But as we said in the commentary, cautiously optimistic about what we’re seeing on the individual MA side. We’ll just need to be able to further evaluate paid claims from both the unit cost perspective and the non-inpatient trends.
Operator: Our next question will come from the line of A.J. Rice with UBS.
A.J. Rice: Can you hear me?
Susan Diamond: Yes, A.J.
A.J. Rice: Sorry, just went dark there for a second, so I wasn’t 100% sure. Just two things real quick, you had talked about, I think, with the fourth quarter and even some of the year-end commentary that the road to recovery on the margin was about, you thought the market could absorb 100 to 150 basis points of annual improvement over the next few years. Calling beyond that might be disruptive from a competitive standpoint or for seniors and you thought you could get that. I guess I’m trying to understand, is that — is this sense about your ability to realize that from year-to-year over the next few years changed? Are you just saying that the ’25 starting point might be lower, but you still kind of get that kind of gradual recovery to margin over time?
Any perspective on that? And you haven’t been asked, but in the press release, you said something about operating expenses having some timing impact in this quarter that might have been favorable. Can you comment on that and how that affects the rest of the year outlook?
Susan Diamond: Yes, A.J., certainly. So in terms of our thinking on the trajectory to the 3% longer-term expectation, we would say that we do acknowledge this is going to be a multiyear process to recover margins. And the exact timing of that will be dependent on the funding environment, regulatory environment and then certainly the competitive environment. . I would say relative to what we would have thought and prior to the final rate notice coming out, we would have anticipated, as our previous guidance suggested that we would have more margin recovery in ’25 then we think is reasonable currently in light of the TBC threshold combined with the final rate notice. Also keep in mind for ’25, we’re dealing with not only 1/3 phase-in for V28, but also significant Part D changes from the IRA and then the higher-than-anticipated medical cost trend that largely developed post the filing of the ’24 bids.
So that is going to limit to some degree the amount of margin recovery we can get in ’25. When we think about ’26, while we still have one more — the final 1/3 of the V28 phase-in, we won’t arguably have the Part D changes, we won’t have the trend impact. So those headwinds will lessen, which then should give us more room to take additional pricing action for the purposes of margin recovery. And then certainly, post ’26 once V28 is fully phased in and assuming a reasonable rate environment, then we should have further incremental opportunity, which is why we’ve suggested that it’s likely going to take a bit longer than the 2 years we had hoped previously. The other thing I would just remind you is that to the degree the trend develops different than what CMS assumed in their ’25 rate notice, which if you remember, anticipated the trends would actually moderate from the current levels.
Then that ultimately should make it into the CMS rates as well and could potentially provide a slight tailwind as you think about the go-forward rate environment. So a lot for us to continue to monitor and assess, but do believe that ’26 and beyond provide incremental opportunity for margin recovery relative to ’25 for all the reasons I just mentioned. And then on OpEx, as you said, we did see meaningful favorability for the quarter. As we evaluate that favorability, some of it, we believe, will continue and largely for the year. A portion of that, we would say, is onetime in nature where it’s good news, but it’s not going to repeat. And then there is a portion that is more timing where just it developed different than we had assumed in the budget.
And so things like marketing are often an example of that where it may come in differently, the pacing of hiring may be different. And so there’s a variety of things that we would say are more timing in nature that won’t, in fact, not only will not recur, but they’ll actually reverse out in the balance of the year. But all in, still positive, we expect favorability for the year. For OpEx, it just wouldn’t be appropriate to fully run rate the first quarter.
Operator: Our next question will come from the line of Scott Fidel with Stephens.
Scott Fidel: Can you hear me?
Lisa Stoner: Yes, Scott.
Scott Fidel: I was interested if you can maybe talk about how you would think about the value prop for seniors, potentially comparing between MA and traditional Medicare in 2025. Obviously, we’re all very focused on the headwinds to the MA value prop as it relates to the challenging reimbursement outlook. But it also feels like seniors in traditional Medicare are going to be facing some meaningful headwinds as well when we think about the IRA impacts on Part D. And then also just in terms of, curious what you’ve been seeing on utilization in the whether that may be leading to higher rate increases in Medicare Supplement. And also just thinking about the fact that CMS talked about not seeing utilization rising in Medicare fee-for-service, which clearly seems to contrast with everything we’ve seen out in the marketplace.
But ultimately, I’m just trying to think about, is there a potential that MA enrollment growth relative to traditional Medicare may not necessarily moderate as much as feared because of some of these headwinds, introductional Medicare or are the headwinds in MA just so significant that it is likely that we’ll see that moderation?
Bruce Broussard: Scott, thanks. I’m sure Susan is saying thank you, too, to give her the break of all the questions that have been asked relative to the financial side. Relative to the value proposition for Medicare Advantage to MA, we continue to believe we will have a significant value proposition. And really for a number of reasons. First, just the economics itself, I mean, today, we see about $2,400 a year. You see that stepping back a little bit for 2025 as a result of the benefit changes, but not material to make it something that we feel shopping to the Medicare fee-for-service side will increase. . The second thing is that all the benefits that they receive as a result of care coordination, things like transportation, other things like dental that they wouldn’t get in a Medicare fee-for-service product.
