Good day and thank you for standing by. Welcome to the Humana Incorporated Quarterly Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, Ms. Lisa Stoner, Vice President of Investor Relations, please go ahead.

Thank you, and good morning. In a moment, Bruce Broussard, Humana's President and Chief Executive Officer, and Susan Diamond, Chief Financial Officer, will discuss our third quarter 2021 results and our updated financial outlook for 2021. Following these prepared remarks, we will open up the lines for a question-and-answer session with industry analysts. Joe Ventura, our Chief Legal Officer, will also be joining Bruce and Susan for the Q&A session. We encourage the investing public, and media to. Listen to both management's prepared remarks and the related Q&A with analysts. This call is being recorded for replay purposes. That replay will be available on the Investor Relations page of Humana's website, humana.com later today. Before we begin our discussion, I need to advise call participants of our cautionary statement. Certain of the matters discussed in this conference call are forward-looking and involve a number of risks and uncertainties. Actual results could differ materially. Investors are advised to read the detailed risk factors discussed in our latest Form 10-K and other filings with the Securities and Exchange Commission. In our Third Quarter 2021 earnings press release, as they relate to forward-looking statements and to note in particular that forward-looking statements could be impacted by risks related to the spread of in response to the COVID-19 pandemic. Our forward-looking statements should therefore be considered in line of these additional uncertainties and risks along with other risks discussed in our SEC filings, we undertake no obligation to publicly address or update any forward-looking statements and future filings or communications regarding our business or results. Today's press release, our historical financial news releases, and our filings with the SEC are all also available on our Investor Relations website. All participants should note that today's discussion includes financial measures that are not in accordance with Generally Accepted Accounting Principles or GAAP. Management's explanation for the use of these non-GAAP measures and reconciliation of GAAP to non-GAAP financial measures are included in today's press release. Finally, any references to earnings per share or EPS made during this conference call refer to diluted earnings per common share. With that, I'll turn the call over to Bruce Broussard.

Thank you, Lisa. And good morning and thank you for joining us. Today we reported adjusted earnings per share of $4.83 for the third quarter of 2021, slightly above consensus estimates. Our year-to-date results reflect the strength of our core operations. As we continue to see strong underlying fundamentals across all lines of business, and have remained focused on ensuring our members received the right care at the right time despite the continued disruption caused by the pandemic. While our underlying fundamentals are strong, 2021 financial results have been impacted by the ongoing pandemic, which has resulted in an adjustment to our full-year adjusted EPS guidance. As detailed in our earnings press release, we have updated our guidance to approximately $20.50 from our previous guidance of 2125 to 2175. As Susan will share in more detail, this reduction of approximately $1 and adjusted EPS as a direct result of COVID and corresponds to our current expectation that the total Medicare Advantage utilization, inclusive of COVID costs or run 1% below baseline in the fourth quarter, which is 150 basis points less than our previous assumption of 2.5% below baseline. This update reflects a more conservative posture going into the final months of the year and notably, 2,150 remains the baseline of which to grow for 2022. As a reminder, prior to this guidance update, we had not recognized a COVID headwind in our 21 [Indiscernible] guidance as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target as the [Indiscernible] point throughout the year, at 16% growth. This update results in an expected adjusted EPS growth at the lower end of our long-term range and importantly, is not reflective of any concerns with our core operations. I will now turn to our operational and strategic update. Our Medicare Advantage, individual above market growth in 2021 of 11% can be in part attributed to our industry-leading quality and consumer satisfaction scores. We are pleased to be recognized by CMS for having 97% of our members in 4-star or higher rated contracts for 2022. We also increased the number of contracts that received a 5-star rating from 1 contract in 2021 to 4 contracts in 2022, the most in our history. [Indiscernible] make adjustments to --

Excuse me, participants. This is the Operator; the conference will begin momentarily. Please stay on hold until the conference begins.

Well, welcome back. When we started, sorry for the technical glitch there. Let me maybe just go back to our guidance update here and re-ensure that the investors understand the guidance and in addition, how it reflects in the -- as we looked at the future year. First, the guidance reflects a much more conservative posture going into the final months of the year and notably, 2,150 remains the baseline of which to grow for 2022. As a reminder prior to the guidance update, we had not recognized the COVID headwind in our 2021 guidance as many of our peers did. Our adjusted EPS guidance has been above our long-term growth target at the midpoint throughout the year at 16% growth. This update results an expected adjusted EPS growth at the lower end of our long-term range and as importantly, is -- does not reflect any concern with our core operations. I will now turn to our operational and strategic update. Our Medicare advantage individual above-market growth in 2021 of 11% can be in part attributed to our industry-leading quality and consumer satisfaction stores scores. We are pleased to be recognized by CMS for having 97% of our members in four-star or higher contract for 2022, we also increased the number of contracts that received a five-star rating from 1 contract in 2021 to 4 contracts in 2022, the most in our history. And while CMS did make adjustments to the 2022-star ratings due to the possible impact of the COVID-19 pandemic, These adjustments had minimal impact on our ratings. This further demonstrates our enterprise-wide focus on quality, clinical outcomes, and best-in-class customer service, which has been recognized from notable organizations such as Forester, JD Power, and USAA. Importantly, the stars bonus allows us to maintain a strong value proposition…

Thank you, Bruce. And good morning, everyone. Today, we reported adjusted EPS of $4.83 for the third quarter and updated full-year 2021 adjusted EPS guidance to approximately $20.50 to reflect a net unmitigated COVID headwind resulting from our current view of utilization levels for the balance of the year. Before beginning, I would point you to Page 4 of our earnings press release for details of our previous assumptions for Medicare Advantage utilization in the second half of the year, actual third quarter utilization results, as well as current projections for the fourth quarter. I will now walk you through this details, starting with a reminder of our previous commentary. And to our second quarter call, full-year guidance has seen non-COVID Medicare Advantage utilization was run 2.5% below baseline in the second half of the year, with a further assumption of minimal COVID testing and treatment costs for the same period. In September 2021 as a result of the surgeon COVID cases due to the Delta variant, we updated our commentary on full-year guidance to indicate we expected non COVID Medicare Advantage utilization to be 5.5% below baseline in the back half of the year, while being partially [Indiscernible] by 3% of COVID costs. Therefore, again assuming total utilization would be 2.5% below baseline in the back half of 2021. What we've seen develop for the third quarter is that total utilization is running 1% below baseline versus the previously anticipated 2.5%. COVID costs have been higher than initially anticipated as the Delta variant resulted in hospitalization levels on par with what we experienced in January of 2021, and we're overwhelmingly driven by the 20% of our Medicare Advantage members believed to be unvaccinated. These higher-than-expected COVID costs were fully offset by the press non - COVID utilization in the…

Thank you. And again, participants, [Operator Instructions]. Your first question comes from the line of Kevin Fischbeck from Bank of America. Your line is now open.

Alright, great. Thank you. I appreciate all the color on the 2022 guidance, I think a lot of people are just wondering. The Company had a hard time forecasting where costs are going to be on the upcoming quarter for the last few quarters, obviously, to some degree understandable during the pandemic. But just wanted to see how you felt about your visibility into costs and how good of a handle you feel like that cost trend as you develop your pricing for next year has come in. How do you think about that visibility into the costs as you thought about next year.

Sure, Kevin. I'm happy to take that one. To your point, estimating the impact of COVID has proven to be more challenging, particularly given the environment that we were in 2020 is quite different than what we're experiencing obviously in 2021. In 2020, no one was vaccinated, various taste of lockdowns throughout the year, and as we acknowledged in our Q2 call, anticipating how behavior might emerge in an environment where largely people were back to normal and a large percentage of our Medicare population are vaccinated, it is recognized that it was difficult to anticipate whether we see the same level of offset through the surge. The good news is, as we saw the surge emerge in the third quarter despite it being just as high as what we experienced the last time, we did continue to see a full offset. The hospitalization offsets have been pretty consistent throughout 2020 and 2021, is on the non-inpatient side where we tend to see more variation. And as we explained in the second quarter, that claims service category is one where we don't have the same level of near-term visibility. Having said that, we've studied all of historical patterns based on what we saw in the third quarter and our estimates of the continued decline in the COVID curve in the fourth quarter, we feel very comfortable with the assumptions underlying our revised guide and feel like we have sufficient visibility to feel confident we can deliver against that. Your question about 2022 is a good one as we've explained in all of our calls, given this late surge in 2021, getting visibility to where baseline trend is actually running, obviously, will be more challenging. However, given how we approach the pricing for 2022, meaning that we've started with pre - COVID historical levels and assumed historical trending factors, not anticipating any ongoing depressed utilization into 2022, we feel confident that that's an appropriate baseline expectation. So, we'll continue to watch it. And certainly. if we see something different emerge, if any of the depression continues, that would be positive for us, but we are not contemplating it. Which is what gives us confidence about our approach to 2022.

Okay. Thanks.

Your next question comes from the line of Matt Borsch from BMO Capital Markets. Your line is now open.

Yeah, so I was just hoping that you could maybe comment on the competition in Medicare Advantage. I know you said it's competitive but, just relatively speaking, we've seen geographic expansions by really almost all of the major public companies over the last few years and a number of new entrants and yet it doesn't seem like it's had a noticeable impact in profit margins. I guess I'm just wondering how you see the dynamic, is the greater availability of products actually, in essence, expanding the Medicare advantage market more than it's necessarily leading to competition that would push down margins? Thank you.

Yeah Matt, think I'll take that. The -- what we see as a few things, I mean, first we do see more and more intensity in the local markets. And similar to -- in the past, we see some players being more aggressive to try to gain market share while others are a little more aligned with the pricing that -- and a little more stability in the market quest. So, we do see a bell curve in just how people are approaching it as their strategic plan is pushing them to make those decisions. We are seeing more awareness in the marketplace as a result of the amount of education that's going on through marketing and through the sales efforts that are going on. And I think that is a positive for the industry because it really brings a live all the benefits that members receive. It creates more competitive major for that for those members, but it does create, I think more growth industry-wide. For us, as an organization, we were one of the early adopters of the telemarket market in the tail of sales ever area and we have benefited from that, I think in multiple different ways, benefited from it in the way of both our market growth, and in addition, our ability to reach a population that we haven't been able to reach in the past, so I do think it's a benefit for us. But to answer your question, more competitive in the local market, more awareness as in the industry, that is a good thing in the industry, and I could I feel that we have been a beneficiary of that.

One thing I would add to that is well, and our focus on increase mentioned any comments or consumer segmentation efforts by designing products that more specifically addressing consumer needs, you've seen in our duals offerings as well as our veteran offerings that we can direct it proportionate growth. If you think that's a differentiator, something you'll see us continue to focus on.

Thank you.

Your next question comes from the line of Stephen Baxter of Wells Fargo. Your line is now open.

Yeah. Hi, thanks for the question. Was hoping to come back to the commentary on assuming baseline utilization in 2022. Just to clarify, it seems pretty clear that there will be some level of ongoing COVID costs into 2022, so does that mean you're continuing to assume non-COVID costs will be below baseline in 2022? And then just any color or context you can provide on the magnitude of this EPS hedge that you're talking about in relation to baseline would be appreciated. Thanks.

Sure. Great question. Just to be clear, what we -- right now, all of our experience we would expect that to the degree we experienced additional COVID costs in 2022 that we would see an offsetting depression and non-COVID utilization, but the net of that would be neutral. We're not expecting net favorability like we've seen this year. That 1% we're projecting for the fourth quarter, consistent with these on the other quarter. So, what we would say is we are expecting the -- if the off-COVID costs would be offset and that we would still be at baseline. But as I mentioned in my comments, what we intend to do with our initial guide though, is despite the belief that that's a reasonable assumption, we will allow for unexplicit that net COVID headwind shouldn't emerge such that it is then we would run actually above baseline levels, should that emerge, then our guide will contemplate and allow for some of that, if it should emerge. And while not giving a specific amount obviously today, when we do give a specific guidance on our fourth quarter call, we will be explicit about how much of a COVID headwind we can tolerate within the guide. So, we will be explicit about that at that time.

Your next question comes from the line of Ricky Goldwasser of Morgan Stanley. Your line is now open.

Yeah, Hi. Good morning. So, one follow-up and then longer-term question. Just to understand, Susan, if we think about 80% of your MA members are vaccinated based on your estimate, I just feel like it’s trying to reconcile what you're saying versus what some of your peers are saying. What do you think happened that drove COVID hospitalization to the levels experienced back in January, was that sort of a specific geography or anything else that you can explain it? And then the longer-term question is really around sort of virtual. Many of your peer’s launch ed a virtual first offering on the commercial side for 2022. Do you see room for some virtual first type offering in the Medicare population, especially when you consider the Kindred capabilities?

Okay, great. So, to take your question, so with respect to the high COVID levels and you're right and honestly, this was something that was a bit surprising to us as well, and we did see levels on par with what we experienced in the last surge despite the high vaccination rates. And what we learned, and to your point, some of that was a reflection of our geographic mix. States like Florida, and Texas, and Louisiana did see higher levels than even the previous surge. It represents a new all-time high and we have disproportionate share there. So that was part of it. But the main driver is that if we look at the hospitalization rate between vaccinated and unvaccinated, the unvaccinated fairly consistently saw hospitalization rate that was 10 or more times the vaccinated population. And so that again, as I mentioned in my comments, was the overwhelming driver. And because of the spread of the Delta variant, through that unvaccinated population, and that much higher hospitalization rate, that is what drove the levels on par with what we saw historically. To your second question about Virtual-first and Medicare, we were pleased with the COVID [Indiscernible] and I could see that primary care providers and specialists really did take -- adopt telemedicine at a higher rate to ensure that they could continue to support their patients and their permitted needs. I think as a result of that, frankly providers gained a better appreciation of the range of care and the quality of care that they can provide through virtual, which frankly pre -pandemic they really been appreciate we're adopting. So, I think we will see some continued use of virtual technology to enhance the operating model and allow for more touch points with their patients than we do pre -pandemic. Your question about home health is definitely a good one and something we are looking at, particularly with the challenges we have in terms of nursing labor shortages. Virtual is one strategy we're looking at to see how it can be leveraged so we can create more touch points with the patient and improve the efficiency of the operating model to just create more overall capacity. And so, we'll be testing with Kindred appropriate uses of that, and where we can implement it and still see the high-quality outcomes that we would expect. So, we'll be testing that and I hope would be that you will see expansion of that in the future.

Just a few other comments to that. We did a launch a few years ago our virtual first with Doctor On Demand product and that was a success for us on the commercial side. But on the Medicare side, what we do find is that there's a great opportunity to see the patient both to understand the patient in a physical setting. And unlike more episodic of care versus a chronic care management, that there's a good come -- there is an importance of being able to have a physical and encouraging a physical interaction. We see the telehealth as being an opportunity to have a complementary and more interaction. But I don't know if it would be a replacement for or we would want to motivate highway chronic members to have a virtual first interaction for a whole host of reasons, both from a care point-of-view and from the ability for us to establish the proper care plan.

Your next question comes from the line of Joshua Raskin from Nephron Research LLC. Your line is now open.

Thank you, guys. Good morning. Wanted to ask about the shorter short-term. So just the assumption that non - COVID utilization will be down in 4Q. I'm just curious, are you seeing script trends, pure authorizations, or anything that would indicate that level of decline, just in light of what seems to be an abatement in COVID cases currently, and then specifically, are you seeing any different trends with members that are in your centers, or with other value-based providers, are the underlying trends underneath that capitation any different?

Excuse me, participants this is -- I'm the Operator. I'll just turn the music on for the speakers, one moment.

Go out there and dial [Indiscernible]

Hi, Josh. Are you there?

Yeah. Can you guys hear me okay?

We can begin airing.

Your question must've been so insightful that it just dropped off the line.

I thought I was so scary that you ran for it. So, I'll ask my question again, sorry. Just in the very, very short-term. My question is, why are you assuming that non-field utilization will be down as much as 4% in the fourth quarter, especially in light of what we're seeing in terms of the big reduction in COVID costs and COVID director of the cases in the fourth quarter? And is there a script trends, is there pre -authorizations, is there something that would indicate that level of decline that you're seeing today? And then long or sort of adjacent to that, are you seeing different trends with members that are in your centers or even with other value-based providers, the underlying trends underneath the capitation?

Your questions. So, we'll just take it a fourth-quarter. As we said before, we have really analyzed all the prior surgeons to understand the patterns coming out of a surge. And you might recall from our previous commentary what you typically see is a tale of depressed utilization. Anytime you come of a curve, which is what allows you to fully recapture the cost of that COVID fee. And so, we've -- with this started to take, I was kind of interesting is different states, as I mentioned before have seen different levels of utilization relative to previous surges. Texas, Florida were examples where we saw very high peak and a very rapid decline. There are some other states, like New York and Michigan, where we're actually seeing a much more moderate and sort of gradual increase without further seeing the same sharp peak in decline. So, as we've seen that in total, that on a national basis, what we're seeing in this slow of the downturn from coming off of the peak isn't quite as sharp as what we've seen historically. We've drilled into each of those states and are consistently seeing -- irrespective of that difference in peak level we're still seeing that one-to-one offset regardless. And so, to some degree, we think there's just an overall capacity constraint, particularly on the inpatient side as they come into play and the rest is just that behavior change in terms of providers and patients as they manage through it. So, based on what we've seen emerge and predicting the third quarter with that 1% offset, everything we've seen suggests that assuming the same level of offset as we continue to come off that third quarter peak is reasonable. To your point about early indicators. We do -- as we've…

They see COVID costs, but not be offset, you're saying?

Correct. Now, on the flip side of that, though they tend to do better on a revenue basis than our non-risk spare than they were much better about making sure they got their patients in 2020, got their conditions document. It's on the revenue side, say they would make some of that up. But on the utilization side, the typical way you are saying they're not seeing a benefit.

Your next question comes from the line of Kevin Caliendo of UBS. Your line is now open.

Thanks, and thanks for taking my call. In thinking about 2022, appreciate all the color, but I just wanted to know if there is any other sort of one-time things we should be thinking about, any other headwinds or tailwinds. Whether it comes to investments or benefits that you might be making that could impact the EPS growth for the year.

So, I would say, obviously as we mentioned, COVID is the main one that we continue to evaluate. We've been clear that based on history, we think it would be an offset, but we will take a more conservative initial approach and allow for a headwind, should it emerge. And that really is reflective of the fact that, again, the environment continues to shift the level of vaccination, and we will continue to increase. But now there's the introduction of the need for boosters and so will people be as compliant with boosters as they were in the initial vaccine? [Indiscernible] to variance and all of those things we'll continue to monitor. As well as the ability for people to have re-infection breakthrough cases. So that's the main one. I would say, obviously with what comes out of the administrative priorities, certainly the tax -- taxes are more than we continue to watch and obviously investment, that something that we'll have to watch if there's any 22 impact. But otherwise, as we said before and Andrew sent in his remarks, we continue to support our Primary Care business. We certainly will continue to look for capital efficient ways to support that business. I would say we aren't expecting anything in 2022 that we can withstand within our guide, so obviously right now there's nothing that I would point to. This [Indiscernible] concern that we have and gives us any concern that we can't manage through in our -- wherever we go out with in terms of our initial guidance.

Can I just maybe follow-up, is the guidance inclusive or exclusive of the incremental headwind that you're discussing here. Meaning like, is this sort of low-end or 11% net of the headwinds or not? I'm a little confused on how I should think about that.

Yes. With what we go out in our initial guide, it will explicitly contemplate a net headwind, should it emerge, that no net impact then beyond our guide, so it is inclusive of that. So, if it does not emerge, then you would see that conservative and release throughout the year, but it will contemplate a potential headwind within the guidance.

Got it. That's really helpful, thanks so much.

You're welcome.

Your next question comes from the line of Scott Fidel from Stephens. Your line is now open.

Hi. Good morning. Just wanted to ask another question just on the Medicare Advantage annual enrollment period and I know you already talked about the competitive dynamics. Just interested in terms of what you're seeing on the consumer behaviors side, and in particular, just whether you're seeing any types of shifts and distribution channels in terms of where more of the sales are occurring or not. I just thinking about, obviously, 2021 was unusual a year for the AEP as it was playing out amidst COVID. So interesting whether -- it should whether you're seeing more of continuation of that 2021 type dynamic, in terms of consumer-buying practices or whether we're seeing more of a blended, post-pandemic and pre -pandemic dynamic more for 2022? Thanks.

Yeah, and Scott, thanks for the question. We are continuing to see an increasing use of the telephonic channel external -- our external partners. And as Matt had asked about, just on the competitive side, their marketing and their aggressiveness in the marketing, I think is bringing more individuals to that channel, as I mentioned also, it's also we feel, is a benefit for the industry because the industry is getting significant awareness and education from that. But we're seeing as a continuation of that trend, even pre 2021 AEP. It was also happening in the 2020 AEP.

Thank you. Next question please.

Your next question comes from the line of Ralph Giacobbe from Citi. Your line is now open.

Thanks. Morning. Sorry to come back to this, but I guess what does the 2,150 baseline incorporate at this time? Is it what you would've earned with normal utilization and no COVID in it? Is it some level of COVID but lower than normal core? I guess, I'm really just trying to understand what the 2,150 represents. Thanks.

Yeah, so the 2150 is your [Indiscernible] and midpoint of our original guide. And if you remember the way we approached earnings for that was a bit different than many of our peers in the sense that we did not contemplate a net COVID headwind. And so that initial guide and the midpoint was actually above our more typical long-term growth range, recognizing some of the tailwinds that supported our pricing in -- towards 2021. So, by reaffirming that is the appropriate baseline, really just reinforces that the way we approached our 2022 pricing, acknowledged that despite -- however the results emerged in 2021 that our revenue instances would have seen that Medicare risk-adjustment return to more normalized levels for 2022, and that claims also returned to more normalized levels as if COVID, cannot occur. And so again, for claims we started with pre -pandemic levels in 2019 and using historical trend factors trended that forward. And so that's why we continue to reinforce, given that approach, 2,150 is the appropriate jumping off point, from which we would grow and expect to be in our long-term range than in 2022. Recognizing, however, from an initial guide perspective, we do intend to take a more conservative approach to ensure we're set up for success and target the lower end of that range.

Okay. All right, fair enough. Thank you.

Your next question comes from the line of Justin Lake of Wolfe Research. Your line is now open.

Thanks. First had a quick numbers question. We're going to next year; Medicare Advantage yields probably be in the high single digits in the individual business. Just given the strong rates in the bounce back and risk scores offset, I guess, by a bit of sequestration. Is that a reasonable number? And then Bruce, can you tell us how to think about where you think the growth opportunity is within your positioning management kind of center business. I know you said you're adding 30. I know also that your [Indiscernible] the oil is up in the end of 2022 and you have to think about how to finance those again going forward, so how many do you think you could add post 2022. And how do you think you've financed these things going forward, post that [Indiscernible] and [Indiscernible] expiry. Thanks.

Sure. So, I think the first one [Indiscernible] and then Bruce can take the second. So, we obviously haven't given specific detailed guidance points for 2020 yet, so I can't comment specifically. But certainly, as you think about the premium yield in 2022, there are some tailwinds, as you mentioned, there's the favorable rate notice, as well as the events and the expectation that risk-adjusted return to more normal level than the typical dynamics fringes member growth. So, to your point, they should produce tailwinds, but at this point we haven't given specific guidance obviously on premium.

And the primary care out of the two questions on the gross side. I think first -- obviously adding the number of organic units in the earlier years creates a drag as they mature. And we're seeing some great maturations in the cohorts that have been opened a year or 2, of both in a memberships side from a point of view on revenue, in addition on the cost side, so we feel very confident that's one of the reasons why we increase the number of cohorts this year as a result of our confidence and conviction in the business outcome. While we see over longer periods of time as we call it the J-curve will start to become into profitability of the ones that we open in the earlier years. And that will start to give us growth, so if you were to shut off the development, or actually we see a pretty quick growth rate within the existing business. We are extending that by two other opportunities for growth. One is the existing operations of the businesses that had been open for a while and mature centers and we're seeing some really great same-store growth in that area and they have done a great turnaround over the last few years and being able to improve that. And although it doesn't show up in the profitability because the J-curve override did a lot. We are seeing some really great improvement there with operationally and that also from a quality and experience point-of-view. And then the third area of growth for us as an organization is really in the NRC Kanik area. As many of you know, we do have a relationships with a number of providers, especially in our more mature markets, that we have the right of first…

Your next question comes from the line of Steven Valiquette from Barclays. Your line is now open.

Great. Thanks. Good morning. Lot of questions already on Medicare Advantage. Just to maybe throw another one out there, curious to hear more about the pace of your county expansion. And obviously you already have -- you're in more counties than anybody else already. Even some of your larger peers seem to be growing their County footprint by double-digits for '22, I think you guys are somewhere around mid-single digits based on weak calculated, but just curious your more about your thoughts of pace of county expansion for next year, maybe just in general hear your strategy and thoughts around that.

Sure. As you mentioned Humana really was ahead of many of our peers in terms of the rate of expansion, we had a number of years ago, and so we see from an accounting perspective, the same level of growth for us, as you might see for supports [Indiscernible]. Particularly, there's focus on Medicare Advantage annualized several years. What you'll typically instead see from us is product expansion within our existing geographies. That could be additional -- couple of years ago, when we really focused on our $0 premium LPPO product as an example. You see a continued to expand our dual-eligible SNP footprint and you will see county expansion there in 2022 as well as our veteran offering, both individuals’ innovator and as we said before, are great examples of where we focused on product and consumer segmentation and designing products that uniquely meet the needs of those consumers. And when we do that well, it's an opportunity for disproportionate growth. So, we'll continue to evaluate opportunities to do that. But again, I think you'll see more product expansion from Humana versus county exchange. And just because to your point, we've already got pretty broad coverage with some products.

Your next question comes from the line of AJ Rice from Credit Suisse. Your line is now open.

Thanks. Hi everybody. Two more, one on perspective and one more on just clarifying what you're saying about 2022. Again, I'm trying to understand, is it fair to say that the MA bids were due early in the summer?

Obviously, from your perspective, at least the way it's coming across us, there's been a lot of developments from the back half of 2021 that maybe were different than what you would have said when bid would do. Is the right way to interpret what you're saying today is that you were so conservative when you constructed those bids, that even though the second half is turned out worse, you are still comfortable with the outlook? Is that the way to interpret what you're saying and then would you give us something on that Kindred? I had assumed, I think, that was going to be an incremental tailwind for next year. Obviously, home health business seems to have deteriorated a bit. Is that still a tailwind in your mind for next year and any way to size how much that might help you?

Sure, I'm going to take that. So, for your first question on 2022, we're called that in 2021, when we came out with our second quarter commentary, we acknowledged that we had a net COVID headwind that had emerged that had emerged. And as I mentioned a few minutes ago, we did not contemplate that explicitly in our original guidance for 2021. So, as we found that emerge, as we explained in the second quarter, we were able to mitigate a fair amount of that through other business outperformance since they roll prior period development and other items. But in order to achieve our guide, it did require that base -- utilization continued to run below baseline throughout the year. That is not what we're considering in our 2022 pricing. We assumed that we'd bounced back. And so, it's really just a reflection -- the challenges in 2021 are just acknowledging that while we are seeing net utilization below baseline levels, is running less than we had previously anticipated or needed in order to achieve the guide and overcome that net COVID headwind that we discussed at the second quarter. Again, given the way we approach 22 pricing, well, our pricing didn't explicitly contemplate COVID costs beyond just through vaccination and testing. As we've consistently said, we did take a more overall conservative approach to pricing, recognizing there will be uncertainty that we would need to be want to navigate through. And also recognizing that it wasn't favorable rate environment. We had the Emeril headwinds you wanted to make sure that we can maintain long-term benefits stability for our members, and contemplated or maybe a less favorable rate environment in 2023. So again, those are all the reasons that we approached pricing the way we did, and the reason we continue to have confidence because we did not anticipate any ongoing net benefit as a respects to press utilization into 2022. On Kindred, and we've had this question a couple of times. I think we've addressed it both in the second quarter call and again, maybe in Morgan Stanley, is that we -- that was one of the items that helped us address the net COVID headwind in 2021, the contribution from the full integration. We knew at the time of bids that we would be integrating Kindred, so that was something we were off to consider as we aligned around our targets and our good pricing for 2022. We've always said that capital deployment is one of the leverage we have available and we'll use to sustainably deliver our long-term growth target of 11% to 15%, so that was something we specifically contemplated in pricing, so it wouldn't represent an incremental tailwind for 2022, but certainly expect -- the value that we expect to create from that value-based model and the continued growth of Kindred will certainly continue to contribute in the future to our sustainable ability to deliver against our long term target.

Okay. Thanks a lot.

Thanks, AJ. Next question, please.

Your next question comes from the line of Lisa Gill from JP Morgan. Your line is now open.

Susan, I just want to go back to your comment around PDP shift to MA. Can you talk about your ability to retain any of those members and bring them over to MA? I think you talked about losing a couple of 100,000 lives. And then secondly, I know it's still fluid of what's going on down in DC around transparency and direct negotiation on the drug pricing side. But just curious if that will have any impact or you anticipate any impact around your PBM business?

Surely. I think the first one, since PDP M&A, so that is something that we have been focused on for many years. And what we see is we actively work to you. Educate our key team members [Indiscernible] in Medicare advantage. In recent years as we've expanded our dual eligible SIP offerings that increase our ability to drive those conversions because of a large percentage of our peaking members are low-income dual eligible members. And so, what we consistently see is that we will be able to generate a disproportion of share of our PDT members who ultimately choose Medicare Advantage. And so, we will disproportionately capture share within a Humana plan relative to what you would see our share capture and just overall Medicare Advantage. so really pleased with that. And having said that and some of our members do choose other competitor MA plans and so we continue to focus on identifying if there are opportunities to enhance the product, you attract more CDC members who ultimately are likely to migrate to MA? Are there things we can do to enhance the marketing, product segmentation, all of those things we've talked about to continue to drive increased share capture for those PDT members who ultimately determine that MA provides a better value proposition for them? On your second question around some of the regions effective come out. We certainly are watching it closely. We've really represents a framework at this point. We will have to see some of the details texted ultimately comes through. And with the final proposals are and certainly -- certainly supportive of anything. As we done to reduce the cost of prescription drugs for our members. And something we certainly contemplate and take into consideration in our pricing each year. But I think, at this point, it's too early, we'll need to see what comes out of the final SEC.

Just on that, from our vantage point we continue to put rebates back into our pricing. So, I guess, back directly to the customer. We do not retain those rebates. So, any kind of opportunity to lower the cost of the drugs will directly benefit our members and not have an impact on us as a result of just -- we pass it through.

Great. Thank you.

Your next question comes from the line of Lance Wilkes from Bernstein. Your line is now open.

Great, thanks. Could you provide a little more color on the Primary Care centers? And what it was interested in is looking at the centers and the patient surge. Can you describe a little bit about the composition of patients, what percent are MA versus Medicare fee-for-service, and then how many of them are employer or other? And what percent of those are in full risk contracts versus maybe stages of that? And then how much of the membership -- or how much of the patient base is Humana membership as opposed with other payers? Thanks.

Okay. A few things, I heard that there's a lot in that question, so let me try to provide as much as I can here. They are built really for full risk Medicare advantage members. That's what they are built for. That's how the staffing has constructed. That's out of the recruiting of the physicians. That's out of the business model is built. And so that leads you to the conclusion of the majority of them are going to be MA members. Now, we have some Medicare fee-for-service side members in there. They are really oriented to how over time they can evolve to be a longer-term member for us through our Medicare's Advantage relationship. They are agnostic platforms, and so there's a good composition of medic Humana members, as well as other payers in the credit, that's why it's really called CenterWell, it's to reinforce that agnostic nature and we are very oriented to that being agnostic. In a number of our sites, there's probably more non - Humana members than there are Humana members. So, you do see us oriented to a much broader opportunity in the -- for Medicare Advantage. In addition, in a few of the sites we do have direct contracting members as a result of that, and so we are in the opportunity to take Medicare fee-for-service relationships that then -- that are more oriented to value base. Your last part of your question just was the relationship. over time they will take full risk. Now, there might be an earlier part of the opening that they will take a path to risk orientation where they'll have some upside and downside limits and -- but they will, over time, convert to a full risk model. And that's really just as the panel size gets bigger and bigger, the ability to manage the risk is much easier because of the diversification of the panel size.

Great. And what's the trend to breakeven in those DeNova sites for you guys?

Breakeven is between 3 to 5 years and fill up. I'd say the earlier a year is probably 3 years is more around profitability and contribution margin. The fifth year is more around a return on capital obtaining the return on capital side.

Great. Thanks so much.

Your next question comes from the line of George Hill from Deutsche Bank AG. Your line is now open.

Good morning, guys. And thanks for squeezing me in. Susan, I was just wondering if you'd be willing to provide a little bit more color on how you're thinking about medical cost trend as it relates to 2022. And I guess to provide some granularity about how I'm thinking about the question is, is 2019 kind of the right baseline number from an MLR perspective? Plus, then adjustments for mix because we've seen so much growth in virtual and retail care clinics. And then if -- you've included some what I'll call some excess COVID headwind. But if we see a continued reversion of utilization, like could we see a number that looks like greater than 100% of that 2019 baseline from an MLR perspective. Are you thinking about utilization being higher offset by changing cost mix? Not asking for the hard number, but just would love how you're thinking about the moving pieces as it really grows in medical costs.

Okay. Great. Sure. Yes, for last statistics, I'll try to introduce as much as I can, maybe more generally. But as we -- as you said before, right now in our '22 pricing, our approach to baseline trends was to go back to pre -COVID levels, use historical trend factors and roll that forward. Now we certainly, our models have a lot of granularity to them and so certainly they will take into account any cited service jobs that we may be seeing and then our estimate of what those might be going forward. They'd also look at what we've referred to these Healthcare pipeline technologies to anything else that we expect that maybe coming to market that would impact trends differently than what we've seen historically. And that's just part of our consistent process. So, all of that work was done to support our 2022 pricing. We have not changed our view of that currently, although as you can imagine, there is a lot of work being done across the enterprise to study as best we can, what has emerged over the course of 2020 and 2021, how we can decipher COVID impact in utilization. Depression versus what might be just lower baseline trend. I think our view, as you've seen, is consistently [Indiscernible] earnings historically would imply that our core trend forecasting models may have a little bit of conservatism in there. We've not seen that going forward, trending off 19 is certainly more years of trending than we would typically like. And so that's why we're going to do a lot more analysis between now and between our final guidance points for 2022 to see if there's any additional information that would inform our perspective on 2022 baselines. But what we're considering now, we think is an appropriately conservative view. To your point, if the COVID headwind that we will contemplate in that guide does not emerge -- does emerge, then we would be seeing baseline -- utilization above baseline levels. Or I'm sorry, I said that backwards [Indiscernible]. Yeah, but we would be able to tolerate it running above baseline even though we don't expect that to occur. If it does not occur, then that would obviously represent an additional tailwind for us that you should see unwind over the course of the year.

Okay. And if I could go with a quick call, it does --

[Indiscernible]

I guess my quick follow-up is it just, where do you feel like the flexibility is for your ability to pull levers on the cost side, should costs on the medical side run ahead so that you guys can deliver your earnings targets?

I think in general; I would say we continue to work on our trend initiatives and various utilization management and other strategies, no different than any other year to continue to work to reduce total cost of care. Some of them work that we're doing with our value-based home-health model, as well as the use of broader homesteaded capabilities or other examples of how we continue to work to see how we can use those capabilities to focus on patients who are disproportionately likely to see, potentially avoidable hospitalization events and use those capabilities to redirection and alternative sites of service. Like the home or an outpatient settings. So, we'll continue to do all of those things in support of not only 2020 to trend mitigation, but then also longer term to support our value proposition in Medicare Advantage broadly.

Just asked a question about administrative management. We constantly are managing the investments and our costs trends within the administrative side to ensure that they provide the adequate cushion for us as we think about earnings being said.

Thank you.

Gary. Next question comes from the line of Whit Mayo from SVB Leerink. Your line is now open.

Thanks for getting me on. And I hope I'm the last one I had just a quick clarification question Susan, I think you said that you would expect that reserve development in the fourth quarter will come in less favorably than you experienced in the third quarter. I just wanted to make sure that I heard that right. And of the membership growth that you expect in 2022, I think 350 at the midpoint, how much of that is coming from, special needs plans duels, etc.? Thanks.

Sure. To your first question on current period development. Yes, you heard correctly that, while we did see positive current period development in the third quarter, our guide does not seem that we continue to see this elevated levels. Our guide with already this seems some level of normal quarters CBD. In any given quarter, you can see that 2 declined in year, but we're not assuming currently that that favor -- exit favorability we saw emerge in third quarter will continue. And during the '22 growth, we obviously haven't given detail guidance. But I can tell you though is while it's still early in the AEP, Bruce mentioned we saw 40% growth in 2020 and 2021. We do continue to see strong growth in 2022. So, while we're not prepared to share a specific number, so bargain while its early, even growth is actually coming in better than we had originally expected for '22 [Indiscernible].

Okay. Thanks.

Your next question comes from the line of Gary Taylor from Coban. Your line is now open.

Hi, good morning. Just 2 quick questions I have remaining. In April, you upped your MRA headwind to a billion three for the full year. Just want to make sure, is that still the right '21 headwind and most of that come spec next year and that's part of how you're offsetting the return to baseline utilization?

That's exactly right. Our estimate is not been changed. Their previous update on the emirate headwind. As we said, we're tracking very closely the diagnosis Income submissions in 2021 that will support our 2022 reimbursement, and those are in line with expectations and more similar to what we thought pre -COVID. So, to your exact point, that headwind we do not expect to recur and does provide mitigation from trend, bouncing back to more normal levels.

Since -- and just one more quick one. When you talked about -- was just mentioning less development in 4Q. Your third quarter prior year development was very similar to last year, so I presume you were talking about intra -year development from the first half that you recognized in the 3Q that doesn't occur or you're not assuming occurs, is that correct? And could you just give us a little color on where that came from, Inpatient outpatient.

When you refer to current period development, the development, in the quarter that would refer to the year. Can you hear us?

Speakers you are now live.

Okay. Hi there, I'm sorry, we dropped again unfortunately, can you hear me? I'm not sure exactly where we dropped, but just to your last point, turning period development does refer to you how planes restated in the first half of the year. And as we say, we did see some favorable restatement. What I can say is, at a high level relative to get them into those Q2 and what we saw in development in third quarter, in the net of the COVID, and COVID costs that we saw positive restatement of about 50 basis points going sort of the first and second quarter of 2021 developed in the third quarter.

And speakers, we don't have any questions on the line. I would like to turn the call to Mr. A - Bruce Broussard for closing remarks.

Okay [Indiscernible]. I want to apologize for the technical glitches there, I think we have a problem with our leader line and we will definitely work on that to ensure that the services that we are -- that we subscribe to is capable of keeping a consistent connection. Second, I hope you take away from our conversation today that we have been very thoughtful and conservative as we look into the fourth quarter and as we enter into 2022. As you can see From all the commentary, we do reflect that the uncertainty of COVID and all the aspects of going into 2022. I do want to say thank you for 90,000 associates that make this such a successful organization and their dedication to not only our customer, but also providing our shareholders the adequate return. And I want to thank you for your long-term support for us as an organization. So, thank you and have a great day.

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.