Ladies and gentlemen, thank you for standing by, and welcome to the Q3 2022 Humana Inc. Earnings Call. At this time all participants are in a listen-only mode. After the speakers' presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to turn the call over to your host, Lisa Stoner, Vice President of Investor Relations. You may begin.

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 2022 results and our updated financial outlook for 2022. 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, our other filings with the Securities and Exchange Commission and our third quarter 2022 earnings press release as they relate to forward-looking statements and to note in particular that these 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 light 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 site. Call 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 reconciliations 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. Good morning, everyone. We appreciate you joining us. Our third quarter 2022 results reflect the continuation of solid fundamentals and strong execution across the enterprise as seen throughout the year. We reported adjusted earnings per share of $6.88 for the quarter, above our initial expectations. The strength of the quarter allowed us to raise our full year 2022 adjusted EPS guidance by $0.25 to $25 at our September Investor Day. We are pleased to affirm this recently raised outlook representing a compelling 21% growth over 2021. Susan will share additional detail on our third quarter performance and our full year expectations in a moment. We appreciate the opportunity to share our value creation framework at our recent Investor Day as well as the subsequent engagement with investors over the last several weeks. We are excited about the company's future and our focus on executing against our strategy to deliver on the commitments communicated. As previously discussed, achievement of our mid-term earnings target of $37 in adjusted EPS in 2025 and is underpinned by a return to at or above industry Medicare Advantage membership growth by 2024. Now that we've seen competitor plans for 2023 and the annual enrollment period is underway, we are happy to provide initial expectations for 2023 membership growth today. Based on our understanding of the competitive landscape, we are anticipating individual Medicare Advantage full year growth of 325,000 to 400,000 members. This represents an expected growth rate of 7.1% to 8.7%, in line with our expectation of high single-digit industry growth. As we've spoken about previously, we've made substantial investments in our MA product offering and are confident in our strong competitive position. Through targeted surveys and deep analytics, we've designed products to meet – better meet our members' needs. For example, 100%…

Thank you, Bruce. And good morning everyone. Today we reported adjusted EPS of $6.88 for the third quarter, representing 42% growth over third quarter 2021. Results in the quarter came in above initial expectations driven primarily by lower than anticipated medical cost trends and our individual Medicare Advantage and Medicaid businesses. Recall that we raised our full year adjusted EPS guidance by $0.25 to $25 at our Investor Day in September, which we affirm today. Our revised full year guidance anticipated the strength of the quarter and reflects a compelling 21% growth in adjusted earnings for 2022, while funding incremental marketing to support the 2023 AEP selling season and the dilution related to the hospice divestiture. I will now provide additional details on our third quarter performance by segment, beginning with Retail. Medicare Advantage membership growth and revenue remain in line with expectations, total medical costs and our individual Medicare advantage business were lower than initial expectations for the quarter with the favorable inpatient trends seen throughout the year continuing with some moderation. With respect to group MA, we shared last quarter that we were seeing higher than expected non-inpatient utilization. As I mentioned in September, we have been pleased to see positive current ERE [ph] statements and moderating trends during the third quarter, suggesting that some of the higher trend we described previously was likely due to pent-up demand. Finally, I would note that while it is early in the season, flu levels are running as anticipated. All in our Medicare Advantage business is strong and tracking consistent with the updated expectations shared at Investor Day. Our Medicaid business also performed well in the quarter experiencing lower than anticipated medical costs. We updated our full year Medicaid membership guidance from a range of up 75,000 to a 100,000 to…

[Operator Instructions] Our first question comes from Stephen Baxter with Wells Fargo. Your line is open.

Hi. Thank you. I wanted to ask about the individual Medicare Advantage outlook that you provided for 2023. Appreciate the commentary on expecting retention to be a little bit better. Could you maybe tell us or quantify how much that contributes to your growth outlook? Maybe what would your growth outlook be if you had the same result on retention that you did last year? And then more broadly, any early insight you have on competitive dynamics in 2023, either on plan benefits or for sales channels? Thank you very much.

Yes, we won't provide the detail on just how it affects the overall. First thing it’s just early in the process. But we do want to continue this practice of being transparent with our investors just on where we are in just two weeks into the AEP. What we are seeing is that new sales volume has been strong and higher than expected. Our close ratios are higher year-over-year than versus what our expectations are. And in addition, our field sales volumes are particularly strong. The call center channel volumes are slightly down year-over-year, which we expected. As I’ve mentioned, our term data is nowhere close to being complete. So, we have limited visibility into that. But what we do see is that we’re seeing improvement in our non-distant [ph] plans. And in addition, we are incorporating about a 100 basis point improvement in our term rate this year, and that’s really a result of what we’re seeing in our relationships with our broker along with the product that we’ve put in place and then just our workflow improvement in both the enrollment area and on the onboarding with our members. So, what we see early on is just a really exciting aspect of where we’re seeing good growth and that good growth is coming across all parts of the organization with continued improvement in our relationships with the channels.

Thank you. One moment for our next question. Our next question comes from Kevin Fischbeck with Bank of America. Your line is open.

Great. Thanks. I just want to go back to your commentary about cost trend. It sounds like just because you didn’t beat MLR by as much this period. It sounds like what you’re saying is that cautions largely as expected and it’s more a function of you kind of lowering the MLR guidance with your September outlook? Is that kind of how you would frame it? And I guess just based upon how you’ve reported so far in Q3 is obviously implications for Q4 MLR versus where consensus is. I just want to make sure that I’m understanding how you thought about Q3 and then how to think about the implications for Q4 MLR. Thanks.

Sure, Kevin. So, as you mentioned, we are seeing a lower-than-anticipated cost trend with the mid-quarter raise in guidance, it’s a little bit confusing, I appreciate. But so the beat in terms of cost trend was relative to our initial expectations for the quarter, which were considered in the $0.25 raise that we announced at our Investor Day in mid-September. So the commentary this morning was relative to our initial expectations. But then again, once we account for the increased guidance, then more in line with what we expected. In terms of Q3 versus Q4, as we look at current fourth quarter MLR consensus, the estimates currently are 87.6% [ph] for retail and 86.7% [ph] for consolidated. I would say that right now, they’re a little bit light and that given the announcement of the 3Q results today, which were higher than The Street estimates and reaffirmation of our full year EPS guide. We would expect that analysts will adjust their models accordingly. And then we would see then an increase in the fourth quarter and full year MLR as a result, which then should be more in line with our current expectations.

Thank you. One moment for our next question. Our next question comes from Justin Lake with Wolfe Research. Your line is open.

Thanks, good morning. The – two numbers questions. First, just a follow-up to Steve’s question. You said the churn number is down 100 basis points. So is it just as simple as saying you have 4.5 million members in individual, 1% improvement at 45,000 members to growth versus last year. The math that’s simple. And then what drove the 4% decline in Medicare Advantage PMPM in the quarter? And lastly, a lot of questions on RADV. I was wondering if you could help us understand what a reasonable like fee-for-service adjuster that the industry is looking for at a CMS. So when we see that final rate or that final notice in February, what would be a reasonable number for fee-for-service adjuster that you’ve been lobbying for? Thanks.

I’ll take the first question, and then I’ll let Susan take the next two. On the 100 basis points, your math is correct, pretty simple there, Justin. So like always, you amaze me on your ability to back into the number.

And then, Justin, in terms of the revenue PMPM, there’s a few things impacting it. There’s always that decline over the course of the year from the seasonality perspective as new members continue to enroll at low – typically lower risk scores and members passed away and those members passing late in to have higher risk scores. The other item that you need for this year is just sequestration, which as you know, sort of ended as of the second quarter, but was in place last year. And so that will have an impact on the year-over-year compare as well. In terms of your question on the fee-for-service adjuster, I mean, honestly, we just aren’t in a position to comment and wouldn’t want to speculate on what the fee-for-service adjuster would be, is it would ultimately be based on fee-for-service data to which we just don’t have access.

Thank you. One moment for our next question. Our next question comes from Nathan Rich with Goldman Sachs. Your line is open.

Thank you. Good morning. I wanted to follow up on the outlook for MLR. I think for 2023, consensus is roughly flat. I guess could you maybe talk about how you’re thinking about the puts and takes to MLR next year? And I guess specifically, are you expecting a normalization of inpatient procedures over the course of the year? And any change to your expectations around utilization, just given the economic pressures you highlighted and maybe utilization of some of the investments that you made in your plans for next year? Thank you.

Sure, Nathan. As we think about 2023, there’s always a variety of puts and takes that we’ll consider. I would say in terms of utilization, and I think we commented on this last quarter, as in respect to our initial expectations, we did not contemplate the better medical cost trend that we have seen develop in 2022. And so that certainly should be something that does continue into 2023, although we would expect some offset in terms of risk adjustment given the lower utilization. So that’s certainly something that we’ll take into account as we estimate MLR for next year, which obviously, we’re not prepared to give guidance on that today, but would certainly provide guidance on our fourth quarter call. In terms of inpatient procedures, I think we’ve also commented with CMS moving to remove certain items from the inpatient-only list, we frankly expected that to be more flat this year. And frankly, we’ve been pleased to see continued inpatient to outpatient movement, particularly with orthopedic procedures. The rates of outpatient sort of service is pretty high for some of those procedures. So in theory, we should start to see some moderation in that continued shift. Just last night, CMS did release the outpatient reimbursement. And within there, there are also some additional changes to the inpatient-only list. That’s something we’ll have to review in greater detail and consider what, if any, implications we think it will have on further shifting trends for 2023. But otherwise, for utilization, I would say, we are counting on sort of normal course baseline utilization trends. As we’ve commented before, there are two items we want to continue to watch. One is flu. I mentioned in my commentary that so far that is in line with expectations, which it is early in the season, but we are anticipating lower than historical levels, given what we’ve seen in the last few years. We will want to monitor that and see if that does continue or if we start to see an uptick, which we’d have to consider for 2023. And then finally, I would just mention that we know that healthcare capacity is constrained. That’s something we continue to watch. The labor trends and other factors and is something we will continue to be mindful of as we evaluate our go-forward medical cost trend estimates if we, in fact, start to see some of that return to higher levels. And it’s a capacity as we’ve been anticipating some additional utilization as well. So again, not prepared this year guidance today on the MLR, but certainly, we’ll do that on our fourth quarter call as we normally do.

Thank you. One moment for our next question. Our next question comes from Gary Taylor with Cowen. Your line is open.

Hi good morning. I guess kind of my key questions were answered. So, I just want to go to PDP for a minute where enrollment has been declining since 2017, but coming down a million members would be coming down almost a third, which is, I think, the largest decline you’ve seen. So clearly, this doesn’t generate a lot of earnings. I guess I have two questions. One is, I think it was Bruce who had made the comment about 20 basis points G&A improvement, business mix adjusted. This is a business with lower G&A. So if you’re going to lose a couple of billion dollars of revenue here, how do we think about that impacting sort of that G&A improvement next year? And then the second piece would just be, is the whole thesis behind PDP, which is kind of originally, it would really set up to be a nice feeder into MA. Is that thesis kind of the bump? Is it less important? Clearly, you’ve grown very nicely in the last six years, five years, despite the fact that PDP has been coming down. So, I just wanted to get a call out on your thinking around that.

Yes. Maybe I’ll take the latter point and then let Susan take the around the operating leverage. Gary, we do still see and we see conversions from PDP to Medicare Advantage on an ongoing basis. And we see that initial relationship we have with them as an opportunity to expand that relationship. One – two things are happening in PDP. First, there is a few plans that are really at the lower end, and we sort of question how they can get there at the price that they’re offering. And then there’s a group of plans that are sort of in the same area we’re in. So there’s a bifurcation that’s happening in the industry, which is really causing people to, I think, to go to the lower end pricing there as a result of just the aggressiveness in the marketplace. And we’re not going to follow that direction. But what we do see is also because of the value proposition that’s happened in MA that there’s a much larger conversion just overall between PDP to MA and results. It’s really that PDP is a declining business, not only in our company, but as you look at the industry side. But to answer your question, we do see it as a – still as a very viable opportunity for us to expand our MA platform through the PDP conversion as a result of just our relationship with the member and that is a specific strategy within our company.

Yes. And then Gary, to your question on operating leverage, if you recall we were clear that the 20 basis point commitment was on a business mix adjusted basis just recognizing across all of our lines of business. We have varying degrees of admin loads, so we remain committed to that that target and with respect to the PDP decline in particular as you mentioned, the admin rate does run lower than say Medicare for sure and so that will be accounted for in our ultimate operating expense ratio. I would just say with this level of reduction as you said we will work hard across the enterprise to ensure we get the appropriate amount of variable costs out, but then also take some ground on the indirect costs as well to make sure that the rest of the organization isn't pressured as a result.

Thank you. [Operator Instructions] Our next question comes from Scott Fidel with Stephens. Your line is open.

Hi. Thanks. Good morning. Question just around the Home, and first just interested now that the final home health rates just came out, how that plus 0.7%. How you think about that sort of influencing your thoughts on home health margins for 2023? And then interested from the contracting perspective for your MA business, there's been a lot of focus amongst the home health industry and re-contracting to some different type of models. For example, moving to case rates with some value based care components to that. And it interested just in Humana's sort of interest in activity levels, I guess in terms of engaging in some of these types of recontracting considerations for – from the MA side as compared to from the home health side? Thanks.

Sure. Hi Scott. So your first question on the final rule impact and I know we got some questions previously about the proposed 4.2% reduction and gave some commentary that from an enterprise perspective, that would've been about a $30 million hit relative to our sort of expectations at the time of bid. And that's a larger Home and Home Health business but mitigated by what would've been a benefit to the health plan. With the final rule coming out at 0.7%, obviously that headwind is no longer an issue and it would be slightly positive relative to what we thought at the time of bids, but I would say relatively immaterial, but certainly positive to what it would've been at 4.2%, which we had not contemplated earlier in the year. In terms of your question about how we think about the MA space in Home Health, Andy mentioned at Investor Day the work that his team is doing, both on implementing a full value-based model, which is inclusive of utilization management, network management, clinical advancement to take full capitated risk on Medicare patients and as we've mentioned in my commentary, we expect to have 15% of our members covered by that model by the end of the year. In addition, they're also working on value-based reimbursement models for the remainder of our Medicare population initially, and then would expect that we would offer – Kindred would offer those arrangements to other payer – MA payers as well. And so there, we are very focused on the same things making sure that we're driving appropriate utilization of Home Health services, but then also making advancement on the clinical side such that we can improve outcomes and would look to structure that contractually where there's some component of a fee-for-service payment, but then also participate in the savings that Kindred can help drive in terms of total cost of care going forward under a value-based payment model. So we would expect to continue to keep you apprised of our progress there. But we do intend to start with the Humana membership and then once we can demonstrate success, then look to take that to our agnostic payers as well.

Thank you. [Operator Instructions] Our next question comes from George Hill with Deutsche Bank. Your line is open.

Yes. Good morning guys, and thanks for taking the questions. I guess first I'd ask kind of a big picture question on the recent star ratings performance. I suspect that you guys had a window into your star ratings performance before you held the Investor Day and provided the initial guidance. But I'd be interested if you guys had a sense for what the landscape was going to be like as it relates to Star's performance. And I guess does that kind of increase your optimism, your confidence in kind of outperforming the 2025 targets?

We did have a insight into our ratings, but we did not have the ability to understand how the industry was going to perform during the Investor Day meeting. We continue to be remained confident and the capabilities of the company, I wouldn't, it gives us more confidence in what we can achieve and in our commitment but I wouldn't say it's going to overly impact that that commitment. But I do, we're very proud of those ratings. I'm very proud of what it means to deliver better health outcomes as well as a better financial performance.

Thank you. [Operator Instructions] Our next question comes from Josh Raskin with Nephron Research. Your line is open.

Hi, thanks. Good morning. I was wondering if you could speak to expectations around growth in the number of lives where you're taking delegated risk in 2023, sort of compared to that 250,000 you'll end the year with, and maybe if you're growing MA in faster in areas that are supported by your own or other value-based care providers? And then if you could just update us your views on potential M&A specifically around primary care clinic operators?

Why don't I – why don't I take the latter and then Susan can take the former. On the M&A side we continue to find the best – best value for use of our capital is really doing in-market acquisitions, and being able to roll those into existing primary care clinics that we have in the marketplace. There's not only the ability to leverage the size and scale in the marketplace, but also the administrative productivity we get and just the ability to continue to offer broader value to the payers we serve. So I think that will be the most likely scenario. Of course we've looked at some of the larger transactions that are out there and have been reviewing that. I think at this time we're not really convinced that's the right direction for us and we'll continue to do in-market. That might change, but based on where the – where the values are trading and what we can do and inside our marketplace, we'll probably do medium-to-smaller acquisitions at this time.

And then Josh to your second question; we didn't provide specific guidance this morning in terms of the increase in patients expected in our primary care business for 2023, because you can't expect that we will provide some commentary on our fourth quarter call. But what I will say more generally is that we certainly expect an increase in patient panel growth in 2023 relative to what we'll deliver in 2022. And as you said that's due to the additional centers that we've opened and then the continuing maturation of those centers. Some of that increased growth is also, as you sort of alluded to predicated on the improved Humana value proposition, which should then allow us to drive greater panel growth as a result of that. One thing we'll watch pretty closely is Florida in particular; we've made some nice advancement's there in the value proposition. We have a large number of our wholly own centers there and so we're anticipating improved growth within those whole owned centers and that is something in particular we'll be watching closely, but we'll certainly provide more commentary on our fourth quarter in terms of full year expectations for the provider organization patient panel growth.

Thank you. [Operator Instructions] Our next question comes from A.J. Rice with Credit Suisse. Your line is open.

Yes. Hi everybody. Just wondering we talk a lot about obviously what you're doing in the primary care arena and what you're doing with home health. The PBM it continues to be a big part of your services offering as well. Any thoughts or updated comments on strategically doing more with that, I know it's primary focus over the years has been just to service your internal MA population in your overall membership; but any thoughts on making any moves in that with respect to the PBM?

Yes. A few things there A.J., one is just continuing to grow our penetration in mail order and what we see is the opportunity to continue to make that convenient for our customers as a result of being able to have home delivery and what we're really working hard on both of the digital experience, but also shortening the time of delivery through having more warehouses closer to where a large number of our members are. So we are working hard on the opportunity to continue to improve the mail order rate overall. We do have a few customers; I would say small customers that are utilizing our platform under more of a private label. We've seen that. I think that is an area of opportunity but not an area of focus for us. We've done a lot of work on the specialty side and we see the opportunity to continue to grow our specialty business, which is in a more of a provider oriented and an agnostic provider orientation, and the ability to continue to have stronger relationships with the pharmaceutical side and being able to utilize patient compliant programs. So I would say continue to grow our mail order is top through continuing to improve our experience. And then secondarily, our specialty area, we will look at opportunities to private label or do white label for our delivery, but that probably will be less of the focus.

Thank you. [Operator Instructions] Our next question comes from Michael Ha with Morgan Stanley. Your line is open.

Hey, thank you guys. Just wanted to dive a little deeper into next year’s MA growth. So based on analysis we’ve done on planned value and benefit richness that shows Humana increasing benefit which is significantly more than your peers and almost double the national average. So stronger benefit coupled with leading star ratings performance and a surprising decline and starts from some of your peers, seemingly it looks like you’re positioning into 2023 might be the strongest it’s been in recent history. I know you’re expecting roughly in line with industry growth next year. But I’m curious one, how is your MA growth application developed evolved since early October? And I understand and appreciate the multiyear earnings power that more membership growth can provide. But for 2023 specifically, just given the slightly dilutive impact of year one MA members, in the event you are able to exceed your growth expectations, how does that impact your ability to reach your target 2023 EPS, which gets to the low end of your long-term range. Is there a specific membership growth number that you think could be – end up being potentially diluted to earnings. Thank you.

Hi, Michael, so in terms of your first question, in terms of how our thinking has developed since sort of before all the data was released, I would say, as the data came out and we commented investor, we are pleased to see that our positioning is relatively speaking, generally where we expected it to be going into 2023, and that the – certainly the positive rate notice and then in addition, the additional value that our value creation initiative opened up for us in terms of capacity to reinvest into our Medicare product was sufficient to get us back to a really strong value proposition. We’ve been able to also validate through discussions with brokers during that time that they are in agreement with our view that we are very well positioned in 2023. And I think a number of analysts have also had independent calls where they heard the same thing. That was further validation. We do recognize that we expect more change within the call center channel this year given some of the changes those partners are making, some comments they’ve made about reducing marketing, et cetera. And so that’s one of the reasons we continue to remain a little bit cautious in terms of our range, recognizing that we’ll need to see how that develops. But I would say, as Bruce mentioned in his commentary, all the early signals are positive, while we recognize it is still early. In terms of your second question about is there any level of growth that would compromise our EPS contribution for the year? I would say, from a growth perspective no, I think we’ve commented a number of times that new members typically have little to no contribution, but they wouldn’t be negative. They just wouldn’t add incremental earnings accretion in the first year. The more relevant metric is retention. Those members obviously are positive in terms of contribution. And so that’s why we always watch that closely. And to the degree we see outperformance in retention then we would – that could be a tailwind for 2023. And to the degree, it comes in lower, it could be a headwind. But again, based on everything we’re seeing and the strength of our product, we think our retention estimates and the improvement we’re expecting is quite reasonable.

Thank you. [Operator Instructions] Our next question comes from Lisa Gill with JPMorgan. Your line is open.

Thanks very much for taking my questions. Just a couple of really quick follow-up ones. One, Susan, you said that flu was kind of trending in line. But just given what we’re seeing in the Southern Hemisphere, I’m just curious as to what your expectations are for Q4 and maybe even in the first part of 2023. And then just secondly, to the thoughts around the PBM, Bruce you highlighted the specialty business. Clearly, there’s a number of biosimilars that are coming to the market. I’m just curious as to how you think about that. Is Humira a big drug when we think about your specialty business? And is there an opportunity there as we think about late 2023, early 2024?

Hey, Lisa. So in terms of your first question about flu, so as I mentioned, we are seeing relatively low flu levels. It’s very early in the flu season for the fourth quarter, and so we’ll certainly continue to watch that. In terms of our expectations, we did anticipate in our guide that we would see flu levels higher in the fourth quarter than we’ve seen in the last two years, but not as high as we would have seen pre-COVID. And so far, again, while it’s early, the early trends are consistent with our expectations that we’ll certainly continue to watch that. For 2023, we then assume some further incremental increase in flu going into next year, assuming that it won’t permanently stay at the lower levels we’ve experienced to date. So we’ll certainly keep you guys informed. But so far, we are seeing it run in line with expectations, which are slightly higher than what we experienced previously.

And as you talk about Humira, as we look at both the 2023 and 2024, we continue to see that our existing contracting and the rebates that we receive. And when we compare that to what’s in the marketplace today, we don’t see a significant benefit coming from that. Now maybe as the competition increases and it becomes more oriented to driving down price. We’ll see some benefits. But in the short term, we just don’t see the benefits at.

Thank you. [Operator Instructions] Our next question comes from Steven Valiquette with Barclays. Your line is open.

Thanks. Hello everybody. Just a quick question here following up on the RADV situation. You mentioned that you can’t really comment on what the adjustment might be for RADV with the new rule that was a new effect on Feb 1, following that 90-day extension. But investors seem to have just a pretty wide view on the potential impact of the company around the situation just based on some of the inbounds coming into us this week. I was wondering if you could maybe just take a second, just remind investors of the framework of the situation. And just more color on how heavily you guys are focused on this internally just for context. Is this a potential material risk factor? Or is it not expected to really be material relative to your preliminary EPS growth guidance you’ve already provided? Just wanted to get more sense for that just to help the investment community around this dynamic. Thanks.

Hi Steve, yes, happy to answer that. So as we’ve disclosed previously, our view is that the proposed rule failed to adequately address the statutory requirement of actuarial equivalents by not applying a fee-for-service adjuster to the RADV overpayment calculations. We’ve been very proactive in communicating our position and have provided substantive comments to CMS. And actively engaged, hoping that CMS will address these concerns in the final rule. In addition, we’ve commented a number of times on our internal programs around risk adjustment, and we feel very good about what we feel are industry-leading processes as respect to Medicare Risk adjustment compliance. And our sophisticated mechanisms for correcting risk adjustment data if we determine there to be errors in that data. This has included internal contract level audits that we perform, which we have reported the results of which to CMS, including any identified over payments. And then as you pointed out, we do have a material risk factor. It’s included in our disclosures related to this item. So definitely would encourage investors to review that language as it does represent a material item depending on how the final rule comes out.

Thank you. [Operator Instructions] Our next question comes from Rob Cottrell with Cleveland Research. Your line is open.

Hi, good morning. Thanks for taking my question. Just a couple of follow-ups. First, I appreciate the commentary on stronger-than-expected applications so far in AEP. But can you remind us the typical pacing of applications throughout AEP? How much is back-end weighted? How many applications come through after Thanksgiving in those last 10 days? And then secondly, interested if you can comment on expected utilization rates of some of the more cash-like benefits that you’re all offering next year in the healthy option allowance. Does that utilization increase given it’s more of a cash payment to the beneficiary? And does that have any MLR implication? Thank you.

Hi Rob, yes, in terms of your first question in terms of sort of completion over the course of AEP. I would say you definitely see a little bit more back loaded, particularly say, the last two weeks of the AEP selling cycle, represents a disproportionate percentage of the sales. And so that’s why unfortunately, it generally takes since you get pretty late in the AEP cycle to fully predict what the outcome will be, even as you can imagine, the 2% movement in either retention or sales rates can have a meaningful impact. And so I would say it is back loaded. Terms are even more back loaded. And that’s a function of, if a member were to dis-enroll, they have to enroll another plan. That plan has to communicate it to CMS and then CMS communicated to us, which is why that takes longer for us to be able to see the full completion. In terms of the cash-like benefits and expected utilization, we do expect a very high utilization rate for those benefits. We’ve seen that for the OTC benefit and food card that we’ve offered the last number of years, and we expect that to be the case with some of the new services that are included in our offering for 2023. We also included an enhanced rollover benefit. We expect that to also generate some additional utilization as it provides more flexibility to members. We’ve contemplated all of that, obviously, in our pricing for 2023 and our estimates. And given the high rate of utilization we anticipate, I don’t expect that to create any pressure in terms of our guidance for 2023.

Thank you. I’m not showing any further questions at this time. I’d like to turn the call back over to Bruce Broussard for any closing remarks.

As I stated at the end of my comments, I’ll just continue to reiterate, I want to say thank you to our 63,000 employees that really make our success every day and what they do. I also want to thank our investors for continuing to support – continue to support us. And as you can tell from the call and from our comments, we’re excited about the strong fundamentals of the industry and as a company and look forward to continuing to provide you updated progress on us meeting the committed. Thank you for your time today, and we look forward to continuing to have the dialogue on our progression.

Ladies and gentlemen, this does conclude today’s presentation. You may now disconnect, and have a wonderful day.