Sarah London: Yes, thanks Kevin. Great question. On the marketplace front, it’s really just acknowledging that we’re very early in the year, and then I think you point out a really important point relative to the mechanics of the PDR and how that positioned us with the ability to look at full year trend in ’23. I’ll let Drew talk a little bit more about those mechanics.
Drew Asher: Yes, so the PDR that we booked in the fourth quarter, that’s for the 2024 calendar year, and so you evaluate–in Medicare, you evaluate it on an annual basis, so ’25 really doesn’t come into play there because we still have the opportunity to adapt our bids accordingly and obviously we don’t have a final rate notice yet, we just have the advance notice that we’ve got some work to do. On the PDR, think back to even Stephen’s question, we certainly get another bite at the apple of evaluating forward trend because we set the PDR, and the accounting rules are such, you’re setting the PDR based upon your forward view of how you think ’24 to play out, so that was–you know, any trend considerations that we had were embedded in that PDR we booked in the fourth quarter.
Operator: Thank you. Our next question today comes from Justin Lake of Wolfe Research. Please go ahead.
Justin Lake: Thanks, good morning. Drew, appreciate all the color on Medicare Advantage rates. You mentioned that your rate is minus-1.3%. Given trends in the mid-2s, and you didn’t really have much star impact year-over-year, it sounds like the combination of the V28 model and the fee-for-service normalization is somewhere in the negative 3.5% range, so first, is that math right; and then second, if so, could you compare the negative 3.5% that you’re seeing for 2025, at least in the advance notice, versus how big a negative that was in 2024, so we can understand the year-over-year impact? Then if you can, break up the impact between V28 and the fee-for-service normalization on both the 2025 and a year-over-year basis, it’d be incredibly helpful to understand what’s going on there. Appreciate it.
Drew Asher: Yes, let me try to parse that out. The line item of HCC model changes, which includes the risk score normalization that you pointed out, was about a point–in our evaluation of the advance notice, it was about a point worse than last year, and part of that is the normalization change and calculation in going to a regression model versus omission of a base period. That’s probably a deep as we’d want to go on an earnings call. But if you foot up all of the elements, it’s about a 1.3% on an absolute basis current as we stand today impact on rates. Now, that’s before risk score trend – obviously that would push it into the positive zone, and we’re going to push on some of the mechanics and then we will–you know, we’re in the position of not trying to grow Medicare Advantage, we’re trying to ultimately recover margin back half of the decade, and so we’ll just adjust the bids accordingly, and the products may be a little bit less attractive for seniors from an industry standpoint if we don’t make a lot of progress on the final rates.
Operator: Thank you. Our next question today comes from AJ Rice at UBS. Please go ahead.
AJ Rice: Thanks. Hi, everyone. Just want to pivot over to Medicaid for minute. Obviously you mentioned the retro adjustments, you didn’t get the marginal headwind, I guess. You’ve also talked about some states being proactive and giving you acuity adjustments ahead of time, and then you’ve got your normal rate cycle with the state. I wonder if there’s any updated thoughts on where you land for ’24 in terms of your Medicaid margin, and I think you had talked about the fact that coming out of redeterminations, you saw potential for improvement in Medicaid margins going into ’25. Just wondered if there was any updated thoughts on any of that.
Sarah London: Yes, thanks AJ. Let me talk a little bit about the dynamic we saw in Q4 and then how we feel as we sit here in early February. Full year HBR for Medicaid in ’23 was really a function of Q4, and what we saw in Q4 was some of that timing dynamic that we’ve called out since the beginning of redeterminations is a dynamic that we were fully expecting to be managing through, the timing of matching rates with acuity as the risk pool shifts. Q4 was a heavy member roll-off quarter, as we talked about, and later in the quarter we saw some acuity pressure in the portfolio ahead of those 1/1 rates that had been designed to address that acuity clicking in. We also had some of those retro rates also designed to address the acuity coming in late in the year, and like we said, we got some of those before year end but not all, so continue to work on those.
That’s really what drove that lingering pressure in Q4. Then as we sit here today, we’ve got really solid visibility into the rate for our 2024 member month – it’s 63% of the book we’ve got visibility for. We’ve got those 1/1 rates now in place and they are in general coming in toward the higher end of that composite range that Drew mentioned at investor day of 2% to 2.5%, and then we’re still working on that handful of 2023 retro rates that would then come in, in ’24. If you take that all together, acknowledge it’s still early in the year, but that’s what makes us feel good about our 90.1 midpoint for the ’24 Medicaid HBR. Then to your point, as any of those timing dislocations shake out in ’24 and we continue to calibrate and match those up, then as we move into the roll-off of redeterminations in ’25 and beyond, that becomes a tailwind for the book overall.
