CVS Health Corporation (NYSE:CVS) Q4 2023 Earnings Call Transcript

CVS Health Corporation (NYSE:CVS) Q4 2023 Earnings Call Transcript February 7, 2024

CVS Health Corporation misses on earnings expectations. Reported EPS is $1.58 EPS, expectations were $2. CVS Health Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Good morning or good afternoon, all and welcome to the CVS Health Q4 2023 Earnings Results Call. My name is Adam, and I’ll be your operator today. [Operator Instructions] I will now hand the floor to Larry McGrath to begin. So Larry, please go ahead when you are ready.

Larry McGrath: Good morning, and welcome to the CVS Health fourth quarter 2023 earnings call and webcast. I’m Larry McGrath, Senior Vice President of Business Development and Investor Relations for CVS Health. I’m joined this morning by Karen Lynch, President and Chief Executive Officer; and Tom Cowhey, Chief Financial Officer. Following our prepared remarks, we’ll host a question-and-answer session that will include additional members of our leadership team. Our press release and slide presentation are being posted to our website, along with our Form 10-K filed this morning with the SEC. Today’s call is also being broadcast on our website, where it will be archived for one year. During this call, we will make certain forward-looking statements.

Our forward-looking statements are subject to significant risks and uncertainties that could cause actual results to differ materially from currently projected results. We strongly encourage you to review the reports we file with the SEC regarding these risks and uncertainties. In particular, those that are described in the cautionary statement concerning forward-looking statements and risk factors in our Form 10-K we filed this morning. During this call, we’ll use non-GAAP measures when talking about the company’s financial performance and financial condition and you can find a reconciliation of these non-GAAP measures in this morning’s press release and in the reconciliation document posted to our Investor Relations portion of our website.

With that, I’d like to turn the call over to Karen. Karen?

Karen Lynch: Thank you, Larry. Good morning, everyone, and thanks for joining our call today. In 2023, we made strong progress on our journey bringing together integrated health solutions that meets the needs of consumers where and when they want healthcare. We successfully navigated a challenging environment and delivered on our financial commitments, a powerful testament to the strength of our diversified company. We are building America’s health platform, enabling access to high quality, convenient and affordable care that supports individuals in building healthier lives. In the fourth quarter of 2023, we delivered adjusted operating income of $4.2 billion and adjusted EPS of $2.12. For the full-year, our total revenues were $358 billion, an increase of 11% versus the prior year.

We delivered adjusted operating income of $17.5 billion and adjusted EPS of $8.74. We generated $13.4 billion of operating cash flow, demonstrating the power of our business model and supporting our strategy. This morning, we revised our full-year 2024 guidance for adjusted EPS to at least $8.30 and cash flow from operations to at least $12 billion. While utilization pressure in Medicare Advantage continues to be attributable to the same categories we have previously highlighted, a part of which was contemplated in our 2024 guidance, we are taking a cautious stance on our outlook for Medicare Advantage utilization until we have further clarity of these industry-wide trends. Tom will provide additional details on the components of our guidance.

While the Medicare Advantage market has been challenged recently, our view of the long-term opportunity offered by this business remains unchanged. As we discussed in December, we are committed to achieving our targeted 4% to 5% margin in Medicare Advantage over time and we will begin that journey in 2025. At CVS Health, we have both the scale to transform how healthcare is delivered, and the ability to personalize care and coverage for each individual we serve. By bringing together the powerful capabilities of our brands, including Aetna, CVS Pharmacy, CVS Health Buyer and Caremark, we can deliver significant value to the customers and communities we serve and unlock tremendous potential for our shareholders. When all of our assets work together we are able to lower the total cost of care, improve health outcomes, deepen patient engagement, and increase loyalty.

We are able to unlock up to 3 times to 4 times more enterprise value when we engage members in more than one CVS Health business. Today we have more than 55 million CVS Health customers that engage with at least two of our offerings. We see tremendous opportunities to expand engagement with customers across CVS Health through our multi-payer capabilities and vast consumer reach. We’re also creating new value in healthcare with innovative models and offerings that create more transparency and choice for consumers and clients. In December, we unveiled our new CVS CostVantage model in our pharmacy and consumer wellness business. This model proactively addresses the persistent reimbursement pressures in the retail pharmacy industry. It eliminates cross-subsidization and creates a more durable and transparent pharmacy business that is fairly compensated for value delivered to customers and patients for all prescriptions dispensed.

We have made notable progress since we announced the new model in December. We recently delivered initial terms and conditions to several PBM and are actively engaged in constructive discussions. CVS CostVantage is a dramatic change to the current reimbursement model and will provide a clear pathway to greater transparency, while passing along our industry leading cost of goods improvements. We’ve reached preliminary agreements with multiple cash discount card administrators to begin using CVS CostVantage on April 1. This is a foundational step that sets the stage to create more predictable pricing at the pharmacy counter for consumers. We also announced our new CVS Caremark TrueCost model. This innovative client option offers pricing that reflects the true net cost of prescription drugs with continued client visibility into administrative fees.

Simplified pricing will help consumers be more confident that their pharmacy benefits provides the best possible price and ensures members have stable access to our national pharmacy network. Finally we continue to drive greater adoption of biosimilars and increase the affordability of these critical specialty drugs for our clients and their members. Beginning on April 1, Caremark will remove Humira from its major commercial template formularies. Through Cordavis, we will offer a co-branded Humira product. Cordavis plays an important role in reducing drug costs while helping to ensure a consistent supply of affordable, high-quality biosimilars for the patients we serve. These steps are truly innovative and will be pivotal as we look to unlock the tremendous value that new pharmacy models and offerings will deliver for our clients and their members.

We are passionate about expanding access to care, lowering costs, improving health outcomes, and creating more transparency and choice for consumers. Our colleagues are committed to this important purpose and will deliver on these goals. I’ll now turn to the highlights from each of our businesses in the quarter. In our healthcare benefits segment, we continue to navigate through elevated utilization trends in our Medicare Advantage business. In the quarter, we grew revenues to nearly $27 billion, an increase of over 16%, and delivered adjusted operating income of $676 million, medical membership ended the year at 25.7 million an increase of 1.3 million members versus the prior year reflecting growth across multiple product lines, including individual exchange, Medicare and commercial.

Medicare Advantage is integral to the CVS Health Strategy, after a very successful 2024 annual enrollment period, we expect to add at least 800,000 new members in 2024. Our success was driven by targeted investments that were strengthened by CVS Health assets and allowed us to create differentiated value for members. We are improving member experiences by focusing on simplicity, offering unique designs and maintaining stable networks. Last week, we received the proposed 2025 rate notice. The funding level was broadly consistent with our expectations, which we do not believe is sufficient to cover current medical cost trends. We believe that the changes to Part D as a consequence of the Inflation Reduction Act necessitate additional funding to cover the comprehensive member benefits provided and the increased risk that plans are assuming as a result of the redesign.

We look forward to providing our comments to CMS in the coming weeks. In our Health Services segment, CVS Healthspire, revenues grew to more than $49 billion dollars in the quarter, an increase of more than 12%, reflecting strong growth in our Pharmacy Services business, as well as the acquisitions of Oak Street and Signify Health. Adjusted operating income grew more than 4% to nearly $1.9 billion. In our Caremark business we recently completed a highly successful welcome season we onboarded more than 3 million new members and ensured our patients had access to their critical medications and specialty therapies. Our consistent ability to deliver exceptional customer member experience is what makes Caremark a leader in the marketplace. We continue to drive success in our healthcare delivery business.

We have tremendous momentum engaging multi-payer Medicare Advantage members with Oak Street Clinics through our extensive CVS Health touchpoints. Oak Street ended the year with 202,000 at risk lives an increase of 27% versus the prior year. Through January, the number of Aetna members enrolled in Oak Street Clinic has doubled. Signify Health continues to demonstrate the value of its in-home capabilities for all of our multi-payer Medicare Advantage partners. Signify completed 649,000 in-home evaluations in the quarter, an increase of 20% versus the same period last year. Among our Aetna customers, we are broadening our addressable market utilizing Signifys’ strong capabilities in other products, including individual exchange and Medicaid.

We will be expanding these capabilities with other clients and we’ll deliver value by engaging consumers and the health across multiple channels. In our pharmacy and consumer wellness segment, which serves more than a 120 million customers, revenues grew to more than $31 billion an increase of nearly 9% versus the prior year. We generated $2 billion of adjusted operating income in the quarter, up nearly 10% versus the prior year. PCW’s performance in the fourth quarter was driven by strong operational execution. We continue to play an important role in providing access to critical immunization in the communities we serve and delivered on pharmacy performance measures for our health plan partners. We made progress executing on our store closure initiative, having closed 630 stores to-date and are on track to close 900 by the end of the year.

On a comparable basis, total same-store sales were up more than 11% versus the same quarter in the prior year. Same-store prescription volumes in the quarter were up more than 4% versus last year. 2023 highlighted our exceptional execution and the power of our diversified business. Our financial performance and differentiated strategy creates strong momentum into 2024. Our integrated health model grows in relevance and importance every day to the consumers, customers, communities, and the shareholders we serve. I will now turn the call over to Tom to provide more details on our results and our guidance.

Tom Cowhey: Thank you, Karen and good morning, everyone. Our fourth quarter results truly highlight our unwavering focus on execution and the power of our diversified businesses. We ended the year with strong results in key metrics such as revenue, adjusted earnings per share, and cash flow from operations. A few total company highlights, fourth quarter revenues of nearly $94 billion, increased by nearly 12% over the prior year quarter, reflecting strong growth across each of our businesses. We deliver adjusted operating income of approximately $4.2 billion and adjusted EPS of $2.12, representing growth of approximately 4% versus the prior year. These increases were primarily due to strong results in our pharmacy and consumer wellness and pharmacy services businesses, as well as lower corporate expenses, partially offset by continued pressure in healthcare benefits.

Our ability to generate cash remains outstanding, with full-year cash flow from operations of $13.4 billion. Shifting to details for our healthcare benefit segment, we deliver another strong quarter of revenue growth versus the prior year. Fourth quarter revenue of $26.7 billion increased more than 16% year-over-year, reflecting growth across all product lines, particularly in our individual exchange and Medicare businesses. Membership was $25.7 million, a slight decrease of 29,000 members sequentially, reflecting the impact of Medicaid re-determinations partially offset by growth in individual exchange. Adjusted operating income for the fourth quarter was $676 million. The decline in adjusted operating income versus the prior year was primarily driven by growth in the individual change business, including the related impact of seasonality, and increased utilization and Medicare Advantage, partially offset by higher net investment income.

Our medical benefit ratio of 88.5% increased 270 basis points from the prior year quarter, primarily reflecting higher Medicare Advantage utilization and a lower contribution from positive prior-period development. Utilization pressure continues to be attributable to the same categories we highlighted in the previous quarter, including outpatient and supplemental benefits such as dental and vision. We also saw an uptick in cost related to seasonal immunizations, including the newly launched RSV vaccine. Other categories remained largely consistent with our previous medical cost trend assumptions. Days claims payable at the end of the quarter was 45.9, down 4.4 days sequentially, and returning to normalized levels consistent with what we experienced in pre-COVID periods after adjusting for the impact of Medicaid pass-through payments.

Overall, we remain confident in the adequacy of our reserves. Our Health Services segment, which includes our pharmacy services and healthcare delivery businesses generated revenue of approximately $49 billion, an increase of more than 12% year-over-year. This increase was driven by pharmacy drug mix, growth and specialty pharmacy, brand inflation, and the addition of Signify and Oak Street. These increases were largely offset by the impact of continued client price improvements. Adjusted operating income of nearly $1.9 billion, f approximately 4% year-over-year, primarily driven by improved purchasing economics and growth in specialty pharmacy partially offset by ongoing client price improvements. Total pharmacy claims processed in the quarter increased slightly versus the prior year.

The increase was primarily driven by net new business and increased utilization. The increase was largely offset by the impact of the New York Medicaid carve-out. Total pharmacy membership as of January 1, 2024 is approximately 89 million members, down primarily due to the previously announced loss of a large client. We continue to be encouraged by the performance and growth of our healthcare delivery assets. Signify generated revenue growth of 39% in the quarter, compared to last year. Oak Street ended the quarter with 204 centers, an increase of 35 centers in 2023. We continue to expect to add 50 to 60 centers in 2024. Oak Street also significantly increased revenue in the quarter growing 36%, compared to the same quarter last year. Shifting to our Pharmacy and Consumer Wellness segments.

We generated revenue of over $31 billion, up nearly 9% versus the prior year and over 11% on a same-store basis. Reflecting the impact of pharmacy drug mix, increased prescription volume, brand inflation and increased contributions from vaccinations. These revenue increases were partially offset by the impact of recent generic introductions, continued reimbursement pressure, and a decrease in store counts. Adjusted operating income was approximately $2 billion, an increase of nearly 10% versus the prior year, driven by improved drug purchasing, increased contributions from vaccinations, the increased prescription volume described above, and lower operating expenses. These increases were partially offset by continued pharmacy reimbursement pressure.

Same-store pharmacy sales were up 15.5% versus the prior year and same-store prescription volumes increased by 4.4%. Same-store sales in front store were down by about 3% versus the same quarter last year. Shifting to the balance sheet, our liquidity and capital position remain excellent. Our ability to generate cash flow remains a core strength of our organization. Full-year 2023 cash flow from operations were $13.4 billion. We ended the year with approximately $735 million of cash of the parent and unrestricted subsidiaries. We remain committed to maintaining our current investment grade ratings while preserving flexibility to deploy capital strategically. In the fourth quarter, we returned $779 million to shareholders to our quarterly dividend.

We also entered into a $3 billion, $6 accelerated share repurchase transaction, which became effective on January 3, 2024. Turning now to our full-year outlook for 2024 in recognition of the marketplace uncertainty around utilization trends and Medicare Advantage, we revised our 2024 adjust EPS guidance to at least $8.30. In the Healthcare Benefit segment, we now expect our 2024 medical benefit ratio to be approximately 87.7%, an increase of 50 basis points from our previous guidance. As I already noted, we observed elevated medical cost trends in our Medicare Advantage business in the fourth quarter, which pressured our full-year 2023 medical benefit ratio by approximately 10 basis points relative to our prior guidance. The remaining pressure in the quarter was largely a function of mix and higher revenue offset than we previously projected.

Based on our review of our recently completed fourth quarter 2023 medical cost trend analysis, we are prudently assuming that the elevated medical cost trends we observed in the fourth quarter will carry forward into 2024. Accordingly, we have increased our full-year 2024 MBR guidance by approximately 40 basis points to account for this pressure. As discussed throughout 2023 we had included a provision for elevated utilization in our 2024 medical benefit ratio guidance and we’ll continue to hold that provision until we have more clarity on the Medicare Advantage utilization environment. Our revised outlook also reflects an expectation of at least 800,000 new Medicare Advantage members in 2024. As we have previously discussed, the profile of these new members is attractive, with nearly three-quarters of these members switching from other Medicare plans and about a third of members expected in D-SNP plans.

We continue to expect these new members will be neutral to earnings, but the mix impact from incremental new membership, represents approximately 10 basis points of today’s 2024 MBR guidance revision. When combined with the additional 40 basis points of medical cost pressure we are projecting, we have increased our 2024 MBR projection by 50 basis points to 87.7%. We anticipate a number of favorable items will partially offset the impact of the expected elevated utilization levels, including higher investment income and higher than previously projected commercial membership. Adding up all the pieces, we now expect adjusted operating income for the Healthcare Benefit segment to be at least $5.4 billion, a decrease of $370 million from our prior estimates.

In our Pharmacy and Consumer Wellness segment, we now expect a portion of the out-performance from the end of 2023 to persist into 2024. As a result, we now project adjusted operating income of at least $5.6 billion, an increase of approximately $90 million from our prior guidance. In Health Service segment we are updating 2024 adjusted operating income to at least $7.4 billion, a decrease of approximately $90 million. While our healthcare delivery businesses were able to successfully manage through medical cost trend pressures in 2023, we think it is prudent to recognize the potential for emerging risk our pair partners until we have further clarity on 2024 utilization trends. Finally, we’ve made a corresponding adjustment to cash flow from operations which we now project to will be at least $12 billion to ship.

As you think about the cadence of earnings in 2024, we expect to generate less than 50% of our adjusted EPS in the first-half. More specifically, we expect to generate roughly 20% of full-year adjusted EPS in the first quarter. This pattern will look different than 2023, primarily due to the way Medicare Advantage utilization emerged over the course of 2023, and the timing and impact of prior period developments. As a result, Healthcare Benefits 2024 MBR will see the largest year-over-year increase in the first quarter and the smallest in the fourth quarter. You can find additional details on the components of our updated 2024 guidance on our investor relations web page. Beyond 2024, we are committed to returning our Medicare Advantage margins to our target of 4% to 5%, while also preserving the projected returns on capital for our 2023 acquisitions.

Our stars recovery in 2025 will enhance our earnings trajectory, even as we work to adjust our plans or count for the preliminary 2025 Medicare Advantage wait notice, which does not adequately cover recent medical cost runs. For 2025 our goal is to deliver low-double-digit adjusted EPS growth of our updated 2024 guidance. We expect to update investors later this year on our progress against this goal. To conclude, 2023 was a year where CVS Health demonstrated the power of our diversified enterprise. As we begin 2024, we remain focused on operational execution and sustainable growth, as we advance our goal of becoming the leading health solutions company for consumers. With that, we’ll now open the call to your questions. Operator?

See also 25 Countries where Muslim Population will Increase the Most by 2030 and Dorsal Capital Partners Sees a 13% Boost in 2023: Its Top 15 Stock Picks.

Q&A Session

Operator: Thank you. [Operator Instructions] Our first question today comes from Lisa Gill from JP Morgan. Lisa, please go ahead. Your line is open.

Lisa Gill: Thanks very much. Good morning, Tom. Thanks for all of that color. But I just want to go a little bit deeper and just really understand how do I think about what happened in the fourth quarter, how that is influencing how you’re thinking about 2024, what happened from your Investor Day in December that’s really influencing this? Did you see claims coming in throughout December that’s influencing how you’re thinking about ‘24? And then you touched a little bit on this around the new members and the fact that they’re switchers and the impact there. But just wondering if you can give us any more color on how to think about their risk coding and the level of comfort that you have there just dipping just 10 basis points with adding so much membership? And then just lastly, how do I think about medical cost trend versus supplemental benefits, when we think about ’24?

Tom Cowhey: Sure, maybe — thanks Lisa. Maybe I’ll take the first part of that, and I’ll ask Brian to take the back parts. So as you think about what changed from our Investor Day, we actually saw really high levels of paid claims in the back half of December. And we noted that when we appeared at your conference in January. As we dove deeper into what went on in the fourth quarter, maybe let me just walk you through kind of what we’ve seen in aggregate. So if you start with the fourth quarter of 2023 and just let’s think about its impact on the full-year performance. So we ended the year at 86.2%, which was about 20 basis points higher than our guidance. Roughly half of that pressure is things that we do not believe should carry into 2024.

So key drivers of that would be things like Medicaid pass-through payments and also higher SEP membership. As you know, once redeterminations start to end in the first-half, we shouldn’t see that same sort of pressure in the back half of this year. And we’ve also repositioned our portfolio across the board in individual. As you think about the other half, that 10 basis points, that’s all related to the trend pressure that we saw in Medicare. So it’s a lot of the same categories, though, that we’ve been talking about all year and that we’ve been trying to actively get ahead of in our guidance. So outpatient trend accelerated slightly in the fourth quarter, so hips and knees. We also continue to see elevated trends in supplemental benefits, but really it’s more dental and vision than the OTC cards that we talked about earlier this year.

And finally, we saw some pressure in the quarter from vaccinations, which is really RSV related. As we look across the other categories, the cost trends themselves on a dollar basis, they’re essentially in line with where it is that we thought that they would be. So how does that translate then into ’24? We’ve taken that 10 basis points of pressure, and we’ve pulled it through into the 2024 baseline. So accordingly, we’ve increased our estimate for medical costs by over $400 million in our forward guidance for ’24. With the additional mix impacts from the new members, that additional 200,000 plus that we’ve talked about since Investor Day, we think that, that gets you to about a 50 basis point increase, which is the totality of what we’ve done this morning.

As I said in the prepared remarks, I’d just remind you, when we first started talking about our guidance for 2024 at the second quarter call, we talked about putting an additional provision into 2024 for enhanced utilization. We’ve maintained that provision in our guidance. And so we hope that, that will be a prudent posture but we want to see where trends are going to settle. I’d also just note that as you think about the Medicare business now, that book is now only projected to be marginally profitable in 2024, and that’s something that we will actively be looking to address with our 2025 bids. I’ll turn it over to Brian.

Brian Kane: Yes. I would just add on the new members, Lisa, to your question. There’s nothing that we’ve seen in those new members that would give us pause. The risk orders look reasonable. The fact that so many of the members are switchers is a really important component of that. The fact that we have a big portion that are D-SNPs, 1/3, as Tom mentioned in his remarks, matters because we don’t have a Stars issue in that book of business. So overall, we feel good about the new membership. And I would just add that, that new membership also has a very important tailwind for 2025 as those members get coded next year and as the cost of the distribution wear off for 2025. So we feel very good about the new members that we received.

There’s nothing that we’ve seen that gives us pause there. And we think everything is fully reflected in our 2024 guide, as Tom went through. With respect to your question on supplemental benefits, we believe we’ve fully reflected the cost of those benefits in our ’24 guide. We mentioned on the last quarterly call that we’ve effectively assumed full utilization of those flex cards that were giving us a lot of challenges this year. And the dental- and vision-type pressure has also been fully reflected in our guide. Again, we feel good, as Tom said, that we fully reflected the ’23 baseline in our ‘24 numbers. We put a normalized, very reasonable trend on top of that baseline. And today, we put additional dollars on top of that through the increase in the MBR.

So all and all, we feel good about how we’re positioned for ’24.

Karen Lynch: Yes. And Lisa, I just want to reemphasize the point that Tom made about 2025, and I said this in our prepared remarks, that we are committed for margin recovery in Medicare Advantage for 2025, and we’ll account for that in our bids.

Lisa Gill: Great. Thank you for the comments.

Operator: The next question comes from Justin Lake from Wolfe Research. Justin, your line is open. Please go ahead.

Justin Lake: Thanks. Good morning. I wanted to ask about the 2025 bidding strategy. And specifically, I know you’re going to have some tailwind in margin improvement from Stars in 2025. I wanted beyond that. I found your comments helpful on the rates, and I know that could be a pressure and that’s going to cause benefit reductions. But beyond that, do you expect to cut benefits beyond whatever the rates would suggest to start recapturing margin beyond Stars for the higher cost trend? How should we think about that positioning for 2025? And how quickly do you think you get back to that 4% to 5% margin? Thanks.

Karen Lynch: Hey Justin, it’s Karen, and I’ll hand this over to Brian in a second, but I just want to comment on the rate notice because that’s critical to how we think about 2025 bids. There’s kind of three things I would say here. One is we believe it’s in line with our expectations relative to being flat. However, we do not believe it covers overall cost trends that have been emerging in Medicare Advantage. We also know that there’s complexity around the risk model. And so we’ll be contemplating that as we think about our bids. And then finally, there’s some uncertainty around how the Inflation Reduction Act impacts Part D, and that we’ll be taking that under consideration when we do our bids as well and providing comments to CMS relative to these points. So all of those will factor in to our bid process, but we will be driving for margin recovery. And let me have Brian specifically answer your detailed questions.

Brian Kane: Sure. Thanks, Karen. And I’ll just reiterate again that we are committed to the 4% to 5% margin. It’s top of mind and extremely important that we get there. As we’ve said multiple times, it will be a multiyear journey to get there, but we intend to take significant ground against that target in 2025, while also being very disciplined and reflecting the trends that we see in our business to make sure that’s fully reflected in the pricing. Karen mentioned some of the headwinds with respect to the rate notice and that we don’t believe it fully reflects medical trend. There are some issues around Part D that we need to work through as the benefit has been meaningfully enhanced as part of the IRA. And also we, as an industry, are taking on a meaningfully more risk in the catastrophic layer that will have to be reflected in our bids, and that’s something we intend to do.

We are also limited, as you know, by TBC or Total Beneficiary Change limitations that we are working through that could, to some extent, constrain what we’re able to do. That being said, we do intend to take additional margin actions. Our goal is to do so in excess of our Stars tailwind that we have. I would also note, as I mentioned in the prior question that Lisa asked, it’s really important to think about this 800,000 members that we’re getting as a meaningful tailwind to 2025 again, because these members haven’t been fully documented from a coding perspective, and because the distribution costs are very expensive throughout the year that will wear off in 2025. And so you get a nice tailwind there. The last point I’d make, which I think is important is that although the IRA did enhance the benefits, as we said on Part D, the result will likely be, notwithstanding some of the risk model changes that were made for PDP, will likely result in meaningful premium increases on the PDP side, which we believe will actually help the relative attractiveness of MA.

And I think that’s an important component as we think about the attractiveness of MA for 2025. And the last point I’d make, which I think is important, as an industry, not only does MA offer superior benefits, and we believe that even with some of the changes that we intend on making, it will still be a compelling value proposition for our customers. But the thing that doesn’t get talked about enough is the significant benefits around care coordination, around navigating the health care system that our members get as a result of choosing MA plan that is far superior to traditional Medicare fee-for-service plan, and that’s something that we will be top of mind for us. And our intention is to continue to enhance that experience, especially with our new members to make sure that we retain them for 2025.

Operator: The next question comes from Kevin Caliendo from UBS. Kevin your line is open. Please go ahead.

Kevin Caliendo: Thanks. Thanks for taking my question. I want to go maybe a little bit further on Justin’s question. And when you think about getting to 4% to 5% over time, I guess what we’re all trying to understand or worried about or just trying — maybe it’s the strategy, like your positioning. Can you still take share and enhance margin, knowing what you know? Maybe talk a little bit about how CVS is positioned in their ability to bid versus others in the marketplace. What are your advantages and disadvantages? And can you, with Stars coming back or not, but can you get to your margin targets and still grow in line or better than the expected market growth?