Joe Zubretsky: Sure, Nathan. I’ll provide the framing and then kick it to Mark. And I think Mark gave some of the building blocks in his prepared remarks. First and foremost, we’re very confident in the $38 billion revenue outlook for next year. That’s 19% year-over-year growth in a year where we’re still producing best-in-class margins. First, I would say we’re starting with a very high quality solid 2023 earnings baseline. We generally grow organically in our footprint, embedded earnings of $5.50 a share of both new store, both M&A and new contract wins is certainly a catalyst into next year. Those implementation costs of $0.75 reverse. We believe interest rates will continue to be high. Bear in mind that half our investible base is in intermediate term bonds, so they’re locked in, and then the rates on the short-term portfolio are going to fluctuate with what the Fed does.
But our outlook there is that interest rates will remain high going into next year, even to the end of next year. The three variables that we need to see more of before giving a specific earnings per share forecast for 2024 is how does redetermination experience emerge in the fourth quarter? To date, it has been completely in line with our expectation. We did increase our ultimate loss assumption as spoken. And we’d like to see how the rates develop on our 60% of our Medicaid revenue for next year. We know about rates on 40% of our Medicaid revenue next year. Those rates have been actuarially sound. We’ve been satisfied with the acuity adjustments. As Mark said, those acuity adjustments were resident in 10 out of the 12 rates that we already know about.
But we want to see how the rates develop on 60% of the book. So those are the variables going into next year. As you cited at the beginning of your question, we are confident and committed to the 15% to 18% long-term earnings per share growth rate off the 2023 baseline, which means that 2026 earnings per share will be 52% to 64% higher than 2023 of $20.75. Mark, anything to add?
Mark Keim: Yeah, the only other thing Nathan, I think you asked about the rate adjustment in New York. We reported as you know an 88.8% in Medicaid for the quarter. I’d estimate someplace around 30 bps is related to that specific phenomenon. And the reason it’s a little uncertain is in several of our states the retro rates constantly get revisited. I’m optimistic that this one gets a little bit better, but at the moment we book that adjustment.
Nathan Rich: Thank you very much.
Operator: The next question comes from Justin Lake from Wolfe Research. Please go ahead.
Justin Lake: Good morning. Sorry about that. Appreciate the question here. The – two things I wanted to touch on were – you had a fair amount of prior year development in the third quarter kind of abnormally high relative to previous. Just curious what segments of the business might have drove that and the potential impact to earnings there. And then secondly on, Joe, you mentioned investment income. I’m curious as you’re having these conversations with the states on rates. Just want to confirm, like historically my understanding is states didn’t really take when they set your margin – your rates actuarially sound with a margin target behind it. That margin target was before investment income. Are they looking at investment income and say, geez, maybe we could pay you a little bit less because your earnings are higher because of the investment income? Or is that still left outside of the calculation? Thanks.
Joe Zubretsky: I’ll answer the second question first. Investment income is not only generally, but almost entirely outside the conversation of rates, which generally focused on what we call medical margin or trend assumptions. In some cases they also focus on a G&A load, but that’s rare and infrequent. On the PYD, I’ll kick it to Mark because we’re very confident in the strength of our balance sheet. Two points I’ll make. From a business perspective, our payment integrity routines are both prepay and postpay. In a postpay routine where you identify things that you should not have paid for and recover it from providers. By definition, that is accounted for in prior period development because it relates to prior periods.
That is a large share of any prior period development that we report. Second point to note is, don’t forget, we have corridor liabilities relating to some of these prior periods. And to the extent that PYD went against a state in a period where a corridor liability existed, then it was muted in terms of its financial impact.
Mark Keim: That that’s exactly right, payment integrity has become such a fundamental part of our operations and we do it fairly well. That prior year amount that you pulled from the earnings release was largely offset by corridors. Now, more to the point when we see strong prior period development, it’s tempting to be concerned about current reserving. Did they somehow offset to make earnings, something like that? Look, I’d point to the strength of our current reserve position, 51 days, DCP the growth versus revenue. So I feel both good about our current reserving position, but the strength of this prior year exercise as well through our payment integrity function.
Operator: Our next question comes from Calvin Sternick from JPMorgan. Please go ahead.
Calvin Sternick: Yes. Thanks. Maybe just switching gears here a little bit. I’m curious what you’re seeing in the cohort of members who haven’t reconnected within that 90 to 120 day window, but realize afterwards that they’re still eligible for Medicaid. What are the membership additions looking like there relative to what you expected? And I know you’ve talked about in the past investing in quality initiatives to move up in the auto sign algorithms. So just wondering if you’re seeing those efforts bear fruit here or if it’s still too early to tell or just too much noise going on with redeterminations?
Joe Zubretsky: I think you answered the question in your last statement. Because the gap is 90 to 120 days, we’ve seen very little of it, given that the redetermination was in full throws, May and June. But your supposition – your theoretical supposition is correct. That member is going to go to the doctor or to the pharmacy for a service or a script realize they don’t have service and then reconnect obviously with no retroactivity back to the data termination. So we suspect that member will come back in somewhere around the portfolio average because they’ll be requiring services. Anything to add Mark?
Mark Keim: Yes. When we talk about reconnect, just to set the stage for everybody, we tend to think about two categories, most of them are what we call seamless that is within 90 to 120 days, they realized they lost coverage, contacted the agency and got back on as though they never lost coverage and we pick up the retro premium. Now as Joe mentioned, we’re only three, four, five months into this dynamic. So the people that are outside the 90 to 120 day window are only starting to emerge now. We call those reconnects with a gap. They will come in through the typical auto assign process. And through a number of algorithms, we’re getting better and better on auto-assigns in states. So I feel good about our recapture of those reconnects with the gap.
Calvin Sternick: Thanks. If I can just ask a follow-up, and I apologize if I asked this is nitpicking a little bit, but you said the rates are generally satisfactory. Was that just a hedge against New York, maybe coming in a little bit lower? Just curious what you’re seeing on the rest of the book if some things are generally better, in line or if you have something on the other side that aren’t as good as you expected. Thanks.
Joe Zubretsky: I think we use the word generally, obviously, because we were reporting a retroactive rate that not only us but the entire industry is advocating a guest. So that was the reason for the term. But for the most part, about 40% of rates that we know about that impact 40% of our revenue for 2024 in the Medicaid business, the rates have been actuarially sound and have included what we consider to be actuarially reasonable adjustments for acuity.
Calvin Sternick: Great, thanks.
Operator: The next question comes from Stephen Baxter from Wells Fargo. Please go ahead.
