Operator: Thank you. And our next question will come from Kevin Fischbeck of Bank of America.
Kevin Fischbeck: A little more color on your insurance MLR guidance. I think in your comments, you mentioned that it’s up in part due to and they benefit design improvements. I guess, I was under the impression that you guys were trying to target stable margins on the MA business. So just want to understand that nuance. And then you mentioned Medicaid pressure due to new contracts. So, I was wondering if there’s anything in there about redeterminations? And then finally, any color on commercial would be great. Thanks.
Susan Diamond: Hey Kevin, this is Susan. Yes. So in terms of the MLR guide for 2023, the way you should think about it is that we did through our value creation initiative, create capacity with the enterprise to fund those targeted investments without impact to overall earnings and EPS. But keep in mind that the enterprise savings that were generated were across the entirety of the enterprise. They wouldn’t have all been generated by the Medicare line of business. And so given all of that investment was redirected to Medicare, you would see some impact to the MLR, all other things being equal for Medicare. And then as always, you have to consider, given the growth that we saw and some of the dynamics that Bruce mentioned about new members, switching members and retention all of those would go into our estimates for MLR for the year as well.
Outside of just the Medicare trend, as you pointed out, the Medicaid growth will also impact the MLR Medicaid in general has a higher MLR. And given the growth that will happen at the beginning of the year €“ will be in Ohio, that will certainly impact it and be mitigated over the course of the year through redeterminations. And as we’ve commented previously, the members who had access Medicaid through the deferral of the redeterminations did tend to be lower acuity and higher contributing. So as they roll off, that would have an impact to the Medicaid MLRs as well. So those, I would say, are the two main drivers as well as just more generally, our continued approach of a more conservative initial guide as we set expectations with the €“ they intend to certainly mean and hopefully exceed those expectations.
Operator: Thank you. And our next question will come from Stephen Baxter of Wells Fargo. One moment. Stephen, your line is open.
Stephen Baxter: Hi, thanks. I wanted to ask about retention in Medicare Advantage. I think you said you more than doubled the improvement that you targeted for 2023. So it sounds like you’ve gotten retention back to where you would have initially planned heading into open enrollment for 2022. I was hoping you could talk about what your outlook is for retention as you continue to evolve your channel strategy? Do you think retention is stable from here? Do you think it can improve? And if it can improve? Any sense of what the pacing would look like would be great. Thank you.
Bruce Broussard: Thanks for the question. Yes, as you articulated, we’re very happy about the 200 basis point improvement in the retention this year. It is a combination of both internal work and the combination of our partnership with the channel, they increased 350 basis points. As we look forward, it’s probably going to be more stabilized as we think about it with some improvement, we’ll continue to work on it. But with the large increase in improvement in the channel outside that really contributed to the 200 basis points. And I don’t know if you’re going to see that, is that large of an improvement in 2023 and 2024.
Operator: This is your operator. Unfortunately, you could not hear me speaking. I have introduced Scott Fidel twice. Scott, your line is open.
Scott Fidel: Thanks. Can you hear either of those first introduction Scott, can you hear me okay?
Susan Diamond: Yes.
Scott Fidel: Okay, good. Just wanted to follow-up on just the home, the home outlook and appreciate the details you did give. Just interested give, just given some of the moving pieces with the hospice divestiture. When just looking at the home health business, can you give us your view on what you’re expecting the revenue growth trends to be there when considering some of the volume indicators that you gave us? And then also just interested in your expectations for home health margins in 2023. Just when considering both the final fee-for-service rates and the shift that’s playing out to value-based care? Thanks.
Susan Diamond: Sure. Hi Scott, this is Susan. So in terms of revenue trends, because of the hospice divestiture, you will see a decline year-over-year. It’s just over $100 million decline. We have a meaningful offset in the growth of the value-based model, in particular, which is a risk-based capitated arrangement with the health plan. And so as we significantly expand the coverage of that to one million members that does drive meaningful revenue appreciation, consider that close to $1 billion for 2023. That’s offsetting what otherwise would have been pressured from the 60% divestiture of the hospice asset. From an EBITDA contribution, you can think of, again, this segment is being down year-over-year, and that’s primarily a function of that higher-margin hospice divestiture being replaced with the less mature value-based model contribution.
We expect increasing contribution in markets over time. They don’t start immediately at full impact. And so the value-based model expansion, you can think of is closer to breakeven in 2023. And then that being offset by the loss of the hospice earnings in our reporting. And I would say on the core home health services, we do expect, I would say, relative margin stability. We’ll certainly continue to watch labor trends and make some further investments in nursing, recruiting and retention, as I mentioned in my commentary, but I’d say relatively stable margins in the home health business.
Scott Fidel: Okay, thanks.
Operator: And our next question will come from Stephen Baxter of Wells Fargo. Stephen, your line is open.
Stephen Baxter: Hi. Yes, I’ve had my questions, so I’m happy to give you the floor back and move to the next person.
Susan Diamond: Certainly.
Operator: Our next question will come from Gary Taylor of Cowen. Your line is open.
Gary Taylor: Hi, good morning. I wanted to ask about the 2023 MLR guidance, but maybe come at it from the other side of the angle from what Kevin asked. We tried to look back at years in the last decade where you had really above-trend enrollment growth like 2014, 2015 and 2019. And generally, MLR was up in those years, although 2019 was probably mostly the HIF holiday. But I’m just trying to think through your commentary about retention being higher, which should imply keeping more comprehensively coded patients and 50% of enrollment from plan switching, which should also imply more comprehensively coded patients. So, I’m just wondering if inherent in the MLR guide is an assumption that your new class of 2023 is better profitability than typically you would ascribe to a new class of patients and any implications on kind of that margin improvement progression we would expect in the 2024.
Susan Diamond: Hi Gary, great question. So there are a number of things that will impact the MLR as a result of the membership mix. As you said, the higher than typical rate of members €“ new members coming from competitor MA plans would generally be viewed as positive. Those numbers do tend to be contribution margin positive even in the first year. We’ve many times commented on, in general, when you think of the full new cohort of new members as being breakeven from a contribution margin basis, but that’s based on that historically lower switching rate. So the fact that we saw more switchers, incrementally that would be viewed as positive. As you said, relative to our previous expectations, at least, the higher retention is certainly positive from a contribution margin perspective as those are going to be the most impactful from a current year contribution standpoint.
The other two things I would say, work negatively against MLR. One is, one plan in particular, the plan where we offered a meaningful Part B giveback. We do expect that plan will attract an overall lower acuity membership given the plan design and the way it’s structured, and we did see stronger growth in that plan than we had originally expected. So again, that relative to all other members would likely be a negative to MLR. And then finally, I would say the plan-to-plan switching that we saw this year, and we commented on this at JPMorgan as well. For the existing members that we do have, we did see more members switch to another Humana offering than we had initially anticipated. Typically, that’s where they will see a richer plan in market and select that plan.
So while still positive and more so than an otherwise new member, year-over-year, they would see less contribution given the planned change that they initiated. And the last thing I’ll just point out that is a bit unique this year is in order to make the level of investment that we did in our Medicare offerings, the way the bid dynamics work, we have to create savings for relative to A&B cost to fund those additional benefits and recall that CMS shares in those savings through the rebate. And so in order to invest $1 billion in benefits, you have to actually save more than that and then share some of that with CMS. And so the implication of that is and otherwise increased to MLR relative to what it would have been at a lower investment level.
So all of those things are contemplated in our current year guide as well as, as I said a moment ago, just our continued approach of taking a conservative view of the guidance at the beginning of the year.
Gary Taylor: Thank you.
Operator: Thank you. And our next question will come from Nathan Rich of Goldman Sachs. Your line is open.
Nathan Rich: Hi good morning. Thanks for the question. I wanted to go back to RADV, if I could. It looks like the elimination of the fee-for-service adjuster, is set to go into effect. I guess, how significant of an impact could that element have relative to some of the other factors you mentioned where there seems to be a bit more uncertainty around contract selection and sampling methodology? And then Susan, I think you had previously talked about potential for the industry to litigate the outcome of the final rule to try to resolve some of these uncertainties. It’d be great to get your kind of updated thoughts on how you think that process could play out?
Susan Diamond: Sure, Nathan. So, I would say, as we think about the ruling, as Bruce mentioned, the fact that they will not be extrapolating to periods of 2017 and prior, we certainly view as positive and we would consider the exposure for the audits that have been completed for those periods to be immaterial. So that was definitely positive. As we think about what CMS has shared for 2018 and forward, and as we said in our commentary, it will be €“ we will need to evaluate obviously, the audit selection methodology and extrapolation methodology. And also understand our compliance concerns as part of our normal course MRI activities. And as we do that, we continue to evaluate all of our options to ensure that the omission of a fee-for-service adjuster and the resulting impact is addressed.
And so again, at this time, that’s really all we can say. There’s going to have to be additional collaboration with CMS to better understand some of the go-forward activity, but we just continue to €“ and we’ll continue to evaluate all of our options to address the primary issue of the lack of acknowledgment of the need for a fee-for-service adjuster.
Nathan Rich: Thank you.
Operator: Our next question will come from Lisa Gill, JPMorgan. Your line is open.
