Ladies and gentlemen, thank you for standing by and welcome to Anthem's Third 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. . 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.

Good morning. And welcome to Anthem 's Third Quarter 2021 Earnings Call. This is Steve Tanal, Vice President of Investor Relation. And with us this morning on the earnings call are Gail Boudreaux, President and CEO, John Gallina, our CFO, Peter Haytaian, President of our Diversified Business Group, IngenioRx, Morgan Kendrick, President of our Commercial and Specialty Business Division, and Felicia Norwood, President of our Government Business Division. Gail will begin the call with a brief discussion of the quarter, recent progress against our strategic initiatives, and close on Anthem 's commitment to its mission. John will then discuss our financial results and outlook in greater detail. After our prepared remarks, the team will be available for Q&A. During the call, we'll reference certain non-GAAP measures. Reconciliations of these non-GAAP measures to the most directly comparable GAAP measures are available on our website, antheminc.com. We'll 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 Anthem. These risks and uncertainties can cause actual results to differ materially from our current 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.

Thanks Steve, and good morning everyone. We're pleased to talk with you about another strong quarter. This morning, we reported third quarter GAAP earnings per share of $6.13, and adjusted earnings per share of $6.79. Ahead of expectations, despite another surge in COVID that created challenges throughout the country, once again, Anthem continues to deliver on stakeholder commitments, accelerate growth in every core benefits business, and make considerable progress towards our long-term strategy to transform from a health benefits company to a lifetime trusted partner in health. Addressing the whole person is essential to becoming a trusted lifetime partner in health. Responding to the pandemic has allowed us to instill new agility and innovation into the business, particularly around solutions for physical health, pharmacy, behavioral and social needs, with an emphasis on maternal health, access to nutritious food, and health disparities. Ultimately, we believe we're only as healthy as the communities we live in, and recognize our important role in ensuring everyone has an opportunity to be and stay healthy. As the healthcare paradigm shift, we're accelerating work to simplify members' and clients' every day experiences, and meet their evolving needs to a personalized experience. Moreover, there's abundant opportunity to modernize further and reinforce our position, leveraging our technology, predictive analytics, and innovative products and services to bring an enhanced experience only Anthem can offer. We expect whole-person healthcare, powered by digital technology to help us achieve our goal of driving commercial medical cost trend down towards the rate of TPI by 2025. Currently, we're exploring more ways to drive differentiated value across medical and pharmacy. Our insight-driven approach is fueling new programs that drive better cost and quality outcomes for our members, including in the areas of behavioral health and autoimmune disease. Additionally, we recently launched a new offering…

Thank you, Gail, and good morning to everyone on the line. As Gail mentioned earlier, we reported third quarter adjusted earnings per share of $6.79, an increase of approximately 62% year-over-year, driven by strong growth across all of our businesses. This growth was a result of focused execution against our strategic priorities despite a challenging backdrop created by another surge in COVID. Our third quarter results once again, demonstrate the balance and resilience of our core benefit businesses, and the strong growth momentum we are producing across the board. We ended the quarter with 45.1 million members, growth of 2.4 million lives year-over-year, or 5.7%, including growth of 730,000 during the quarter, led by the successful launch of our Healthy Blue Medicaid plan in North Carolina. In addition to the 426,000 members gained in that state, we produced incremental organic growth of nearly 380,000 members during the quarter, driven by strong growth on our Medicaid and commercial risk-based businesses. This growth was partially offset by continued in-group attrition in our group fee-based business, consistent with our expectations. Operating revenue in the third quarter was $35.5 billion, an increase of 16% versus prior-year quarter, and nearly 18% on a HIF adjusted basis. The increase was driven by higher premium revenue associated with strong membership growth in our Medicaid, Medicare, and commercial risk businesses, as well as rate increases to cover cost trends, and ongoing momentum in our diversified service businesses, including in IngenioRx. The benefit expense ratio for the third quarter was 87.7%, an increase of 90 basis points compared to the prior-year quarter, driven by the repeal of the health insurance tax in 2021. Excluding the impact of the HIF, our medical loss ratio would have decreased by approximately 50 basis points, driven by an unfavorable rate adjustment in our…

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 will go to the line of A.J. Rice with Credit Suisse. Please go ahead.

Thanks. Hi, everybody. I appreciate the headwinds and tailwinds for next year that you're offering. I guess when you look at those items that you've delineated, a lot of them look like they're pretty well set at this point. What would be the ones where there is the greatest potential variability? I'm assuming the COVID related issue. How much of that you get back next year is probably one, but can you comment on that? Where there's the greatest variability among those items?

Good morning A.J. and thank you for the question. Associated with the headwinds and tailwinds, of course, we do want to look at them in their entirety but we should think about the potential variability, COVID has the absolute most uncertainty of any line item on there. I mean it's been an incredible situation that we've been through as a country since March of 2020 and COVID continues to have uncertainty associated with it. The New York group retiree business are still going through their enrollment process so we don't have the absolute exact number of lives lined up at this point in time. And so there's some variability there. But you are correct. We do have some pretty good line of sight on most of the rest of them. But COVID is clearly the lion's share of uncertainty at this point.

AJ, I'd add to John 's response that one of the things that we do feel very good about is the underlying strength and the core of our -- all of our benefits businesses. Our growth's been strong, and I think we've been performing very well in line with the expectations we set. So next question, please. Thanks for the question.

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

Thanks. Good morning. Just wanted to clarify something then a question. The clarification is just wanted to make sure, John, you were talking about 12% growth, and then you talked about that off at $25.20 jump-off point. So that's number 1, and then just the question is on cost trend, looks like the Government margins were materially stronger than commercial in the quarter. So you gave some overall posturing commentary, but was hoping you could give us some trend breakdown between commercial Medicaid and Medicare, how that performed in the quarter versus that slightly above normal overall discussion you had. Thanks.

Yes. Thanks Justin, I appreciate the question. In terms of the jump off point for 2022, you are correct. We've quantified our investment income, outperformance for the year. We believe that there is at least $200 million that's unlikely to recur. And so that $200 million equates to approximately $0.65 of earnings per share. And then you take that off of our updated guidance, and we believe the appropriate jump off point for 2022 growth is $25.20. So appreciate the opportunity to clarify that. Associated with the various lines of business, the commercial profitability, they're still very, very good. However, commercial had the surge of COVID in August and September was really more significantly pronounced within the commercial line of business than it was in the other two lines of business. We took the opportunity to reserve prudently within the commercial line for that spike and to build commercial reserves as a result of what we're seeing at that point in time. Fortunately, non - COVID came in much lower in September across all lines business, which allowed our quarter to come out in a really, really good place. Medicare was very much consistent with expectations. Medicaid was actually a little bit better than expectations for the quarter. And just as a reminder, we had guided to be above baseline costs for COVID and non - COVID combined for each of the 3 months in the third quarter and we were. We were just ended up being better than our expectations. But the commercial issue was really had to do with the spike in August associated with COVID. Thank you for the question.

Next question, please.

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

Yeah, thanks a lot. Could you talk a little bit about the strategy and vision for Diversified and Ingenio, with Pete moving into that role? And maybe as part of that, talking a little bit about the pipeline of opportunities in the Diversified and Ingenio book, as well as selling government services and other Blues. Thanks.

Thanks for the multitude of questions I'll ask Pete in his new role to respond to Lance.

Thanks, Lance. No, I really appreciate it. I'll -- I think I'll touch on the growth associated with Ingenio first, and then reference Diversified Business Group. And I do want to thank Gail and the team for putting me in this position. I do think I'm in a unique position having non-Government and Commercial have a perspective on this. And I think working collectively as an enterprise, we can do very well in penetrating the Anthem portfolio to a much greater degree. But as it relates to your question on Ingenio and growth in Ingenio, we worked very closely with the commercial business. And as we talked about before, the greatest opportunity for us is penetrating the self-funded business. I'd say that activity for us has really picked up this year relative to last year. We're seeing really nice success plans down market. on the smaller side of the business and the middle market. So we're definitely seeing more activity there and we're also seeing a lot more wins from that perspective. And as we've talked about, that's really a sweet spot from a financial and profitability perspective, whereas that's a really good position for us to be in on the larger end of the market with some of the jumbo accounts. We are also seeing activity pick up as it relates to pharmacy. But it is a competitive space and we see the power of incumbency being a little more significant and a factor there. So heading into 2022, as it relates to Ingenio, we feel really good about our growth trajectory and our performance and net membership growth will be improved relative to what we've seen in 2021. As it relates to the Diversified Business group and our strategies and then I'll also talk strategically about Ingenio a…

Thank you, Pete, and thanks for the question, Lance. I think to sum up what Pete has shared; this really is part of our ongoing journey and evolution in Anthem that we shared with you at our Investor Day. It really is part of our transformation from a health benefits company to truly a trusted lifetime partner in health and we see significant opportunities. And I think this shows the maturing of the strategy we shared. So thanks for the question and next question, please.

Next, we'll go to the line of Matthew Borsch from BMO Capital Markets. Please go ahead.

Thank you. Hoping you could comment on the aftermath of the Blue settlement, particularly as it relates to how you see competition among the Blues and your role with that changing, maybe intensifying as we go into next year and after.

Yes. Matt, thanks for the question. We are still in the midst of that litigation and the settlement is ongoing, so I won't comment. I think it's inappropriate to comment at this time. But given the tone of your question, I think it's really important, and we've had a long history, quite frankly, up partnering with Blue in addition to working with them on accounts that are in our service areas, part of the seeding process. And so, we expect that to continue, expect, obviously, to offer the capabilities that we have. Pete just shared with you what we're doing with IngenioRx. We also think our diversified business capabilities are going to be incredibly important. Some of our Digital Platform capabilities that we've also offered to other Blues. So I can't really comment on where we are in terms of that litigation because it's not finally settled yet, but we feel that there's a significant amount of opportunities for us even outside of this settlement to worked with Blue partners across the country. Thanks to question and next question, please.

Next, we'll go to the line of Ralph Giacobbe from Citi. Please go ahead.

Great, thanks. Good morning. I guess I just want to go to membership. ASO dipped and you cited some of the economic backdrop, but commercial risk was up nicely sequentially. So is there some shift between the two? Or maybe just any thoughts around those dynamics. And then one thing specifically around individual enrollment as well are pretty nicely sequentially. And, John, to your comments around higher COVID costs, was there any disproportionate pressure on the exchanges specifically that sort of weighed on margins in the segment? And then just hoping you could talk about your positioning on the exchanges for 2022 and expectations for growth there. Thanks.

Ralph, thanks for the question. I'm going to ask Morgan Kendrick, who's leading our Commercial businesses also, they've been intimately involved in these, to respond to your questions. Please, Morgan.

Thanks, Gail. And Ralph, thanks for the question. There was a lot there. And when you talk about your comments about the reductions in the large group business, that's certainly in line with our expectations. We were expecting reduction in our fee-based business. We've had, as you indicated, noted, nice growth on the risk-based business across the segment. Individual, as you've noted, has benefited from a long extending special enrollment period. So we've seen year-over -- month-over-month growth there. Also, when you look at our large group, small group business, we've seen month-over-month growth in sales exceeding lapses. And notably, our large group businesses performed quite well. In fact, 23 of the last 25 quarters, our sales have exceeded lapses. Looking forward into the new year, clearly, it's a competitive geography and competitive market when you look at individuals and HDA. It's one of those that I would characterize it as rational nonetheless. And one that we've -- not inconsistent with our strategies in the past, we take a very disciplined approach. We look at this market-by-market, county-by-county.

And in fact, as we expand next year for 2022, we're going to be at 83% of the counties that we can serve. That's up from 71% from the prior year. And this is most notably done by leveraging our unique provider partnerships, leveraging the scale and density we have in our geographies to provide value for the market. Again, the strategy is not a shortsighted one and we're confident the pricing is appropriate on our modeling of our forward trends. So thank you again for the question.

And one last thing, Ralph. You asked the question about anything distinctive about the individual relative to COVID, and I would say no. I mean, our individual business has performed in line. So across the board, we saw -- as John shared, higher COVID spikes in commercial -- individual is not unique or distinct that we feel that we're appropriately positioned in that market. Next question, please.

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

Thanks very much, and good morning. I just wanted to go back out to your thoughts on the virtual primary care offering. One, can you talk about how that product will be priced? And then secondly, If they are going to be an all 14 of your markets, or will this be more of a limited type of offering initially? And then lastly, as I think about virtual primary care, how do we think about the cost trends there and the potential savings when we think about those types of products.

Thanks for the question, Lisa. I think it's actually a really important one as we think about the next-generation of where products are going to go. One of the things that's happened is the pandemic has really highlighted the need for these virtual care services. We shared with you quite some time ago, our JV with Hydrogen Health, and we've been in the market actually working closely with our partners to deliver those services, particularly best-in-class urgent and care, primary care, using chat and texting. What we're talking about now is, I'll call it the next-generation of virtual primary care. We've gotten some experience in our early entree with virtual care over the last year, and now we're continuing to evolve that. So we did launch as I shared in my remarks, this virtual first services. Think what's interesting and unique about this is they're integrated with our high-performance network, and that's really important. And we're seeing a lot of traction in our high-performance network. And I know we've shared previously, our high -performance network has anywhere from 12% to 15% cost structure differential. And as you think about virtual primary care added to that, we expect those to be the starting point of what we can gain traction on. So I'm really encouraged by this initial launch. We can -- we're going to continue to, I think, innovate and evolve from that. In terms of where we are doing it, we are working in our Blue states. We're in most of our markets right now. We have offerings not in every county, but we're going to continue to expand that as we certainly learn about it, look at the alignment. A lot of this does, as I said, rely on our high-performing networks and our ability to use both…

Next, we'll go to the line of Gary Taylor from Cowen. Please go ahead.

Hi, good morning. Can you hear me?

We can. Thank you.

Okay, sorry. As I was thinking about 2022, I wanted to ask about something I thought would be a tailwind and something I thought would be a headwind but you didn't mention, so just some color would be helpful. Was thinking that the special enrollment period on exchanges, if that were to eventually go away, would potentially be a tailwind for that business, but you said you're performing in line there, so maybe don't see that as material tailwind, and then on the Medicaid side of the house, you did mention redeterminations as a headwind, but we certainly note for you and across the board, that seems to be a population that's not just vaccine hesitant but utilization hesitant and the MLR s look really strong there. So I was thinking there could be headwind, not just on redetermination, but on margin as well. So just wanted some color on those two things.

Yes, sure, Gary. Thank you for the question. So let me see if I can address these appropriately. With the special enrollment period and the exchanges, we have talked about the fact that exchanges are a nice strategy of ours. We're being very, very prudent in terms of our approach. We're going from having I think just a little bit over 70% of our counties covered, just over 80% of our counties covered next year. And we do expect some nice membership growth associated with the individual. But I would say that is all captured in just our core underlying growth in the fundamentals of the business performing extremely well. We expect all of our businesses to grow, and the individual is no different. In terms of the Medicaid in the redeterminations, the headwind that we referenced really has to do with Medicaid membership, but this is my opportunity to again talk about the balance and resilience of our membership and our catcher's mitt. And we may be able to turn that headwind into a tailwind depending on where those folks go. We do believe that once redeterminations start, that we will be able to maintain a significant amount of that membership within an Anthem product. We offer a product for every American in every situation, young, old, rich, poor, sick, healthy. We have a product for all of them. And right now, there is a significant number of members within our Medicaid plans. And after redetermination occurs, Medicaid may shrink a little bit, but that means that there's really some significant growth opportunities in other lines of business. I didn't spike it out specifically because we think it's a driver and we could actually turn a headwind into a tailwind. Thank you for the question.

Next question, please.

Next, we'll go to the line of Steven Baxter from Wells Fargo Please go ahead.

Yeah. Hi. Thanks. You touched on this a little bit, but was hoping you could expand on the national account outlook for next year. We'd love to hear more about what you think is driving that growth and what you're seeing in terms of competitive dynamics in that market. And then just to clarify, was that commentary influenced at all by what insight you're getting from your clients about in - group expectations or that's purely a comment about the new accounts that you wanted? Thanks.

I'll ask Morgan to address that.

Yes, Steve, thank you for the question. And as Gail noted, the national business continues to perform exceptionally well, and also noted there was a bit of a dampening in the RFP activity, it was down. But when you think about it, it was down in numbers of the -- of RFP s, it was up in membership, and Anthem had an exceptionally successful year

Up-market did quite well. I think one of the other things that was notably observed is a record number of customers that went out for a -- that went from a multi-partner healthcare solution to a single partner healthcare solution in selected Anthem. And to get directly to your question, to me, we have to earn the right to win every day. And I think when you -- so look at our assets and how they are resonating in the market, you look at the advocacy-based Whole Health digital solutions are winning.

When you think about Sydney, Gail mentioned earlier that we have 50 customers that were Sydney Preferred, which is theoretically our digital front door or we could call it our gateway to help. It's the entry point for all the other assets that we deliver. Also, when we think about 23, I mean, these assets continue to be innovated upon, and like I said, it's incumbent upon us to earn this right to when, we don't take it lightly. But the market is loudly voting with their feet and -- so we're excited about where we're headed in '23.

Thank you. Next question, please.

Next, we'll go to the line of Rob Cottrell from Cleveland Research. Please go ahead.

Hi, good morning. Wanted to ask about, Gail, you mentioned behavioral briefly. Curious if you can provide a little bit more comment on the Beacon cross-selling efforts and how that's going across both the government and commercial businesses?

Great. Thank you. I'll offer a quick comment and then I'll ask Pete to to comment on that because it fits within our Diversified Business Group. But overall, we know that there has been significant need for behavioral health. And what I want to just touch on briefly is the tight that Morgan said to Whole Health. And we -- Beacon has always been a very strong player in the Medicaid space. And we're continuing to integrate it into our overall government business, but it's got a big upside in the commercial space. And maybe, Pete, some early commentary from what you're saying.

No, I appreciate, Ralph. Just to remind everybody, Beacon serves about 44 million members, 13 million of which is Anthem. The services are very broad, and as I said, Beacon 's an industry-leading asset, it's been a leader in the behavioral health space for a long time. So as it relates to some of the services from mild, moderate, to acute mental health, treatment for family support, crisis prevention, opioid abuse, FMI, EAP programs, it's a broad portfolio, which really will serve, I think, Anthem really well. The other thing I'll say, and this was very important to us and it really worked out from a strategic perspective. But the pandemic obviously really accentuated the need for behavioral health. We experienced three times more people reporting symptoms of anxiety and depression in this period, 2.5 times more people reporting suicidal ideation, and with opioid abuse, there was a very significant increase. And so that plays really well across our portfolio. We obviously have a broad portfolio across Medicare, Medicaid, and Commercial. The integration process is going really well between the parties. We actually, as it relates to penetrating, the Anthem business have embraced a lot of the clinical programs and expertise of Beacon as we integrate. We also, in my old life on the commercial side, we worked on new product offerings. A product called Behavioral Health Advantage which is being deployed in 2022. And then obviously, as it relates to our government program business working very closely with Felicia and the government team -- and the Medicare team on a post-acute care product, and this is just the beginning. I think there will continue to be tremendous opportunities around behavioral. One of the areas that I'm very focused on is also virtual, and the importance of virtual. We've seen an exponential increase in virtual services as it relates to Beacon and penetrating our portfolio in that regard, will become very important going forward. I appreciate the question.

Thanks, Pete and the only thing, I guess I would add is you think about the commercial markets, that next-generation of EAP services in area that we are highly focused on. And you've heard us share our strategy about sub-segment market within the commercial business. So we see it clearly in the employer space expansion student space to military services space where we see the demand and need for behavioral health services dramatically increasing as a result of the pandemic. Next question, please.

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

Yeah. Hi. Good morning. Question on utilization. John, you talked about the fact that September you saw a dip in non - COVID utilization. How is it trending in October? And if I recall last quarter, you said that the MLR guidance did low-end of the range assumes that I think going to end the year above baseline. So how are we trending there? And then in line with that, if we think about 2022 your commercial pricing, what did you embed in your assumptions regarding return of core utilization?

Thank you for the question Ricky. And maybe I'll talk a little bit about the fourth quarter and then turn it over to Morgan to talk a little bit more about 2022. But in terms of the fourth quarter, our expectations and our guidance are that the COVID and non COVID combined will continue to be above baseline each month in the fourth quarter. So obviously the entirety of the fourth quarter being above baseline. We are seeing very good trends, as I stated we had the spike in August, it started to decline coming into September, non COVID utilization was lower in September than we had expected. October is relatively close to expectations at this point, but there's a lot of uncertainties in the fourth quarter. The Delta variant is still out there, and we want to be very respectful for it, as well as any other new variants that may or may not exist. And we are expecting an increase in testing, an increase in some of the vaccinations and booster shots, especially with the kids. It's unclear right now exactly when the 5-year - old will be eligible for vaccination, but we want to make sure that we're cautious in terms of our guidance associated with that cost structure as well. And as you -- I'm sure you already know, the fourth quarter just on a normal basis has a higher seasonality in terms of MLR. And so, that's obviously factored in as well. But I'd say, at the end of the day, we've been very cautious and very prudent in our fourth quarter expectations with combination of COVID and non-COVID combined being above baseline. Morgan.

Yeah, John, thank you. And, Ricky, thanks for the question. I would -- John covered most of it, I think. I would say, looking next year, it's not indifferent. We remain confident in the approach and our discipline. In consistent with what we've done quarter-over-quarter year-over-year, we're pricing to forward view of trend. Certainly, that's always respectful of market uncertainty. And as John indicated, COVID is going to be around for a while. We've done extensive work to assess various scenarios and how that could play out. But nonetheless, we feel quite confident that way we priced the '22 business. So thank you again for the question.

Thank you. Next question, please.

Next, we'll go to the line of Kevin Fischbeck from Bank of America. Please, go ahead.

Great, thanks. Just wanted to dig in a little bit into the redetermination headwind that you mentioned. Is there any way for you to kind of size how much memberships today you think you have due to redeterminations, how you're thinking about net losses, how much you might pick up on the exchanges in the commercial market. And then, as it relates to Medicaid rates, how you feel about Medicaid rates broadly, particularly again, with redeterminations coming in that can influence what rates are appropriate given the risk pool. So, those 3 aspects.

Sure, Kevin. I'll see if I can start out and respond to your questions. But in terms of the redetermination, we're really taking a look at where we think these members are going to go and there's been a lot of other studies out there that we think are relatively credible. But we believe that by the end of next year, and that assumes that redeterminations do start to occur maybe late, early second quarter of 2022, that will still have a good 35% of those folks would still be maintained on the Medicaid rolls. We're looking at about 45% of them going back into employer-sponsored plans, and that would take the -- about 20% being eligible for subsidized coverage on exchanges. And as I stated, we have products and all those things, and we expect to keep and maintain our fair share. So we feel very good about our opportunity and our ability to keep the membership within an -- the Anthem family over the course of next year. And then as it relates to the Medicaid pricing, we learned a lot a few years ago in terms of working with states being very proactive and ensuring that we're having actuarially - justified rates, and we'll certainly continue to do that. It's very early in the ratings season, but we're comfortable with what we're seeing to-date and building our financial plan with prudent assumptions that we believe are well supported. And the states are very -- say we're having some very productive conversations with the states as well about ensuring that we get actuarially - justified rates throughout the future. The only other thing I'll say about the Medicaid is there are a lot of financial measures that are in place now that -- far more than used to be in place in terms of collars, corridors, and things like that. That -- it really helped maintain the profitability and maintain the stability of that marketplace. So really need to look at Medicaid over a long period of time. Thank you, Kevin.

Thanks for the question. Next question, please.

Next, we'll go to the line of David Windley from Jefferies. Please go ahead.

Hi, thanks. Thanks for taking my question. My question is about kind of your strategic investment preference. Gail, you've emphasized that for Anthem, your preferences to partner rather than own your provider networks. I'm wondering if you could shine maybe a brighter light on how your investments in behavioral and digital and some of the other areas that you've mentioned kind of accelerate your strategy and driving a better return for Anthem than the possibility of owning and controlling some of your key providers. Just I'm sure that those others are higher return, but in what way are they for Anthem? Thanks.

Thanks for the question, David. A couple of things, I think you hit on many of the core drivers. First and foremost, as we've said, because of the density that we have in our markets, we believe that investing in partnerships makes the most sense because we believe we can drive better membership, better stars ratings, and with 1 out of 8 patients being an Anthem member, the density of working with those providers provides us a good return. And also remember, we can participate in the profit stream s there by embedding some of our DBG assets, or our other assets around Interior and so, it's not that we're walking away from participating in those profit streams. We actually think we have a much more capitally efficient use by investing, partnering, and then pulling through the other assets that we have invested in. And so that's the core of our strategy and it worked really well and we're continuing to accelerate that strategy. And as I shared, we expect to have 70% in value-based arrangements, 30% in full capitated arrangements. It's a big driver for our Medicare Advantage business. Quite frankly, all of our benefits businesses are going to have an opportunity there. In terms of other areas that we're investing and we've said that we really want to transform ourselves and part of that transformation is building this digital platform for health. The opportunities are inside of Anthem as well as with our Blue partners and we see again opportunities to commercialize that. That's going to be over the next several years, one of the reasons they elevated Rajeev Ronanki who has been leading this area, is to really explore those opportunities. Again, we've been doing that inside of the Anthem, but we think there's an opportunity with our partners to do more. Areas around Sydney, for example Sydney Health, which is gaining great traction, our Health OS, which we think could be a broader opportunity for the Health ecosystem. We've done quite a bit of investment in Stars and heat is quality improvement in AI and analytics, digital therapeutics. So there's a broad range of things around the digital capabilities and ecosystem we're building. But in terms of the value, again, we look at the most efficient way to deploy our capital, where we have our strength, which is the density in the markets we serve, and how it fills I think our strategy and then how we pull through Ingenio, DBG, and other services, which really are not -- those are still immature in the sense that we haven't pulled them through to the potential that they have and excited about Pete 's leadership there, given his understanding of both commercial and the government business and the opportunities that exist. But thanks for the question. Again, we think it's a really strong future growth opportunity for us. Next question, please.

Next, we'll go the line of Steven Valiquette from Barclays. Please go ahead.

Great. Thanks. Good morning. So I have another question on the lower than expected non - COVID utilization for the third quarter. I guess I was curious if you have any additional color by medical cost category, whether it's inpatient, outpatient, pharmacy, etc. What I'm really curious about is specifically whether any cost category had a more notable falloff versus baseline when thinking about the sequential trends in 3Q versus the trend back in June quarter. Thanks.

Thanks for your question, Steve. In terms of the specificity, I would say that what we saw in September was that inpatient non - COVID probably dropped the most of all of the different buckets that you stated. We don't view any of these things as being changing to the ultimate baseline. There were announcements that were made at the beginning of September that certain facilities were deferring or canceling some elective procedures in order to ensure that there is appropriate bed space. So while certainly we saw the impact on the financials, we do monitor pre-OSP research, various other things, and don't really view that situation as a significant change through the baseline going forward. But thank you for the question.

Next question, please.

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

Thanks. Good morning. I just wanted to ask about the additional Group MA contracts that you called out that you've added in the 3Q for 2022. Any chance that you can maybe size the number of lives that you're expecting from those? And then just on the Group NYC contract implementation, I know you're still working on membership and things like that, but interested if you can maybe bring expense for loss, the dilution, you're thinking about for 2022 against that 12% EPS growth off the baseline you talked about. That will be helpful as well. Thanks.

Thank you.

I was going to ask Felicia to respond on your MA questions first and then we'll have John. Thank you.

Good morning, and thank you for the question. I'll say, Scott, that at the end of the day, the additional contracts that Gail referenced, we're certainly pleased with the opportunity to add those to our business for 1/1/22. They are not going to be material drivers of their own. But what they do is that they represent the ability for us to continue to penetrate that pipeline that we have with our Commercial customers. So as you know, our strategy has always been to be able to penetrate the inherent commercial pipeline that we have so that we're able to keep members Blue for life. And what we've done in terms of that third quarter is to have a very robust pipeline that gives us some very nice sized groups, certainly much smaller than anything you've seen around city of New York or anything else, but they are not going to be material drivers in bit, I would say, very closely with what we consider the sweet spot when we look at the opportunities to grow MA going forward. We still consider this a very strategic asset for us in being able to grow that business as we go forward. Once again, we are very poised to deliver on the launch of the City of New York business for 1/1/22, and are certainly pleased with the opportunity to be able to continue to support New York retirees, who have been customers for Empire for a long period of time. So this is another, I would say, affirmation of our strategy around what we're doing with respect to group MA business. And additionally, the pipeline for this business remains strong as we head into 2023. And with that, I'll turn it over to John to talk about the dilution.

Thank you, Felicia and Scott, I appreciate the question. Unfortunately, this is third quarter call and we're really not going to get into specificity associated with guidance for 2022. We'll talk in more detail about that at the next quarter. And as I said, New York's still going through their enrollment process, so we don't have all the information that quite fine-tuned, but what I would ask you to do is to really evaluate the tailwinds and the headwinds that I provided in their entirety. And then after you adjust for the out performance and investment income, we think that those headwinds and tailwinds pretty much offset each other and will allow us to achieve our 12 to 15% growth for the future. Thank you.

Next question, please.

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

Hey, good morning, guys. And thanks for taking the question. I guess this is probably going to be a 22 question as well, John, but I was wondering if you could claim any numbers around the success of Ingenio, given all the positive commentary. Can we just have any comments on how you guys are thinking about the opportunities with generics to and biosimilars in general?

Yeah, thanks for that. Thanks for that question. As you referenced as it relates to Ingenio, we're really pleased with the performance. In large part, the performance this year was due to strong membership and volume across the entire portfolio, so all our lines of business. And utilization is also tracking to expectation. So we feel good about that heading into 2022, as well as the growth that I talked about and our focus on penetrating the ASO business. So we feel good about the Ingenio business heading into 2022, the growth and then the stability of the business in terms of its margin contribution.

Thank you. Next question, please.

Next, we'll go the line of Joshua Raskin from Nephron Research. Please go ahead.

Hi. Thanks for squeezing me in here at the end. How do you think about the No Surprises Act around your strategy or network contracting and maybe potential changes in the balance of power between payers and providers and local markets? And specific to Anthem, do you think best cost position, biggest discounts, is that helpful or harmful as you think about the future?

Well, thanks for the question, Josh. In terms of the overall, our past year, we have had a cost structure advantage in a cost structure advantage. But as you heard in my comment, given our market density, we are moving heavily towards value-based payment. I mean, that is at the core of our strategy. So that's an alignment of working with care providers in a much different way. And again, we believe both the investments we're making in primary care, the investments we're making in downstream homecare, other things through our Diversified Business Group, IngenioRx that we have an opportunity to bring those assets together uniquely. And then, leverage the density, originally, in our Commercial business, but now our Medicaid business and our Medicare Advantage business, so we feel we've made really good strides on that and we actually see a better alignment with care providers than we've ever had in the past. So quite frankly, I'm optimistic about where we're heading, and I think that that really is the core of our strategy. So thank you for the question and next question, please.

Next, we'll go to the line of Whit Mayo from SVB Leerink. Your line is open.

Hey, thanks. Last year you guys in the industry waived a lot of co-insurance requirements, and just remind me what you're doing now, are you -- are we back to 2019 co-pay, co-insurance member requirements? Are we still waiving on MA for primary care? I guess really the question here is thinking through 2022 and any headwinds or tailwinds as we think about any changes and member cost sharing. Thanks.

Thanks. Thank you for the question, Whit. Certainly during this heart of the pandemic, where non - COVID utilization dropped significantly, and we also wanted to be a very thoughtful participant in what was happening. We did a number of waiving of cost shares as you know, it was part of our response across all of our businesses.

As we headed into 2021, those normal -- I'll call it normal course, came back into play mostly because non - COVID utilization returned back to normal levels in many instances in total and there weren’t significant drops. So from that perspective, we're following the policies that we have across the board right now and then heading into 2022. Thanks for the question. Next question.

And our final question will go to the line of Frank Morgan from RBC Capital Markets. Please go ahead.

Good morning. There is a lot of suggestions about labor with providers, and I'm just curious, are you starting to have discussions when you start to negotiate with the providers about their wage inflation outlook they're seeing, and what is your sense of that? And then secondly, just any early initial insights into what might be resonating so far in the annual enrollment period. Thanks.

Yes, thanks for the double question. The first one around the labor market, clearly across all labor markets, people are seeing pressure on the ability to get employment levels up to where they need to, and then there is some pressure. In terms of our negotiated contract, we do those over three-year cycle and we're also very focused, again, on value-based payments. So I think the big opportunity is to move away from individual unit costs increases, which has been the historical, I guess, trend in the industry to really bundling value-based payment, paying for episodes and procedures. And that's really where we've been. So at this stage, what I'd say is look, we're always in a dynamic environment in terms of our negotiation, but we feel we factored that into how we're looking at the forward view of everything that's going on, and we just see the biggest opportunity is not just only managing unit costs, but really managing value and part of the value-based payments because there is a much better alignment of taking -- doing the right services at the right time, and that's our view. But in terms of our forward review, again, we're taking into consideration everything. And again, many of our largest contracts are on a 3-year basis, so not all of them obviously are in play right now. Thanks for the question. I'm going to ask Felicia to talk a little bit about our annual enrollment period, which I think was your second question.

Yeah. Good morning, Frank, and thank you for the question. If you know, we're in the early days of the annual enrollment period, and we're actually very pleased with what we've seen so far with respect to how we are positioned competitively in terms of our benefits in the plans that we're offering, and feel that we'll be able to produce another year of double-digit growth in our individual Medicare products. I'll say we're especially pleased with our supplemental benefits, our over-the-counter offerings. These are the things we call our essential extras, everyday extras. We give members an opportunity to choose from a portfolio of benefits that allows them to address during these, particularly the social drivers of health. The other thing I will say is that we are also pleased with how we are positioned with respect to our products, where we have a very strong value proposition considering our deep knowledge and experience between Medicare and Medicaid, and being able to serve chronic and complex populations. So when we think about where we are today, a little bit less than 5 days in, we feel good about our positioning and look forward to having a very successful AEP.

Thank you Felicia, and thank you again for your interest in Anthem. As we close the call, I want to recognize our associates. This continues to be a challenging year, each day they step up and they step out to live our mission and values and serve our members and communities with care and compassion. I'm impressed and grateful for what they do all the time. We work hard to create a culture at Anthem where everyone feels valued and their contributions make a difference, so I'm particularly proud to see us recently named among America 's 100 great places to work, and healthiest 100 workplaces. I'll leave you with this. There's increasing opportunity for Anthem to offer elevated personalized experiences as we holistically address what our society needs to be and stay healthy. We're building for tomorrow and beyond, evolving the business to be more digital, moving fast, thinking differently, and operating with discipline. Personally, I'm extremely optimistic for our future. Thank you.

Ladies and gentlemen, a recording of this conference will be available for replay after 11:00 AM today through November 19th, 2021. You may access the replay system at any time This concludes our conference for today. Thank you for your participation and for using Verizon conferencing. You may now disconnect.