A.J. Rice: Maybe just following up on some of the MLR related questions. I think last quarter, you said with what you were seeing on the utilization front, you were comfortable that you had sort of incorporated that in your expectations around ’24 pricing. Given the incremental commentary today, are you still comfortable? Or do you need to have some level of offsetting efficiencies to mitigate a sequential uptick in utilization that you’re assuming will continue next year. And I guess just part of that as well is obviously part of what’s impacting your medical loss ratio this year. Is all the enrollment growth you’ve got. So you’ve got utilization being a little higher but you’ve also got the drag of all these new members. Can you — is there any way to parse out how much of the variance that you’re seeing is utilization versus the drag of the new members and give us some flavor on that, assuming that the one might start to ease next year?
Susan Diamond: Yes, let’s take great questions in there. I’ll try to get all of them. I would say, in terms of this incremental trend that we are announcing in the third quarter and then stepping up to for the full year. Obviously, this would not have been done at the time of pricing, it’ll be incremental negation that we need to do to offset that in ’24. If you recall, on the second quarter call, we did reaffirm that we intended to be within our long-term historical range, 11% to 15% and we reaffirm that today, although knowledge is a result of this higher trend that we would expect to be in the low end of that is our initial thinking. I would say, as we saw the trend develop, we certainly recognize that we would need to identify some additional mitigation.
I would say our ongoing efforts around productivity have continued since the work we kicked off in ’22. And as we’ve said before, have continued to identify more opportunities than we might have initially anticipated which is built unlike pipeline of opportunity that will certainly mitigate the end this year and we’ll continue to do so next year. To your point, the higher enrollment growth, particularly the Asian component of that which we have seen a nice uptick in market share there. does put some pressure on MLRs. And in going to get this pretax because as we said, they run about 100% MLR typically in the first 2 years before flipping to full diagnostic space is adjustment typically more so in the third year. We’ve said before, you can think about with the level of enrollment higher for agents this year, you can think about it on a full year basis that, that would impact the MLRs about 20 basis points.
And so that is contemplated in our ’24 thinking. Obviously, one of the things we’ll still have to assess as we refine the thinking for ’24 will be this year’s membership growth and the composition of that, the new name versus retention and those are all things we’ll continue to assess and comment on further when we provide our updated guidance on ’24 — or fourth quarter call.
Operator: Our next question will come from the line of Justin Lake with Wolfe Research.
Justin Lake: I wanted to ask about Center well. Just given the PDP losses, some of the pressures that we’re hearing about both in the home health and the physician business. Can you talk about the trajectory from ’23 to ’24 and then ’24 to ’25 versus kind of what you had previously laid out at the Investor Day in terms of those improvements that were before some of these headwinds set in.
Susan Diamond: Yes. Justin. So yes, you’re correct. The CenterWell pharmacy is going to be impacted by the MA growth as well as the decline in PDP growth. We shared previously that the middleware penetration rates for those populations and the PDP does run significantly lower than the M&A book. And part of that is the disproportionate percentage of duals in the PDP book which tends to use mail order at a significantly lower rate. So some of the losses in ’24 will be disproportionately low income because of exceeding the benchmark. So that will have less impact than average, certainly. But those are certainly things we’re contemplating in our thinking for ’24. I would say, in addition to that, we’ve just got a lot of movement between Healthland and the pharmacy, both in ’24 and then certainly in ’25 too as we continue to see the pharmacy changes implemented.
So for ’24, you’re going to have things like the DIR changes going to fly sale. So that will have an impact between the two. There are going to be more changes in ’25 that frankly, we’re still working through. We would anticipate relooking at formularies which might impact drug mix in the pharmacy. How you think about pricing between health and in the pharmacy will also have to be considered in light of some of the shifting liability in the change of plan for ’25. So we’ll certainly plan to provide more commentary as we work through some of those in our more detailed guidance. But there are a lot of changes to your point but we are contemplating that membership shift which we’ve seen over the last number of years.
Operator: Our next question will come from the line of Joshua Raskin with Nephron Research.
Joshua Raskin: First question is just are the new members coming in at higher-than-expected MLRs even for first year members? Or is it just a mix because they’re mostly agents. And then if you could just refresh the MLR trends for members that are in fully capitated arrangements versus those that are in sort of fee-for-service providers. And has that delta changed much in the last year?
Susan Diamond: Josh, for your first question, we are seeing that new members are running higher MLRs than you would expected that we would say that is attributable to the overall trend that we’re seeing. We have looked at new members versus concurrent members to see what variation we’re seeing at various types, plan level, geographic. And what we say is relatively consistent. So we continue to believe that the impact that we’re seeing are broadly industry-related trends versus Humana specific. With the exception of some of the things you pointed out previously which we continue to see like some of the down investments we’ve made, we are seeing some higher utilization. But beyond that, I would say that the other impacts are relatively consistent across the new and concurrent but obviously driving higher and more than we would have expected across the board.
In terms of the progression of members in the risk rides, we can follow up on any specific question. But I would say, in general, I would say the trends haven’t changed significantly over the last few years, at least nothing that we’ve seen or called out.
Joshua Raskin: Okay. And I’d be remiss without congratulating Bruce, on the pending change and welcoming Jim as well.
Bruce Broussard: Thanks, Josh.
Operator: Our next question will come from the line of Gary Taylor with Cowen.
