Ladies and gentlemen, thank you for standing by and welcome to the Elevance Health fourth quarter earnings conference call. At this time, all participants are in a listen-only mode. Later, we will conduct a question and answer session where participants are encouraged to present a single question. If you wish to ask a question, please press star than 1 on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star than 2. These instructions will be repeated prior to the question and answer portion of this call. As a reminder, today's conference is being recorded. I would now like to turn the conference over to the company's management. Please go ahead.

Nathan Rich, CEO & CEO Good morning, and welcome to Elevance Health's fourth quarter 2024 earnings call. My name is Nathan Rich, Vice President of Investor Relations. With us this morning on the earnings call are Gail Boudreau, President and CEO, Mark Mark Kaye, our CFO, Peter Hightayan, president of Carillon, Morgan Kendrick, president of our commercial health benefits business, and Felicia Norwood, president of our government health benefits business. Gail will begin the call with a review of the progress we've made against our strategic initiatives and a discussion of the quarter and our 2025 outlook. Mark will then discuss our financial results and guidance in greater detail. After our prepared remarks, the team will be available for Q&A. During the call, we will reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, elevancehealth.com. We will also be making some forward-looking statements on this call. Listeners are cautioned that these statements are subject to certain risks and uncertainties, many of which are difficult to predict and generally beyond the control of Elevance Health. These risks and uncertainties can cause actual results to differ materially from our expectations. We advise listeners to carefully review the risk factors discussed in today's press release and in our quarterly filings with the SEC. I will now turn the call over to Gail.

Thank you, Nate, and good morning, everyone. Before we begin, I'd like to extend our deepest sympathies to the millions of people affected by the Southern California wildfires. With over 9 million members and over 6,000 Elevance Health Associates in the state of California, we are especially grateful to the first responders who are working tirelessly to support the ongoing recovery efforts. At Elevance Health, our teams quickly mobilized to facilitate access to essential health resources and provide much needed aid to the communities impacted by this devastating event. This moment underscores our shared humanity, reminding us that above all we are a community dedicated to supporting people's health and well-being. Our purpose as a company of improving the health of humanity remains resolute and we will demonstrate steadfast leadership in health care marked by compassion, dedication, and a profound commitment to improving the lives of the people we serve. For our members, we play a critical role in ensuring simple, affordable, and accessible care. We recognize that the healthcare ecosystem is grappling with significant challenges, including rising costs, administrative complexity, and disparities in access to care. These issues are compounded by evolving consumer expectations and the need for a more integrated approach to physical, behavioral, and social health. In collaboration with our partners across the industry, we're addressing these challenges with great urgency, focusing on streamlining processes, reducing costs, and improving the overall experience for our members. We are reimagining how we connect with consumers to personalized experiences, tailor recommendations to meet their specific needs and simplify the healthcare journey. Targeted digital interactions through our Sydney app closed critical gaps in care and saved members an estimated 1.5 million hours in 2024, time they would have otherwise spent trying to find the care they needed. Health insurers play a vital role in keeping healthcare affordable by ensuring our members have access to high-quality care at reasonable costs and designing benefit structures that encourage preventative care and early intervention. Through the value-based partnerships we have with care providers, we reduce inefficiencies, drive better health outcomes, and lower overall costs for members. In our Medicare Advantage portfolio for 2025, 95, 90% of our plans have no monthly premium, and nearly all plans offer $0 copays for primary care visits and access to supplemental benefits. These innovative plan designs demonstrate how we align affordability with improved member health. Our data demonstrates that duly eligible members who utilize supplemental benefits are 40% more likely to access preventative services and nearly 15% less likely to have an inpatient admission. Solutions like our Total Health Total U advocacy program enable personalized outreach through digital channels and address whole person care before complex health needs arise. Employers recognize the value this program brings, reflected in a net promoter score of 82. For our care providers, we create a real impact on health by going beyond the contract, and we strive to be an active partner in the care of our members. Our value-based programs account for nearly two-thirds of care today, with over 35% taking downside risk compared to less than 20% just three years ago. Over the past year, we've broadened our capabilities through the launch of Mosaic Health in partnership with CDNR. Mosaic Health serves nearly 1 million consumers across 19 states and provides the foundation for us to expand our advanced primary care and physician enablement solutions to serve a growing number of people in the years to come. We have invested significant resources and partnering with hospitals and physicians to provide real-time insights and tools that ease administrative burdens and allow care providers to devote more time to caring for patients. In cases where we have aligned data sharing with a health system, we have nearly eliminated claims denied due to incorrect or incomplete information, significantly easing the administrative burden for these systems. We are making good progress in expanding the solution to more partners. When health plans and care providers have access to the same information, we make the same decision. We are working in concert with our many vital partners across the healthcare ecosystem to promote solutions that enhance outcomes and empower healthier communities. With With this unified voice, we can more effectively advocate for holistic solutions that address the physical, behavioral, and social drivers of health. We are on a promising path and will work tirelessly in the coming years to achieve our bold purpose to improve the health of humanity. Now turning to our results, today we reported fourth quarter GAAP diluted earnings per share of $1.81, and adjusted diluted earnings per share of $3.84, consistent with the expectations we shared back in October. These results reflect the immediate actions we took in response to unprecedented cost trends in our Medicaid business. Our Medicaid business serves as a cornerstone in advancing health outcomes for individuals managing chronic and complex conditions. Our complex care management programs provide the support of a dedicated care team and digital resources that have led to a reduction in inpatient emissions by 7%. We are uniquely equipped to drive better health outcomes through complementary capabilities of our integrated health benefits and CareLine platforms. Fourth quarter Medicaid cost trend remained elevated at levels aligned to the outlook we provided last quarter. We are grateful for the continuous and constructive collaboration of our state partners. While rates today remain insufficient to cover the elevated level of cost trend we are experiencing, we remain confident that rates will ultimately reflect the underlying acuity of our Medicaid membership over time. In Medicare, benefit reductions and market exits in 2024 create a strong foundation for profitable growth. During annual Open Enrollment this year, seniors valued the stability in our benefit offerings, evidenced by improved retention. We anticipate Medicare Advantage membership growth in the range of 7 to 9 percent, consistent with our prior expectations and inclusive of new wins in Group MA. We remain confident and our ability to balance growth and margin performance in 2025. We are pleased with the performance of our commercial businesses in 2024. Our integrated medical and pharmacy offering is resonating in the market. We welcomed 18 new national accounts who chose Elevance Health for 2025, including several who selected us as the sole source provider to manage their medical and pharmacy benefits, continuing a trend we have seen the last few years. We also saw record retention in our national accounts business for 2025, a testament to the differentiated value we provide the market's largest and most sophisticated clients who value simplicity and affordability. Our individual exchange business experienced strong growth of more than 30 percent in 2024. We delivered innovative, affordable products that resonated with consumers, and as we entered 2025, we anticipate another year of strong growth in this market. Turning to Carillon, in 2024, we made progress against our strategy to further scale our enterprise flywheel for growth. In the fourth quarter, we closed on the acquisition of CareBridge, which will bolster our home and community-based services for chronic and complex members and serve as a foundation for Carillon's home health business. CareBridge's innovative approach aligns well with our enterprise focus on whole health, utilizing technology and comprehensive clinical support to improve care quality and efficiency pharmacy, while enhancing patient outcomes and independence. The expanding breadth and diversity of our pharmacy, advanced primary care, and home and community-based solutions will serve members and drive greater alignment with our health Caroline's services experienced impressive internal and external growth in 2024, and we are positioned for revenue growth above our long-term target range for this segment in the year ahead. Shifting to our expectations for 2025, we are providing guidance for adjusted diluted earnings per share to be in the range of $34.15 to $34.85. We will navigate 2025 with the same focus and discipline that has been central to the long-term success of Elevance Health. We will continue to manage cost trend for our clients, deepen the impact of our Carillon assets, and execute on the growth opportunities ahead of us. The actions we are taking now will enhance the long-term earnings power of our enterprise and underscore our confidence in returning to at least 12% adjusted EPS growth annually on average over time. Finally, I would like to express my deepest gratitude to our extraordinary team of over 100,000 associates and their unwavering efforts during this dynamic period for the industry. Our associates went above and beyond last year, logging over 280,000 hours of volunteer time in our communities, setting a record for Elevance Health. This remarkable dedication underscores our collective commitment to improving the health of humanity by making a tangible positive impact on the people we are privileged to serve and the communities we call home. As we advance our mission, we remain focused on being our members lifetime trusted health partner and ensuring our work elevates health beyond health care. I'll now hand over the call to our CFO Mark K., who will provide more details on our financial results and guidance.

Mark? Mark K.: Thank you, Gail, and good morning, everyone. As Gail noted, we reported fourth quarter adjusted diluted earnings per share of $3.84 and full year adjusted diluted earnings per share of $33.04, with fourth quarter results consistent with our October expectations. Our disciplined operational execution helped us navigate an elevated cost environment primarily within our Medicaid business. We concluded the year with 45.7 million members, a decrease of 1.1 million year-over-year, but roughly flat sequentially. This annual decline was driven by membership reductions stemming from Medicaid redeterminations and changes in our geographic footprints, partially offset by continued growth in our employer group fee-based offerings and our ACA health plan products. These areas of growth demonstrate our ability to deliver compelling value in competitive market segments. Turning to revenue, we generated $175.2 billion in total operating revenue for 2024, up approximately 3% from the prior year. This top-line growth reflects premium rate adjustments in recognition of higher cost trends, as well as expanding customer relationships within our Calon businesses, partially offset by lower Medicaid membership. We also benefited from acquisitions that further our goals in pharmacy services and home health, enhancing our enterprise flywheel. A priority for the coming year will be integrating these assets to unlock greater value for the members we're privileged to serve, particularly as we drive ambitious growth in Kelon. Our consolidated benefit expense ratio for the fourth quarter was 92.4%, bringing our full year ratio to 88.5%, in line with our guidance. As noted previously, we continue to see elevated cost trends within the Medicaid population, which remains stable at the levels we experienced exiting the third quarter. We are encouraged by the rate adjustments from our state partners, which are helping to better align premiums with current care costs. As these adjustments become more fully reflected, we expect Medicaid margins to improve over the course of 2025. Elevante Health's adjusted operating expense ratio stood at 9.9% for the fourth quarter and 10.6% for the full year, an improvement of 170 basis points and 70 basis points respectively versus the prior year. This reflects our continued focus on disciplined expense management and operating efficiencies. For the year, operating cash flow was $5.8 billion, or approximately one times GAP-NED income. Our year-end days in claims payable was 42.9 days, essentially flat compared to the third quarter, and aligns with our long-term target range in the low 40s. In the fourth quarter, we opportunistically repurchased 4.5 million shares for a total of $1.8 billion, bringing full-year repurchases to $2.9 billion and exceeding our initial forecast. We remain committed to returning capital to shareholders while also investing in our strategic initiatives. Looking ahead to 2025, we are introducing a range for our adjusted diluted earnings per share of $34.15 to $34.85 to provide greater specificity around our view of expected performance for the year. We project total medical membership of 45.8 to 46.6 million by year-end 2025, driven by expected growth in our commercial fee-based membership, ACA exchange plans, and Medicare Advantage. Following an annual enrollment period in line with our expectations, we anticipate ending 2025 with Medicare Advantage membership of 2.2 to 2.25 million, reflecting planned growth in group MA and high single-digit expansion in individual MA. In terms of top-line performance, we anticipate operating revenue to grow in the high single to low double-digit percent range, bolstered by acquisitions like CareBridge. We expect our consolidated medical loss ratio to be around 89.1 percent, plus or minus 50 basis points, roughly a 60 basis point increase at the midpoint. This incorporates the persistence of elevated cost trends, particularly within Medicaid, as well as impacts from recent acquisitions and Medicare Part D benefit redesign changes. Our adjusted operating expense ratio is expected to be 10.4 percent, plus or minus 50 basis points, implying a slight year-over-year improvement as we pursue targeted actions to enhance our cost structure. For 2025, we anticipate a more normalized operating cash flow of roughly $8 billion, or 1.1 times gap net income. We plan to allocate approximately $2.3 billion towards share repurchases, with a bias towards the first half of the year. Regarding earning seasonality, we expect to earn just over 60% of our adjusted EPS in the first half of 2025, with slightly more than half of that first half figure coming in the first quarter. I'm also pleased to announce that our Board of Directors has approved a 5% increase in our quarterly dividend to $1.71 per share, our 14th consecutive annual increase. This speaks to our commitment to delivering strong shareholder returns and reflects the balance and resilience of our business model. We remain confident in our ability to execute on our strategic priorities in 2025 while meeting our financial objectives. With continued investments in our diversified business model and the expansion of Calon's capabilities, we are building a strong foundation to deliver even greater value to our members, providers, and shareholders, and position Elevance Health for long-term, sustainable growth. Thank you for your time today. I will now turn the call back to the operator for your questions.

Ladies and gentlemen, if you wish to ask a question, please press star than 1 on your telephone keypad. You will hear a prompt that you have been queued. You may withdraw your question at any time by pressing star than 2. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, we ask that each participant limit themselves to a single question to allow ample time to respond to each participant that may wish to participate in this portion of the call. For our first question, we'll go to the line of AJ Rice from UBS. Please go ahead.

AJ Rice Hi, everybody. Thanks for the comments. Maybe, I know it's not your biggest business, but there certainly has been a lot of discussion in the financial community about through Medicare advantage business. Enrollment looks like you're targeting sort of, you know, mid 7 to 8% or so for the year. Is that fully reflective of what you've got the full view of open enrollment at this point? So you think from here it's just agents largely? And what are you seeing as you drill down in that demographic of the types of members you've attracted in the open enrollment. And then just also, I think the comment on the third quarter was that the Medicare Advantage margin in 25 might step up modestly but still be below your long-term targets for Medicare Advantage. Is that still your thinking?

Well, thank you, AJ. Just a few comments. First, First, we feel very good about and confident in the enrollment guidance that we gave for Medicare Advantage. It did come in line with the expectations that we set, and we had very strong member retention, which we think is a huge positive for us. So overall, I'll ask Felicia to maybe give you a little bit more detail about it, but really good in terms of the positioning of product and geography and overall, and we do think that's where we'll end the year. So Felicia, maybe a little bit more guidance on that.

Good morning, A.J., and thank you for the question. You know, as Gail said, we are very pleased with the outcome of our annual enrollment period. Performance was really aligned with our expectations, driven predominantly by strong member retention and really stability in our offerings amid significant disruptions in the market this year. The enrollment trends that we saw in our core markets really reflect the value that seniors place on our balanced approach and we were very focused on our local strategy to ensure that we were effectively capturing growth opportunities where they were most favorable for us. We are very pleased with the product and the geographic composition of our growth. We saw very strong HMO growth by design and less PPO growth in the markets that we were looking for that growth. So with With AEP results in hand right now, we are confident around our 2025 Medicare Advantage guidance of 7% to 9%, which from a member growth perspective is right in line with our expectations that we provided last year. We're obviously going to continue to be very vigilant around how we manage growth throughout the rest of the year. As you said, there will be predominantly agents and some individuals that come in as a result of dual eligibility, but we are confident in the actions and strategies that we have to maintain growth within the guide that we provided. Thank you.

And then, AJ, on your margin question, we are positioned well to achieve a margin stability in 2025 through many of the factors that Felicia mentioned, including discipline, cost management, and stronger pension.

Thank you, Mark. AJ and Lance, next question, please.

Next, we'll go to the line of Lance Wilkes from Bernstein. Please go ahead.

Thanks so much. Could you talk a little bit about what you were seeing in terms of utilization? In particular, perhaps you could talk to what you're seeing in trends by product like MA and commercial, and how you're thinking about that in terms of your assumptions for 25, and if you can give any commentary on categories of medical cost trend as far as inpatient, outpatient, et cetera. That would be great. Thanks a lot.

Lance, thanks very much for the question this morning. Cost trend in the fourth quarter developed largely as we anticipated, with stability I would say across our lines of business. Specifically in Medicaid, trends remained elevated, they were stable, particularly as we've called out in prior quarters in behavioral health and inpatient services, and we think it's primarily because the ongoing impact of the membership mix changes following redeterminations is really stabilized at this point. In Medicare, cost trends similarly in the fourth quarter were elevated. They were manageable. We saw notable drivers here, including some of the post-acute care services. Again, very consistent with prior expectations and the way that we've priced our bids for 2025. On the commercial side, I would say performance remains strong in line with the discipline pricing approach that we've adopted to date. And so as we think about 2025, you know, we do expect these elevated trends really to persist in the first half of the year, particularly in Medicaid. On the Medicare side, you know, they're similarly expected to remain stable at the current level. And so I would say our outlook for 2025 really incorporates these dynamics.

We're taking a prudent approach to guidance to ensure, again, we deliver a sustainable long-term value thank you mark and thanks for the question lance and again i'll just reiterate i think what you're seeing from us the very prudent approach um in terms of very consistent what we've shared on on where utilization is next question please next we'll go to the line of stephen baxter from wells fargo please go ahead hi thanks um just to follow up on that you know you mentioned that medicaid is an influencer of the higher year-over-year mlr that you're expecting in 2025.

I think your previous expectations you discussed last quarter, you know, were for something more stable than that. And it sounds like potentially, you know, the conversation around 1-1 rates has been, you know, pretty constructive. But let me just get a better sense of what explicitly you're embedding for Medicaid full year MLR change in this guidance. Thank you.

Stephen, thanks very much for the question. Maybe let me start with the fourth quarter Medicaid trend in a little bit more detail. So in the fourth quarter you know Medicaid cost trends developed in line with the expectations we communicated during October. So specifically trends generally remain consistent with the elevated levels we observed in September and again that reflects just the stabilization of our membership base you know given again redeterminations materially completed. As we look forward to 2025 we expect these higher than typical Medicaid cost trends particularly as I mentioned a moment ago in behavioral health and inpatient care really to persist into the first half of 2025. And why does that matter? Well, it matters because current rates have not yet fully caught up to these cost trends, and so we're maintaining a prudent stance on how quickly the Medicaid margins are going to rebound in 2025. And this simply reflects, you know, both the elevated level of cost trend we expect to continue in the first half, but also the incremental rate adjustments that we're working on with our state partners. And so you could think about Medicaid as really being a tale of two halves, stabilization in the early part of the year, followed by improvement in the second half of the year as rate adjustments begin to more fully reflect the heightened cost pressures.

Thank you. Next question, please.

Next, we'll go to the line of Lisa Gill from JPMorgan. Please go ahead.

I just really want to understand two things. First would be the comments around the Part D redesign. Mark, can you talk about the specific impact MLR? And then secondly, just understanding that the performance in Caroline Rx going into 2025, you talk about mid-teams growth. Can you talk about how much of that is organic, the investments that you're making when we think about the margin improvement that you're talking about for 2025?

Thank you, Lisa. I'm going to have Mark address your first part of your question, then I'll ask Pete to talk about the growth, which we are really pleased with and excited about what the strategies and execution Caroline has. So, Mark, please.

Lisa, thanks very much for the question this morning. So, for 25, we're guiding to an MLR of 89.1 percent. That's approximately 60 BIPs higher than the prior year at the midpoint, those that are driving the increase here. First is the impact of our strategic growth mix in Medicare, including the Part D changes. The second one is recent acquisitions, and then third is really a prudent view towards medical cost trends. So specifically, you know, the business mix changes are really driven by CareBridge running in the 20-ish basis point range, and that's expected to run at a higher MLR than our organic businesses, as well as stronger relative growth in our Medicare businesses, inclusive of, to your point, the changes in the part, the benefit structure, which has increased the direct subsidy. In addition, I'd say the MLR guidance does reflect elevated but stable cost trends that you heard us talk about a couple minutes ago because we're operating in a more dynamic cost environment than historical norms.

Pete, maybe share your thoughts on Caroline.

Yeah, I appreciate it. And thanks for the question. I'll talk broadly about Caroline. We're really excited about what's going on in Caroline and the growth opportunities. We came off a very, very strong 24, as I think you saw in terms of our growth. We had another strong quarter of growth and very balanced with respect to internal versus external growth. We continue to expand a lot of our risk arrangements internally across oncology, across behavioral health, post-acute solutions. And then externally, last year, we had one of our best years ever in terms of external growth, doing about 4x in terms of revenue growth versus 23. And by the way, one of the other key points that we've talked about historically, we're seeing really nice penetration as it relates to the blues. That momentum will continue into 2025. You'll see very significant growth in our service as part of the business with over 50% growth. As Mark mentioned we're excited about the addition of care bridge um that certainly adds to it but then importantly even outside of care bridge our organic growth both internal and external on the services side is is well above 20 so very pleased with that i think you also reference um rx lisa and i feel very good about our story and rx and how our um our growth uh stories resonating in the marketplace moment momentum really does continue to build we're working very closely with Morgan and the commercial team. And one of the things that I'll say that's really resonating in the marketplace, and it's actually enabled us to win some large accounts of market and national account, is this real focus on high-touch customer service and advocacy. We are really doubling down on the patient experience and making sure that they have a strong experience across both medical and pharmacy. It's what we talk about in terms of whole health, and we're really pleased about how that's playing out. And then importantly, we continue to do well in our sweet spot mid-market and down market. So I think overall a very strong story in terms of Carillon growth.

Yes. Thanks, Pete. And thanks for the question, Lisa. And I'll just punctuate maybe a couple things. We're really excited about the momentum, both internally and externally in Carillon. And as you heard from Pete, a couple of things. One, deepening our capabilities inside of Carillon so we can advance our strategy around more whole health risk. And you can see that and the numbers that we're sharing and plus what happened in 24 and then external validation with additional clients both two areas that we've talked about strategically so thanks very much for your question next question please next we'll go to the line of andrew mock from barclays please go ahead hi good morning i think there's still some confusion around your medicare advantage membership growth for 2025 so i was hoping you could clear some of this up and tell us what your actual AEP growth is and how much of that accounts for the full-year outlook.

Thanks.

We have Felicia share her thoughts on that. So, Andrew, you know, thank you very much for that question. You know, our AEP growth is certainly very strong, and that reflects a lot of group membership growth that came in a particular group account that, frankly, we're pleased with. That was a commercial account that we had a longstanding relationship with, so very familiar year, with a lot of the demographics and dynamics associated with that group. And then in terms of our Medicare, individual Medicare Advantage growth, it's right in line with the expectations that we provide it. So in total, we are right in the range that we left you with, which is the 7% to 9% growth, which we expect overall this year, and will continue to have in place actions to manage appropriately growth throughout the rest of the year around their Medicare Advantage business.

Yes, thank you Felicia and Andrew, just to be clear because I don't want any confusion, that's seven and nine percent. We essentially don't expect significant growth. We expect minimal growth for the rest of the year which with strong retention. So just to give you some sense of our confidence in that that's how we're projecting it and that aligns similarly to what we've seen for example in 24 just given the market positioning.

Next question please. next we'll go to the line of ryan langston from td securities please go ahead hi thanks uh i know you stepped back from the blue cross of louisiana uh acquisition a little while ago but i believe there's still a potential to revisit that deal i guess is that true and then just maybe more broadly on the environment you know you closed kroger specialty you closed paragon you closed care bridge maybe just remind us on your priorities going forward into 25 and beyond on potential acquisition targets thank you yes thanks for the question we really don't comment on you know acquisitions or our posture on that i mean we're have a good partnership actually with blue cross blue shield louisiana we work with them closely in medicaid and some of the duels in medicare

and a number of products in carillon uh so with many of our blue partners which you've heard us talk about you know we continue to provide services because we have some really unique capabilities let me ask pete to comment on your uh care bridge question yeah no thanks a lot i you know your question in terms of what we're interested in I always like to talk about you know strategy in terms of framing where our interests reside and again we've talked about that the strategy overall of Carolinas to deliver whole health we're really focused on affordability and empathy and we face off with our health plan partners and really identify areas of complexity in health care and try to solve those with differentiated solutions and doing so at risk and you've seen that really play through in our transactions be it on the pharmacy side or on the services side, and we'll continue, you know, down that path. So there are many areas of interest when you think about where specialty trend is, how that impacts the different lines of business. We continue to sort of evaluate that. We'll be opportunistic, you know, on the pharmacy side. We think there are additional ways to enhance the whole health experience. And importantly, we think with, you know, what you're seeing in healthcare today, the fragmentation of data and the patient experience and enabling a much better whole health experience. As Gail said before, we see a tremendous opportunity, you know, around technology and data enhancing the overall experience. So those are areas that we're very interested in as we move forward.

Next question, please.

Next, we'll go to the line of Justin Lake from Wolf Research. Please go ahead.

Thanks. Good morning. A question on the healthcare benefits business, first, hoping you can talk to your expect seasonality for 2025 including how q1 should look versus the full year and then on the health benefits 2025 op margin guidance looks like it's down year over year you've talked to medicaid being flat medicare being flat is that coming in commercial and maybe you can talk about uh what's driving that the magnitude of it on the commercial side thanks justin thanks very much for your uh your question let me go ahead and start with the seasonality and then i'll talk little about operating margins at the health benefits level after that.

For seasonality, as you heard during our prepared remarks this morning, we do expect adjusted EPS to be weighted more towards the first half of the year, with slightly more than 60 percent of full-year earnings occurring in that period. And then within the first half, we anticipate a little bit more than half of those earnings to then show up in the first quarter. And that reflects two things. One is typical seasonal dynamics, and then two is sort of our evolving business mix. As I think about seasonal dynamics, you can think about the commercial business here typically contributing a larger share of earnings in the first half of the year. And then with continued strong retention and disciplined pricing, we expect that's going to continue to be the same pattern in 2025. On Medicaid, margins are more back-end loaded, especially as rate updates from state partners take effect. That's our first half, second half story. And then, of course, we've also reflected the Inflation Reduction Act, Medicare Part D changes, and the benefit of a leap year in the first quarter. So a lot going on with seasonality, but let me point you to those early comments I made. On the operating margin expectations, we do expect a 25 to 50 basis points decline year over year. And there are a couple of discrete impacts outside of core operating performance, But in line with our expectations, that's what I would call out for you. The first is that we're going to be cycling the non-recurring expense benefits that we had in 2024. Second, we're going to get a little bit of membership mix impacts through the slightly stronger relative growth in our Medicare lines of business compared to commercial, inclusive of the Medicare Part D design change. And then I would make the point sort of excluding those discrete impacts. You know, the margins across the health benefits businesses would have been stable.

Thank you.

Next question, please.

Next, we'll go to the line of Josh Raskin from Nefron Research. Please go ahead.

Hi. Thanks. Good morning. Just within the 2025 guidance, can you speak to your expectation for commercial trend and what you priced for? And I just want to make sure I understand, are you still expecting margin improvement in commercial? I thought that was a previous expectation. And then just on the MA side, you know, I know the CMS data got rescinded, but it looked like your growth was already above, you know, slightly above the midpoint of full year guidance. I heard not a lot of growth the rest of the year. Could you just help us with the actions you've taken on the distribution side and maybe why you've taken some of those actions and if that's what's slowing the growth?

Josh, thanks very much for your question. You know, on 25 commercial trend, you know, looking ahead, we really do anticipate commercial cost trends to stay above those historical averages. But most importantly, you know, this is something that we've expected and we've accounted for in our pricing strategy and Morgan and Tina taking a very disciplined approach between competitiveness and underwriting discipline to ensure those are priced for it's a hard market it's a very rational market we feel very good about our balance of pricing and our forward-looking view of trends here so on the commercial side certainly retention is strong pricing is strong margins remain robust yeah thanks Josh I'll take the second part of your question, which is kind of our view.

You know, part of this is, as you think about AEP, we expect the data to settle out over the next few months. So I think you'll have a better view of what AEP actually looked like. And then secondarily, just looking at our trajectory and our placement of our products in each of the businesses. And as you note, just duels and sort of that pace. That's why we feel very confident of the rest of the year growth.

We still expect strong retention, but we don't expect any significant growth of new sales, for example. but other than a normal cadence and we saw that cadence in 2024 as well next question please next we'll go to the line of Dave Winley from Jefferies please go ahead thanks thanks for taking my question good morning um question on on pricing kind of a two-parter the guidance in commercial for ASO uh revenue or fee revenue flat your membership I think you're expecting up is there are no pricing there. And in Medicaid, I hear you saying kind of stable MLR, stable margin as we move into the early part of 2025. I think 50% of the book reprices on Jan 1. And so I'm just curious about the benefit or lack thereof from that price to actually move you into an improving pattern in your Medicaid margin. So pricing on Medicaid and ASO. Thanks.

Okay, we'll try to address, there's a lot embedded in that question. Maybe Mark first, then I'll ask some of the other colleagues here to join in on the rest of the answers.

Dave, thanks very much for the question. The first one's relatively simple on the Service Fee Revenues Guide of Approximately Flat Year-over-Year. This is primarily because, you know, one of the main business drivers here is we're targeting a shift from fee-based to risk-based contracts, you know, meaning within Kaylon Services we're expecting a portion of our new wins and contract expansion really to convert from the fee-based arrangements to risk-based arrangements and so we'll record that premium rather than necessarily through the service fee line.

Next will be Felicia to answer the other parts of your question. Yes, Dave, thank you for the question. You know, certainly let me start by saying that we continue to be very focused on working tirelessly with our state partners to make sure that we are getting actuarially sound rates. When we take a look at our rating cycle, we have about 41% of our members tied to January, but then we have the rest of the rating year for the rest of our membership. At this point, we have visibility into about 70% of our premium on the Medicaid side. And as you heard Mark mention earlier, January came in in line just with what we expected, insufficient, but very constructive conversations and good work with our state partners. And then the July rates will be critical as well as we continue to close and narrow that gap and expect to see strong improvement in the back half of the year in Medicaid. Next question please.

Next we'll go to the line of Joanne Gajic from Bank of America. Please go ahead.

Hi, good morning. Thanks so much for taking the question. So I was just looking at your slides and the slide that when you talk about the long-term CAGR targets, I noticed that you you no longer seem to be targeting to get to your margin 6.5%, 7% by 2027, so is that the way to read it? And also, I guess, if that's the case, when should we expect that to be achieved and what would need to happen really for the margins to get to that target?

Joana, great question and very sharp eyes. Let me maybe start by emphasizing we remain committed to the long-term financial targets that we introduced at our 2023 Investor Day. We've not changed our target ranges or our expectations for either revenue growth or operating margin, and our goal is to deliver at least 12% average annual adjusted EPS growth. In other words, nothing's changed about our conviction in the significant embedded earnings power of our businesses. What has evolved is that the faster than projected and I'd say very positive growth that we've delivered across our Calon businesses versus what we shared when we set those targets in 2023 has changed. And specifically, you know, Calon growth is exceeding those original expectations. And we're very pleased that the deliberate actions we've taken to enhance and deepen our risk-taking capabilities has led to an acceleration of this business. So grow at over a 30% CAGR since 2022. And that's significantly above our original target range of high teens to low 20s. And that's very positive for the earnings growth of Kaylon, but it also shifts the near-term margin dynamics for those newer capabilities, right? Just given the normal time it's going to take for new deals to reach, for example, mature margin levels. So in other words, you know, our earnings power remains strong, but the business mix and timing have changed. So I'd probably end here with, look, we remain confident in the embedded earnings power of the businesses. We'll provide a couple more details on our Investor Day later this year, but this is really representative of the change. Thank you. Next question, please.

Next, we'll go to the line of Erin Wright from Morgan Stanley. Please go ahead.

Great. Thanks. A follow-up on Medicare Advantage. I wanted to hear your thoughts on the advance rate notice and where it can go from here in terms of incorporating a catch-up period in the final rate notice and just bigger picture in light of that in the broader political environment seems to be more supportive of MA. But how are you thinking about regulatory implications, I guess, across the rest of your business and namely in Medicaid, where I guess there's a lot of questions and maybe there's no answer, but wanted to hear your initial thoughts. Thanks.

Again, a very fulsome question, Erin. We'll try to address that maybe, you know, directionally. We think, you know, it's positive. Obviously, it's preliminary, not final. I'll have Felicia share some more details on that and we'll talk about sort of kind of how we're heading.

So, Felicia? Sure. Erin, thank you very much for that question. You know, we all have to keep in mind that, you know, beneficiaries choose Medicare Advantage for the value that it provides and it delivers. And over 34 million people in this country, older adults and persons with disabilities have proactively chosen MA. Rate stability really helps us to continue to be able to provide the benefits that deliver high quality care that seniors value and depend on. Regarding the advanced notice, you know, after two consecutive years of cuts to the MA program, we are very pleased to see the direction of the advanced MA rate notice that came out earlier this month. Now, while the base rate reflects progress, I think, towards more adequate funding in the program, we still believe that it's insufficient in light of the cost trends that we've seen over the past year. So we look forward to working very collaboratively with the new administration in terms of our proposed recommendations on changes in the advance notice, particularly with respect to some of the reforms in the Part D risk model and other policies which we believe will improve the program long term. So we look forward to working with the administration over the next few weeks and months to make sure that the final notice advances the program that seniors in this country have certainly come to rely on.

Erin, just briefly on your comments around sort of Medicaid and the environment there, just a couple things. I mean, I think as you think about the deep expertise and the years that we've worked in this space. We have a long history across multiple administrations of providing critical benefits to our members and deep expertise, particularly in working with the states. What I'd say we're really looking forward to is a public-private partnership where we can work with our states and the government to bring innovative programs that we think can really benefit these members and I think provide even better value. So we're, you know, again, it's early. There are no firm proposals. There's a lot of different discussion, but I think we're approaching this in the public-private partnership and also a long history of working across this for many, many years. Thank you. Next question, please.

Next, we'll go to the line of Sarah James from Cancer Fitzgerald. Please go ahead.

Hi, this is Gabby on the line for Sarah. Could you just speak a little bit more to the commercial cost trends you saw in the fourth quarter and overall for 2024, maybe more by product, inpatient, outpatient, and then just reiterate what's assumed in guidance for how commercial cost trends evolve in 2025?

Gabby, welcome. And I am going to apologize in advance. This might be a little bit of a short answer. So I'd simply note that commercial performance remained strong in the fourth quarter. Trains were elevated, you know, throughout the year. They were stable. And most importantly, they were priced for. We see, you know, continued driver of the elevated cost trend come from a couple of key categories, for example, some of the inpatient medical, a little bit of outpatient ER, but for the most part developed exactly in line with what we expect. And I'd say the same for 2025. You know, our pricing initiatives are ongoing. We'll look to continue to expand margin via mix and penetration of some of the specialty products, but we feel very good about how we're positioned.

Thank you, Mark. And just reiterating, I mean, we feel very good that we priced. It's a hardened market in commercial and have seen really strong results across our commercial business. So thank you for that question. Next question, please.

Next, we'll go to the line of George Hill from Deutsche Bank. Please go ahead.

Yeah. Good morning, guys, and thanks for taking the questions. Kind of a two-part here on the exchange business. I guess number one is, do you guys have an expectation for what happens to the enhanced subsidies as part of the upcoming political cycle? And then part two, Mark, is kind of a nuanced one. What percent of exchange members have actually paid the January premiums relative to what you guys have experienced last year, given that the government turned the income verification back on, kind of expecting a change in, like, would people actually show up and pay the premiums? Any call would be helpful.

Let me have Morgan address your first question and then Mark your second. So, Morgan.

So, George, thanks for the question there. First of all, we're really pleased with the commercial ACA performance. That business has turned out to be quite a good one, and as you've noticed over the past several years, we've taken a very prudent methodical approach to getting into various markets and actually growing that slowly. It's one where, you know, we've seen the trends as they are, they've been priced for. This year, we're particularly pleased with the fact that we've expanded into non-blue geographies in three additional markets. So we really look at this as an overall white space. Certainly, there's the opportunity to, you know, have a reduction in the actual subsidies or elimination, which would certainly shrink the market of some sorts, if indeed that occurs. That said, we absolutely believe that this is a really, really solid market for us. We like the business. It's a complimentary business for us in taking risks, and it certainly created a promising white space for long-term growth as we continue to kind of create that harmonious connection between CARE, CAIT, and ACA, so it brings together both government and health benefits or commercial benefits, and I'll pass it to Mark for the balance of your question.

George, thanks. At this time, you know, there's really no change in our effectuation rates. We're being a little bit conservative in the assumptions. I'd say the effectuation has been very consistent with what we've observed in the prior years, and our guidance from membership growth that we released this morning incorporates those assumptions.

And one thing about just in terms of where the federal government go, obviously there's still a lot of discussions. There's no final policy, and I think one of the things to consider that, you know, there's a lot of flexibility that Congress has when considering an extension of a subsidy so it doesn't have to be an all-or-nothing decision. Adjustments can include you know full extension or partial so just as we go through this process we're obviously sharing you know the value that these subsidies have for our members and the impact it has to them. Next question please.

Next we'll go to the line of Scott Fidel from Stevens. Please go ahead.

All right thanks. Good morning. I want to just get clarification and then a question just on the clarification would be appreciate Mark's comments on the operating margin dynamics for Caroline by 27. I was hoping maybe Mark if you could also just elaborate on health benefits and whether those margin targets are still intact for 27 or have evolved and then also was just curious if you guys can give us the breakdown in the commercial risk enrollment growth guidance between commercial group and the exchanges. Thanks.

Thank you very much for the question this morning, Scott. Just on the health benefit margin, so again, maybe just to reiterate some of the important points from my prior commentary. So our long-term vision and margin objectives for health benefits business haven't changed. And, you know, we do remain confident in the earnings power that's embedded in these health health businesses and the growth they continue to drive for Calon. In the interim, the change we made this quarter based in part on investor feedback was really to reflect the foster then projected, and I spoke about this a minute ago, the positive growth that we've delivered across the Calon businesses. So concurrent with that, we also want to stay prudent about the pace at which our evolving health benefits business mix and investments come together to support those long-term target margins. We'll provide more details at the Series Investor Conference about where we stand with that, and you'll hear more about the growth opportunities at that time.

Yeah. Thanks, Mark. And again, you know, I guess our key message is we believe that there's really strong embedded earnings power, and Caroline has really accelerated that as well. So that's really the message that we are trying to share today. Next question, please.

Next, we'll go to the line of Michael Ha from Bayard. Please go ahead.

Thank you. Wanted to revisit AJ's question and ask it in a bit of a different way. So regarding your 25 MA growth guide, healthy growth in line with expectations, averting the worst case high growth scenarios that investors had. With that said, for the investors who may still push back and say, okay, Elevance only achieved this healthy growth level through aggressive plan suppression tactics and that the company still mispriced the business. Curious to hear your response to that. I know you're still very confident, but given this context, I'm trying to get a better sense on your level of conviction and confidence on M.A. margins this year.

Thank you for the question. I guess sort of just to level set kind of our view, I mean, obviously, we're very specific around wanting to target certain types of growth by marketplace, geography, and product, as well as continue our growth in our strong duals business. So I guess I would reframe the answer to your question is we had really good retention, and that, in our individual Medicare Advantage book, I think has positioned us quite well for sustainable long-term growth. So we feel all of this actually plays into our long-term strategy. We're being prudent around where Medicare is going, as Mark shared in sort of our guide around trend, and want to make sure that we position that business the right way. The other growth that we saw, which is also, I think, a significant positive, is in our group growth, and that's from a large client that we have significant experience with and have worked with, and I think that is an inherent part of our strategy in Group MA is to convert those members over, and we did that this year, and we're really pleased with it, and we saw some stronger growth because of the strength of the brand that we have with that customer. And again, the strong service and delivery we've delivered to this customer for many, many years. So I guess my positioning is we feel quite good about where we said we were going to guide for growth, where we're ending on growth, and it is the right alignment of product and geography to match where our capabilities are. Next question, please.

And for our last question, we'll go to the line of Whit Mayo from Laring Partners. Please go ahead.

Thanks. I just wanted to get a quick update on the performance of your Puerto Rico MA business. How did that perform last year versus your targets and what are you thinking about growth and margins this year and whether or not that's driving any contribution to the views on stabilization and overall MA margins?

Well, I fully should address that.

So, good morning, Whit, and thank you so much for the question. As you know, as we headed into AEP of 2024, we made some strategic decisions with respect to our Puerto Rico business, making significant reductions in our supplemental benefits to make sure that over time we were balancing margin and membership. And I will say that the success of that was very solid. We demonstrated our ability to be able to get to a place we needed to, stabilizing that environment. It worked very well in 2024, and we continued that same strategy as we headed into 2025. So we felt very well about how we are strategically positioned in Puerto Rico and look forward to continuing to make sure that we deliver value to the residents of Puerto Rico in the MA program. So thank you very much for that question.

Thank you, Whit. And that will be our last question. I want to thank everyone for joining us on the line today and for your continued interest and support in Elevance Health. We entered 25 resolute in our efforts to make the healthcare system simple, affordable, and accessible for our members and we're confident that our actions will ensure meaningful impact in 2025 and position the business to return to our long-term growth algorithms over time. Thank you so much again for your interest in Elevance Health and have a great rest of your week.

Ladies and gentlemen, a recording of this conference will be available for replay after 11 a.m. today through February 23rd, 2025. You may access the replay system at any time by dialing 866-405-7292 and international participants can dial 203-369-0604. This concludes our conference for today. Thank you for your participation and for using Verizon Conferencing. You may now disconnect.