are really around HEDIS and HealthEquity, which are major components of the quality programs for all three lines of business. HEDIS is going to become an increasingly important part of Stars based on the new CMS guidance as are the HealthEquity investments. HEDIS is a huge part of proving quality outcomes to our state partners for Medicaid, and it will put us ahead of the curve for what we see coming in marketplace from a QRS standpoint. And then the last piece is infrastructure. And so a piece of that is really fortifying those target systems. So as we’ve been thinking about the platform consolidation, what are those platforms that are going to be the targets and carry the scale of the organization in the back half of the decade and making sure that we fortify those for scale.
And then, of course, my favorite topic, which is data and really accelerating the work that we’re doing around data liquidity across the organization, our agility and ability to invest and use that data to power the business, but also to drive innovation. So those are sort of the three major investment buckets. And again, some of those accrue to the Medicare business, but they all accrue to multiple business lines, and then I’ll turn it over to Drew to give you the bridge.
Drew Asher: Yeah. On the numbers, we’ve talked about the $200 million PDR. I know that hits 2023, so it’s not part of the $0.55, but you really need to think about that as a conscious investment. We don’t take lightly spending shareholder money, but we think it’s the right investments, targeting the right members, thinking about the long-term attractiveness of the Medicare market, especially in the populations that we will emphasize going forward. And then getting to the $0.55, which is in 2024, 60% of that is the 30 basis points in Medicaid and the remaining 4%, about $150 million, plus or minus is the investments that Sarah just covered.
Operator: Thank you. And ladies and gentlemen, our final question today comes from Calvin Sternick with JPMorgan. Please go ahead.
