Justin Lake

Justin Lake of Wolfe Research questioned DaVita's strategy to offset the ACA exchange headwind with the non-recurrence of the 2025 cyber incident impact, and sought further clarification on the drivers behind the Integrated Kidney Care (IKC) business's 2024 outperformance and confidence in its continued growth.

Answer

CFO Joel Ackerman clarified that the $45 million RPT headwind from the cyber incident in 2025 is largely offset by the enhanced premium tax credit headwind in 2026, with the $25 million volume loss from cyber largely recurring. CEO Javier Rodriguez explained IKC's 2024 outperformance was driven by better shared savings, attributing it to a cumulative portfolio of initiatives like medication management and earlier patient access, expressing confidence in a projected $20 million operating income growth for 2026.

Justin Lake sought clarification on whether the cyber incident headwind from 2025 would be fully offset by other factors in 2026, and requested more color on the drivers behind the Integrated Kidney Care (IKC) segment's outperformance in 2024 and the confidence in its continued growth.

Answer

Javier Rodriguez, CEO, clarified that the $70 million cyber headwind in 2025 included $25 million in volume loss (recurring) and $45 million in RPT headwind, with the RPT portion largely offset by the enhanced premium tax credit headwind in 2026. Joel Ackerman, CFO and Treasurer, attributed IKC's 2024 outperformance to better shared savings, driven by the cumulative effect of medication management, care transitions, patient segmentation, and new interventions, expressing confidence in an incremental $20 million IKC operating income growth for 2026.

Justin Lake asked for several specific financial metrics, including the updated full-year forecast for revenue per treatment growth excluding binders, the dollar impact of the cyber incident on Q2 RPT, and the equivalent same-store non-acquired growth for the revised volume guidance.

Answer

CFO Joel Ackerman provided the specific figures. He stated that RPT growth excluding binders is now expected to be around 2.25% for the year, down from 3%, with the cyber incident having a $40-50 million negative impact on RPT in Q2. He also noted that the revised total treatment growth guidance of down 75-100 bps equates to roughly down 50 bps on a same-store, non-acquired basis.

Justin Lake of Wolfe Research questioned the higher-than-expected noncontrolling interest (NCI), the seemingly light EPS guidance, and sought details on revenue per treatment drivers like collections, payer mix, and the percentage of patients on ACA exchanges.

Answer

CFO Joel Ackerman clarified that the NCI variance was due to timing from the Change Healthcare outage and the underlying rate as a percentage of U.S. dialysis OI remains stable. He attributed RPT strength to the annualization of collection improvements (~$50M), stable commercial mix around 11%, and an ACA exchange population of about 3%. He declined to give a share count but pointed to higher corporate costs impacting the EPS model.

Justin Lake questioned why the annualization of strong 2024 RPT growth wasn't highlighted as a 2025 tailwind, asked if Q3 interest expense was a good run rate, and inquired about any changes to the commercial payer mix.

Answer

CFO Joel Ackerman stated that while the RPT annualization is a positive factor, it was a deliberate choice not to include it in the list of 'unique' tailwinds, though he confirmed 2025 RPT growth would be above normal. He affirmed the Q3 interest expense is a reasonable quarterly run rate for 2025 and could even be slightly lower. He also confirmed no material changes to the commercial mix.

Justin Lake asked for details on the health benefits business margins for 2026, specifically the Medicaid margin of -1.75%, the drivers of better-than-expected Q4 margins, and the guidance assumptions for exchanges and Medicare Advantage margins.

Answer

Mark Kaye, CFO, Elevance Health, stated that overall health benefit margins were in line with expectations. Medicaid margins in Q4 were slightly better than outlook due to favorable prior period development and modest retroactive rates, but still reflected elevated utilization and risk score deterioration. Medicare Q4 margins were largely in line, reflecting prudent assumptions. Commercial large group margins were consistent, and ACA was slightly better than outlook despite significantly above historical cost trends. For 2026, guidance incorporates continued Medicaid pressure, improvement in Medicare Advantage, and better performance in individual ACA. A Q1 headwind of about 20 basis points for flu is embedded in the outlook.

Justin Lake asked for details on health benefits margins for 2026, specifically Medicaid margins of -1.75%, the drivers of better-than-expected Q4 margins, and guidance assumptions for exchanges and Medicare Advantage margins.

Answer

Mark Kaye, CFO, explained that overall health benefit margins were in line with expectations. Medicaid margins in Q4 were slightly better than outlook due to favorable prior period development and modest retroactive rates, but still reflected elevated utilization and risk score deterioration. Medicare Q4 margins were largely in line. For 2026, guidance incorporates continued pressure in Medicaid, improvement in Medicare Advantage (to at least 2%), and better performance in individual ACA. He also noted a 20 basis point headwind for flu in Q1 2026. Gail Boudreaux, President and CEO, added a brief closing remark.

Justin Lake followed up on Medicaid comments, seeking more color on how the business is expected to exit 2025, specifically the Q4 margin, to understand how the projected 125 basis point decline for 2026 compares to that run rate.

Answer

Mark Kaye (CFO and EVP, Elevance Health) acknowledged that Medicaid margins deteriorated through 2025, and 2026 will reflect continued pressures as rates catch up to acuity. He reiterated 2026 as the low point, expecting sequential improvement through 2027, aiming for the 2%-4% target margin range. Gail Boudreaux (President and CEO, Elevance Health) reinforced that the 125 basis points of margin deterioration assumes entering 2026 at the exit rate of 2025.

Justin Lake followed up on Medicaid, requesting more detail on Elevance Health's expected Q4 margin run rate to better understand how the projected 125 basis point decline for 2026 compares to the year-end exit rate, given observed deterioration throughout the year.

Answer

Mark Kaye, CFO, confirmed margin deterioration through 2025, reiterating 2026 as the low point for Medicaid margins with expected sequential improvement into 2027, targeting the 2-4% margin range. Gail Boudreaux, President and CEO, clarified that the 125 basis point deterioration assumes entering 2026 at the Q4 2025 exit rate, reflecting a prudent approach.

Justin Lake asked for specific margin levels for the Medicaid and ACA businesses, whether the company could exceed its long-term growth targets in 2026, and for a view on 2026 headwinds and tailwinds.

Answer

CFO Mark Kaye stated the individual ACA operating margin is expected to decline in the high single-digit percent range, while Medicaid margins will remain positive but below long-term targets. CEO Gail Boudreaux outlined 2026 opportunities, including disciplined pricing, but identified policy uncertainty around ACA subsidies as the largest unknown. She noted that actions to bend the cost curve are underway but not factored into the 2025 forecast.

Justin Lake asked how the Medicaid MLR and margin trended from Q4 2024 to Q1 2025 and questioned whether the company's guidance still assumes flat year-over-year Medicaid margins for 2025 before an improvement in 2026.

Answer

Mark Kaye, CFO, noted that the benefit expense ratio decreased more than is typical from Q4 to Q1, driven by workday dynamics and Part D seasonality. Specifically on Medicaid, he stated that trends remain elevated but decelerated as expected, reflecting stable membership and utilization. He reaffirmed the view that Medicaid margin recovery will be a 'tale of two halves,' with stabilization early in the year followed by improvement in the latter half as rate updates are implemented.

Justin Lake from Wolfe Research asked about the expected earnings seasonality for 2025, particularly for Q1. He also questioned the drivers behind the projected year-over-year decline in the Health Benefits operating margin, asking if it was concentrated in the Commercial segment.

Answer

CFO Mark Kaye detailed the 2025 seasonality, expecting over 60% of adjusted EPS in the first half, with Q1 being slightly more than half of that amount. Regarding the operating margin, he explained the 25-50 basis point decline is due to discrete items: cycling a non-recurring expense benefit from 2024 and business mix shifts from stronger Medicare growth. He noted that excluding these items, underlying margins would be stable.

Justin Lake of Wolfe Research pressed for an explanation on why Medicaid trends were accelerating now, given redeterminations are largely complete, and asked about the margin exit rate for the quarter and expectations for Q4.

Answer

CEO Gail Boudreaux reiterated the unprecedented nature of the membership shift and the lag in state rate setting. CFO Mark Kaye added that while they had planned for elevated trends, the current 3x to 5x historical levels were meaningfully above expectations. He did not provide a specific margin exit rate but reiterated the long-term target is in the 2% to 4% range.

Justin Lake asked about the fourth quarter Optum Health performance, noting a significant underperformance compared to guidance and expressing surprise at the volatility. He sought clarification on the drivers of this volatility and the company's confidence in achieving more stable performance in 2026.

Answer

Kristen Gil, COO of Optum Health, attributed the Q4 results to restructuring actions and one-time items, confirming a new adjusted earnings baseline of approximately $1.5 billion. She expressed confidence in 2026 stability due to the reorientation of Optum Health towards integrated value-based care, strategic clarity, and actions taken to strengthen the foundation, including reshaping the risk portfolio and refining the network.

Justin Lake asked for clarification on the fourth quarter Optum Health performance, noting a significant underperformance compared to the guided operating income. He sought details on the drivers of this volatility and the basis for management's confidence in more stable performance for 2026.

Answer

Stephen Hemsley, Chairman and CEO of UnitedHealth Group, acknowledged the focus on Optum Health. Kristen Gil, COO of Optum Health, stated that Q4 results were disappointing but reflected restructuring actions and one-time items, with medical trends remaining elevated. She established a new adjusted earnings baseline of approximately $1.5 billion for Optum Health. Gil expressed confidence in 2026 stability due to the reorientation of Optum Health back to its integrated value-based care purpose, comprehensive asset evaluation, and meaningful Q4 actions to strengthen its foundation, including reshaping the risk portfolio and refining the network. She cited examples of high-performing markets and mature value-based care cohorts already achieving target margins.

Justin Lake sought confirmation on UnitedHealthcare's commercial margins returning to the 7-9% target range by 2027 and asked for the approximate baseline margin for commercial business in 2025.

Answer

Tim Noel (CEO of UnitedHealthcare) confirmed the target of returning to the 7-9% long-term margin range for commercial business by 2027. He indicated that for 2026, the business is expected to be approximately 150 basis points below the low end of that target, but expressed confidence in achieving the long-term goal due to pricing actions and cost control opportunities.

Justin Lake sought confirmation on UnitedHealthcare's commercial margins returning to the 7%-9% target range by 2027 and asked for clarification on the current baseline margin for 2025.

Answer

Tim Noel, CEO of UnitedHealthcare, confirmed that the commercial business is on track for meaningful progress in 2026 due to pricing actions, expecting to be about 150 basis points below the low end of the target margin. He reiterated confidence in achieving the 7%-9% long-term margin range by 2027, supported by market reception and cost control opportunities.

Asked about the earnings run rate exiting 2025 into 2026, questioning if a calculated ~$13 run rate was reasonable. He also inquired about the key drivers for EPS growth and the expected Medicare Advantage margins for the current year versus next year.

Answer

John Rex confirmed the second-half earnings assessment was reasonable and highlighted that 80% of premium revenues reprice on January 1, which is a major driver for 2026. Robert Hunter specified that 2025 MA margins would be at the low end of the new 2-4% range (around 2-2.5%), and for 2026, they expect margins to expand to 2.5-3% due to significant benefit cuts, plan reductions, and pricing for higher trend.

Justin Lake asked for specifics on the Medicare Advantage (MA) cost trend, questioning the initial 2025 estimate, the revised outlook, the extent of the Q1 miss, and the expected trend for the remainder of the year.

Answer

Andrew Witty, an executive, acknowledged a clear pickup in trend within the senior business. Timothy Noel, an executive, elaborated that while they planned for 2025 care levels to mirror 2024, Q1 indications showed care activity increasing at twice that rate, particularly in physician and outpatient services. Noel confirmed they are now assuming this elevated trend will persist through 2025 and into 2026, which will inform future pricing strategies.

Justin Lake of Wolfe Research asked for more color on the Q4 Medicare Advantage revenue adjustment and inquired about AEP results, including what portion of 2025 growth is expected from AEP and the outlook for industry growth.

Answer

Executive John Rex clarified the revenue adjustment was not a recent surprise. Executive Robert Hunter reported strong AEP results, putting them on track for their 800,000 member growth target, with over 50% of that growth expected from AEP. He also noted near-record retention and expects 2025 industry growth to be in line with 2024.

Justin Lake of Wolfe Research asked for color on a Q4 Medicare Advantage revenue adjustment and separately questioned the drivers of 2025 MA growth, including AEP results versus expectations and the outlook for industry growth.

Answer

Executive John Rex clarified the revenue adjustment (e.g., group MA refunds) was not a recent surprise and was understood as performance developed. Executive Robert Hunter reported strong AEP results, aligning with the full-year growth target of up to 800,000 members. He highlighted strong retention, a tripling of returning members versus last year, and strength in HMO and dual-eligible plans. He reaffirmed a long-term industry growth outlook of 7-9%.

Justin Lake asked for an update on the performance of the Medicaid (excluding duals) and Medicare Advantage (including duals) businesses relative to target margins for Q3 and the full year, and the expected pace of improvement in 2025.

Answer

Brian Thompson, CEO of UnitedHealthcare, expressed encouragement for the duals business outlook for 2025. For Medicaid, he noted that while the volume impact from redeterminations is largely past, the key issue is the lag in state rate updates catching up to the higher acuity and cost trends of the remaining members. He highlighted behavioral care as a specific cost driver and expressed hope that states will be responsive in closing the funding gap.

Justin Lake asked for an update on Humana's expected new membership growth range, the percentage of MA individual membership in fully capitated agreements, and any provider pushback due to economic issues.

Answer

Jim Rechtin, President and CEO, stated that Humana would not provide a specific growth number due to the dynamic interplay of member, product, and channel mix. George Renaudin, President of Insurance, added that Humana has taken measures like reclaiming Part D risk and reducing benefits, and is implementing Stars mitigation programs to support value-based partners, feeling good about the progress.

Justin Lake asked for the expected range of new membership growth, an update on the percentage of MA individual membership in fully capitated agreements, and whether providers are pushing back due to economic issues.

Answer

Jim Rechtin, President and CEO, stated that Humana would not provide a specific growth number due to dynamic factors like member, product, and channel mix. George Renaudin, President of Insurance, discussed measures like taking back Part D risk and benefit reductions to reset products for value-based partners, along with STARS mitigation programs to address provider headwinds.

Justin Lake of Wolfe Research sought an update on STARS performance, asking if the company could share insights on its underlying metrics, even without knowing the final cut points.

Answer

President and CEO James Rechtin clarified that Plan Preview 1 data was not yet available. He reiterated that while Humana has made significant operational progress and expects to see improvement in its underlying metric performance, the final STAR ratings will depend on how the rest of the industry performed. He confirmed Humana will enter a quiet period on the topic until October.

Justin Lake questioned the timing of the Stars litigation ruling, how Humana would handle 2026 bids without a decision, and whether underlying operational progress on Stars is sufficient to improve ratings, independent of cut-point volatility.

Answer

CEO Jim Rechtin confirmed they have no special insight into the legal timing. George Renaudin, President of the Insurance Segment, explained that bids are being actively worked on with a multiyear strategy to diversify contracts and balance membership with long-term earnings. While declining to share pricing strategy, both executives expressed confidence in the operational progress being made on Stars initiatives.

Justin Lake asked for a framework to understand the moving parts for 2026 earnings, specifically questioning if the prior $6 of core earnings growth was a reasonable baseline and how to think about the Stars rating impact relative to that.

Answer

President and CEO James Rechtin stated that it is too early to provide 2026 guidance due to significant unknowns like the Stars litigation and final MA rates. He emphasized that the company's primary focus is on improving underlying operating performance through clinical excellence and back-office efficiency, which he views as the key to sustainable market positioning.

Justin Lake asked about the scale of Humana's 2025 investment spending, questioning if it was around $500 million, what the funds would be used for, and the expected timeline for a return on these investments.

Answer

CEO Jim Rechtin and CFO Susan Diamond explained that while they see 2024's performance as a floor for 2025 EPS, they will prioritize long-term investments for 2027 over maximizing near-term earnings. They did not confirm a specific dollar amount, stating decisions are ongoing. Diamond added the 'floor' concept was introduced to assure investors that the investments would not cause a year-over-year earnings decline.

Justin Lake sought clarification on the expected magnitude of the 2026 decline in the pharmacy benefit services segment, specifically asking if it's low or mid-single digits, and the size and duration of the investment spend for the new rebate-free model into 2027.

Answer

Brian Evanko, President and COO, explained that the 2026 decline in pharmacy benefit services income is due to proactive client renewals (more than half the headwind) and transitional investment costs (less than half). He noted that the investment spending would continue into 2027, but the large client renewals establish a new run rate from 2026 onwards.

Justin Lake from Wolfe Research, LLC questioned the impact of sophisticated hospital billing on commercial trends, its effect on the stop-loss business, and employers' ability to absorb significant rate increases.

Answer

Chairman and CEO David Cordani acknowledged elevated billing sophistication, which Cigna counters with its own AI and technology, noting that affordability pressures are making employers more open to innovative solutions. President and COO Brian Evanko stated that the stop-loss business is performing as expected, with this trend not having an outsized impact, and that the company is successfully executing its plan to improve stop-loss margins.

Justin Lake requested more detail on the stop-loss business, asking about current cost trends relative to Q4 pressures and seeking early feedback from customers on repricing efforts for 2026.

Answer

Chairman and CEO David Cordani confirmed the plan is to recoup stop-loss margins over the 2025 and 2026 renewal cycles. President and COO Brian Evanko added that the margin improvement plan is on track, with revised pricing being implemented while maintaining retention. CFO Ann Dennison stated that Q1 stop-loss performance is tracking to expectations and the full-year MCR for the business is assumed to remain elevated.

Justin Lake inquired about The Cigna Group's stop-loss business, asking for a premium breakdown between aggregate and specific coverage, details on margin pressure, and confirmation of the Q4 earnings miss magnitude and the 100 basis point margin recapture plan.

Answer

Brian Evanko, CFO of The Cigna Group and CEO of Cigna Health Care, confirmed the Q4 shortfall was driven by stop-loss products due to a higher-than-expected frequency of high-cost claimants. He stated the full-year 2024 stop-loss MCR was in the low 90s, a mid-single-digit percentage worse than planned. Evanko affirmed the goal to recapture 100 basis points of margin across the Cigna Healthcare portfolio by 2027, with the majority expected in 2026.

Justin Lake sought clarity on capital deployment plans for 2025, specifically regarding the use of cash for share repurchases, and asked for more color on the drivers of strong growth in the Specialty pharmacy business.

Answer

CEO David Cordani deferred detailed 2025 capital deployment guidance to the Q4 call but highlighted the company's track record, including $24 billion in repurchases over the last four years. Evernorth CEO Eric Palmer attributed the 23% growth in Specialty and Care Services to the first full quarter of dispensing a HUMIRA biosimilar, expansion with existing clients, and broad-based volume strength in inflammatory, oncology, and neurology therapies.

Justin Lake asked about Centene's competitive positioning for Marketplace in 2026, specifically whether its growth would align with, exceed, or fall below the projected market contraction, and for color on the unwinding of Part D upside for 2026.

Answer

Sarah London, Chief Executive Officer, indicated that Centene's 2026 Marketplace pricing prioritized margin recovery over membership, with 42% of its portfolio in low-cost silver positions, a slight decrease from 55% in 2025. Drew Asher, Executive Vice President and Chief Financial Officer, explained that while PDP is expected to run at a pre-tax margin in the 'threes' for 2025, initial 2026 guidance would likely be 'something less than that,' representing a year-over-year headwind.

Justin Lake asked about Centene's competitive positioning for the Marketplace in 2026 versus 2025, specifically whether Centene's growth would align with, exceed, or fall below overall market contraction. He also asked CFO Drew Asher to quantify how much of the $700 million Part D upside from 2025 should be expected to unwind in 2026.

Answer

CEO Sarah London reiterated the market contraction view (high teens to mid-30s range) and noted that Centene's 2026 competitive positioning prioritizes margin recovery over membership, with low-cost silver positions shifting from 55% in 2025 to 42% in 2026. CFO Drew Asher stated that PDP (Part D) is about half of the Medicare segment revenue. He indicated that while 2025 PDP pre-tax margins are expected to be in the 3% range, initial 2026 guidance would likely be 'something less than that,' implying an unwinding of some 2025 outperformance.

Justin Lake of Wolfe Research, LLC sought confirmation of higher earnings in 2026 and questioned the drivers behind the guided 140 basis point improvement in the Medicaid HBR for the second half of 2025, noting it differed from peer outlooks.

Answer

CEO Sarah London confirmed expectations for margin and earnings improvement in 2026. She detailed that the Q2 Medicaid HBR pressure was concentrated in a few states and driven by specific trends like behavioral health and home health. She expressed confidence in the second-half improvement based on targeted interventions, utilization management, fraud prevention efforts, and securing better rates, noting that about one-third of their health plans are already outperforming HBR targets.

Justin Lake of Wolfe Research, LLC questioned the drivers behind Centene's optimistic Medicaid HBR guidance for the second half of 2025, which implies significant improvement compared to peers, and asked if any anomalies in the Q2 MLR made it an unreliable baseline.

Answer

CEO Sarah London confirmed expectations for margin and earnings improvement in 2026. She detailed that the Q2 Medicaid HBR miss was driven by concentrated trends in behavioral health, home health, and high-cost drugs in a few key states like Florida and New York. She expressed confidence in the second-half improvement based on targeted interventions, network optimization, and securing better rates.

Justin Lake asked about the Marketplace risk adjustment numbers, specifically how recent Wakely data for 2024 compared to Centene's own estimates and whether the company's risk pool is changing, noting a meaningful decrease in the payable.

Answer

EVP and CFO Andrew Asher confirmed that the latest Wakely data for 2024 was very consistent with Centene's year-end estimates, with no significant changes. He noted that while new 2025 members are showing utilization consistent with what should drive risk adjustment, the company is prudently waiting for the first 2025 Wakely data in late June before recognizing it.

Justin Lake asked for clarification on the drivers of the increased prior year development (PYD) in Q4 and the size and timing of Medicaid retroactive rate adjustments that were expected but not received.

Answer

CEO Sarah London addressed the Medicaid retros, stating that while they did not materialize in Q4, the company is not counting on them for 2025, so any future receipt would be a benefit. CFO Andrew Asher explained that the Q4 prior year development was influenced by the marketplace CSR settlement, which is treated as a medical expense item.

Justin Lake requested clarification on the 4.5% to 5% composite rate update, asking what period it covers, the corresponding cost trend, and whether it includes state pass-through payments.

Answer

CFO Andrew Asher clarified that the rate increase applies to the second half of 2024 and is a 'net' rate, excluding pass-throughs and programmatic benefit changes. He noted the focus is on matching rates to the post-redetermination PMPM expense level, as underlying cost trend for continuous members remains low.

Justin Lake inquired about the drivers of confidence for the Pharmacy and Consumer Wellness (PCW) segment's anticipated 3% growth in Q4 2025, specifically addressing the impact of lower vaccine volumes on operating income and the contribution from the Rite Aid store file acquisition in Q4 2025 and into 2026.

Answer

Prem Shah, EVP, Chief Pharmacy Officer, and President, Pharmacy and Consumer Wellness, attributed strong PCW performance to strategic investments, technology, and differentiated consumer engagement, noting 11.7% top-line growth and 28.9% pharmacy market share (partially from Rite Aid). Brian Newman, CFO, added that the full-year guidance now reflects 3% growth, an 8% swing from initial expectations. David Joyner, President and CEO, reiterated that PCW investments are making the 9,000 stores a "front door" for the enterprise.

Justin Lake of Wolfe Research, LLC inquired about the early outlook for 2026 headwinds and tailwinds, focusing on Medicare Advantage margin improvement, the sustainability of pharmacy outperformance, and the potential for improvement in the value-based care business.

Answer

CEO David Joyner responded that it was too early to provide specific guidance or a forecast for 2026. He conveyed confidence in the progress being made in 2025 and stated that the company plans to offer more perspective on 2026 by the end of the year.

Justin Lake inquired about Medicare Advantage (MA) medical cost trends, asking for more detail on the performance of individual MA, Part D, and group MA, and how current trends compare to the company's high single-digit guidance.

Answer

President and CEO David Joyner emphasized the company's focus on operating stability and respect for trend. An executive (presumably Steve Nelson) noted momentum at Aetna, with early signs of stabilization in individual MA, but acknowledged pressure in the group MA business. CFO Tom Cowhey added that the underlying Aetna business beat expectations, driven by $400 million in net favorable prior period development. He stated core Medicare trends are slightly better than the outlook, with stable inpatient trends and some outpatient favorability, though medical pharmacy trends remain high.

Justin Lake requested more detail on Medicare Advantage trends, asking what the trend looked like at the end of 2024, what is being assumed for 2025, and for color on cost reductions and membership mix changes.

Answer

CFO Tom Cowhey explained that Q4 medical trends remained elevated but were less severe than the previously discussed downside scenario, with positive prior period reserve development across all business lines. He noted modest improvement in Medicare, stabilization in Medicaid, but accelerating trends in the commercial Individual Exchange (IFP) block. Cowhey stated that the 2025 outlook remains respectful of these elevated trends, but it is too early to comment with confidence given significant membership mix changes.

Justin Lake sought clarification on the Q4 Medical Benefit Ratio (MBR) commentary, specifically the potential 700 basis point increase, and asked for a framework to understand the 2024 run-rate earnings as a baseline for 2025.

Answer

CFO Tom Cowhey clarified that the potential 700 bps MBR increase includes the release of the Q3 Premium Deficiency Reserve (PDR) but does not include a potential PDR for the group business. He outlined a scenario where trends develop unfavorably, risk adjustment accruals deteriorate, and modest induced utilization occurs. He emphasized that a key uncertainty is determining how much of the current trend is induced by 2024's rich benefits, which will not persist in 2025.

Justin Lake requested an update on the total contribution from DPP and provider taxes in Q3, the updated estimate for the full year, and any other items to consider for the 2026 bridge year-over-year, beyond the $148 million of prior year DPP.

Answer

CFO Sun Park stated that Q3 DPP was $346 million, with $38 million from prior years, bringing the year-to-date total to $1.02 billion, of which $148 million was out-of-period. She confirmed the company is on track with expectations once normalized. The $148 million in Medicaid supplemental payments is the largest normalization factor for 2025 into 2026, with other reimbursement dynamics to be considered for future guidance.

Justin Lake requested an update on the total contribution from DPP and provider taxes in Q3, the updated full-year estimate, and any other items to consider for the 2026 bridge year-over-year, beyond the $148 million of prior-year DPP.

Answer

Executive Vice President and CFO Sun Park reported $346 million in supplemental Medicaid programs for Q3, including $38 million from prior years, bringing the year-to-date total to $1.02 billion, with $148 million being out-of-period. She identified the $148 million as the largest normalization factor for 2025 into 2026, acknowledging other dynamics for future guidance.

Justin Lake of Wolfe Research, LLC requested a framework for the potential 2026 earnings impact if ACA subsidies are not extended. He also asked for an update on the 2025 provider tax run rate and the potential impact of recent legislation on DSH/DPP payments.

Answer

Chairman & CEO Saum Sutaria declined to provide a 2026 outlook, instead emphasizing the critical importance of lobbying for the extension of ACA subsidies. EVP & CFO Sun Park clarified that after normalizing for one-time items, the full-year run rate for Medicaid supplemental payments remains in the previously discussed $1.1 billion to $1.2 billion range.

Justin Lake highlighted the strong Salary, Wages, and Benefits (SWB) performance in the hospital segment, asking if there were any special items beyond contract labor, if this is a reasonable run rate, and if it was running materially better than guidance assumptions.

Answer

Saumya Sutaria, Chairman and CEO, reiterated that the company is not updating guidance. He noted that the diversification into the ambulatory business helps the overall SWB ratio. He emphasized the importance of retaining their own workforce to expand capacity in a high-quality way, suggesting the current performance reflects a strategic balance the company is seeking.

Justin Lake requested specifics on the assumptions within Tenet's guidance, asking about the year-over-year change in core supplemental payment dollars and the expected exchange volume growth.

Answer

Sun Park, EVP and CFO, responded that after normalizing for one-time items, the 2025 guidance assumes Medicaid supplemental payments will be consistent with the $1.16 billion from 2024. Regarding exchanges, she stated that while the high growth of 2024 won't repeat, they still expect a strong environment due to positive enrollment trends.

Justin Lake sought confirmation that Tenet expects to grow EBITDA year-over-year in 2025 despite known headwinds. He also asked for the company's target leverage ratio following its recent divestitures and capital deployment.

Answer

Chairman and CEO Dr. Saum Sutaria confirmed that based on current planning, Tenet expects to "more than offset" the 2025 headwinds and achieve year-over-year EBITDA growth. Regarding leverage, he stated that management is "pleased with where we are" but is not providing a formal target ratio at this time, while noting that debt paydown opportunities are being actively evaluated.

Justin Lake asked for an update on pending Medicaid supplemental payment programs in Florida and Nevada, including potential benefits, and sought details on the exchange contribution, specifically run-rate volume and revenue, and updated estimates if subsidies expire.

Answer

CFO Steve Filton stated that Florida's pending plan could yield a $47 million annual benefit, and Nevada's DPP increase approximately $30 million, both awaiting CMS approval, totaling $75-80 million. He noted exchange patients represent 6-6.5% of acute care admissions, primarily in Texas and Florida, and the estimated negative impact from expiring subsidies is now trending towards the higher end of the $50-100 million annual range.

Justin Lake asked for an update on pending Medicaid Directed Payment Program (DPP) approvals in Florida and Nevada, including their potential financial benefit, and an update on the exchange contribution, specifically the run rate on volume and revenue, and the estimated impact if subsidies expire.

Answer

CFO Steve Filton detailed pending Medicaid DPPs: Florida's plan could yield an estimated $47 million annual benefit, and Nevada's could add approximately $30 million, both pending CMS approval, totaling $75 million-$80 million. He noted no other material programs are pending. For exchange contribution, Filton stated that 6%-6.5% of acute care admissions are exchange patients, with volumes increasing, primarily in Texas and Florida. He reiterated the estimated $50 million-$100 million negative annual impact if subsidies expire, now trending towards the higher end due to increased volumes.

Justin Lake of Wolfe Research asked about the political appetite for changes to provider taxes and inquired if the exclusion of potential DPP revenue from Tennessee and D.C. in the 2025 forecast signals a change in confidence about their approval.

Answer

Executives Steve Filton and Marc Miller noted significant bipartisan support for provider tax programs at the state level, which they believe mitigates federal risk. Filton clarified that excluding Tennessee and D.C. DPP funds from guidance is consistent with their conservative policy of not including revenues until programs are fully approved by CMS, not a reflection of reduced confidence.

Justin Lake asked about the potential for federal policy changes targeting provider taxes and questioned the decision to exclude potential DPP revenue from Tennessee and D.C. from the 2025 forecast, seeking to understand if this signals a change in confidence.

Answer

Executives Steve Filton and Marc Miller noted strong, bipartisan support for provider tax programs at the state level, which they believe provides a significant pushback against federal changes. Filton clarified that excluding the TN and D.C. revenue is consistent with historical practice, as UHS does not include revenue from new programs until they receive full regulatory approval.

Justin Lake with Wolfe Research questioned the benefit from payment dispute resolution in Q3, the estimated 2025 DPP net benefit ($2.3-$2.4 billion range), and the appropriate run rate for 2026 after normalizing for out-of-period items.

Answer

CFO Mike Marks explained that state supplemental payment increases accounted for about half of the net revenue per equivalent admission growth, with payer mix being the next largest driver. He noted that dispute resolution activities provided some support and reiterated the updated full-year 2025 net benefit guidance for supplemental payments of $250 million to $350 million favorable.

Justin Lake asked about the benefit of payment dispute resolution to revenue growth and the full-year 2025 DPP number, including its run rate for 2026.

Answer

CFO Mike Marks noted that payment dispute resolution provided some support to net revenue per equivalent admission growth in Q3, with about half of the growth driven by state supplemental payments and strong payer mix. He reiterated the full-year 2025 net benefit from state supplemental payments is expected to be $250M-$350M favorable, excluding pending approvals.

Justin Lake from Wolfe Research, LLC asked if maintaining a historical 19-20% EBITDA margin is a reasonable framework for the next few years, considering potential revenue losses from policy changes despite HCA's resiliency efforts.

Answer

CEO Sam Hazen stated that it is too early to commit to a specific margin framework, as the company needs more clarity on the final outcome of the enhanced premium tax credits. He expressed confidence in HCA's ability to 'own our realities' and navigate challenges to meet its financial objectives but deferred providing a specific margin target until the situation is clearer.

Justin Lake asked for the percentage of HCA's volumes and revenue derived from ACA exchange plans in Q1 and sought the company's perspective on how many of these members might shift to commercial plans if subsidies expire.

Answer

CFO Mike Marks reported that in Q1, exchange plans represented approximately 8% of equivalent admissions and 10% of revenues. Regarding the potential expiration of subsidies, he stated that while it is too early to provide specific estimates, he believes some members would shift to employer-sponsored insurance, some would remain on the exchanges, and others could become uninsured.

Justin Lake from Wolfe Research asked about the company's leverage and long-term debt strategy heading into next year, and how the potential for recurring hurricane impacts is being factored into the 2025 guidance.

Answer

CFO Mike Marks noted that leverage ended the quarter at the low end of their target range and that financial policies are currently under annual review, with any updates to be announced in January. He reiterated that the manageable, ongoing effects from the 2024 hurricanes were already factored into the preliminary 2025 outlook.

Justin Lake asked for Molina Healthcare's projected exchange revenue for next year compared to the current $4.5 billion run rate, and for insights into the year-over-year SG&A ratio, considering expected pressure from returning bonuses.

Answer

CEO Joseph Zubretsky stated that exchange revenue could decrease from $4 billion to $2 billion or even $1.5 billion, but Molina is confident in achieving at least break-even, with pricing models targeting mid-single-digit margins. CFO Mark Keim added that the G&A ratio is expected to be around 6.5% this year and target approximately 6.8% next year due to compensation. Joseph Zubretsky highlighted that Medicaid's G&A ratio is just above 5%, which is considered best in class.

Justin Lake asked for Molina's expected exchange revenue for next year compared to the $4.5 billion run rate this year, and the outlook for the SG&A ratio year over year, given potential pressure from returning bonuses.

Answer

CEO Joseph Zubretsky stated that Marketplace revenue could decrease from $4 billion to $1.5-$2 billion in 2026 due to reduced volume from less competitive pricing, but Molina is confident in achieving at least break-even, with pricing targeting mid-single-digit margins. CFO Mark Keim noted that national Marketplace shrinkage could be 30-50%. For G&A, Mark Keim expects the full-year 2025 ratio to be around 6.5%, targeting approximately 6.8% for 2026 due to returning compensation expenses. Joseph Zubretsky highlighted Molina's Medicaid G&A ratio of just over 5% as best-in-class, which aids in returning to target margins.

Justin Lake of Wolfe Research, LLC asked about the implied run-rate earnings of approximately $15 per share based on second-half guidance and its implications for 2026. He also requested quantification of the G&A benefit from lower compensation and the expected decline in Marketplace membership.

Answer

CEO Joseph Zubretsky confirmed the math for the run rate but cautioned against simply annualizing it for 2026, highlighting key variables like the January 1 rate cycle and embedded earnings. CFO Mark Keim detailed the G&A change, noting the 2025 benefit from lower comp will be a headwind in 2026 but offset by the removal of implementation costs. He cited pundit estimates of a 30% market decline for the exchanges but did not provide a specific company forecast.

Justin Lake asked about Marketplace effectuation rates and the MLR profile for new members compared to the rest of the book.

Answer

CEO Joseph Zubretsky noted a very successful enrollment period. CFO Mark Keim added that effectuation rates are strong, likely due to competitive pricing. However, he stated it was too early to provide a specific MLR for new members, as they constitute 50% of the book, but promised more clarity in the next quarter.

Justin Lake of Wolfe Research requested a breakdown of expected quarterly Medicaid trends for 2025, referencing the sequential increases seen in late 2024. He also asked for more detail on a one-time G&A benefit and specificity on which states require 'rate actions' to improve margins.

Answer

CFO Mark Keim clarified the trend outlook, explaining that while the full year-over-year trend is 4.5%, a projection off the second-half 2024 baseline would imply a more modest 2% trend for 2025, or about 50 basis points per quarter. CEO Joe Zubretsky addressed the 'rate action' comment, explaining that since Molina is only about 100 basis points above its target MCR range, it may only need a few specific rate adjustments to get back in line, unlike competitors who may be further off and require a full 'rate cycle.' He did not specify states.

Justin Lake of Wolfe Research sought confirmation on the 2025 EPS growth outlook, asking how to reconcile the tailwind from embedded earnings with potential headwinds from lower investment income and non-recurring G&A benefits. He also asked if positive retroactive rate updates in Q3 offset the negative California adjustment.

Answer

President and CEO Joe Zubretsky confirmed the building blocks for 2025 growth but hesitated to give a point estimate, citing the need to see how Q4 medical cost trends emerge against the new 2025 rates. CFO Mark Keim noted that a little less than half of the $5.75 in embedded earnings is expected in 2025. Regarding Q3 retro rates, Keim acknowledged a small positive retro benefit but stated it was netted within his bridge from Q3 to Q4 MCR.

Justin Lake of Wolfe Research sought insights on the 2026 payer bidding environment and asked if agilon health is prepared to have tough conversations with payers, potentially walking away from membership if economic terms are unfavorable.

Answer

CFO Jeff Schwaneke indicated that early discussions with payers align with their public statements about seeking improved economics. He confirmed that agilon is in active negotiations and will not proceed with a payer if the economics are not prudent for the business, noting that members in such a scenario could potentially enroll with another payer within the agilon ecosystem.

Justin Lake followed up on risk scores, asking for confirmation that the 2% pricing uplift was on a same-patient basis and inquiring if agilon experienced significant member disruption and 'uncoated' new patients.

Answer

CEO Steven Sell confirmed the 2% net risk adjustment increase is on a same-member basis, attributing the lift to starting from a lower base in historically fee-for-service markets. He noted that while there was some member movement between payers, the consistent PCP relationship maintained care continuity, and disciplined growth meant the member base was essentially flat.

Justin Lake inquired about the performance of the 2024 new partner class, expectations for the 2025 class, and the outlook for the 2026 class.

Answer

CEO Steven Sell reported that the Class of '24 performed strongly. He noted the Class of '25 is intentionally smaller at 20,000 members and utilizes a 'no downside' care management fee structure to reduce risk. For 2026, he confirmed a strong pipeline with signed letters of intent for a class larger than 2025's, reflecting strong PCP demand for new business models.

Justin Lake sought clarification on the medical cost trend figures for Q3 and Q4 2024, asking about the underlying per-member-per-month (PMPM) cost assumptions and the CMS fee-for-service trend benchmark.

Answer

CFO Jeffrey Schwaneke confirmed the Q3 cost trend assumption increased from 6% to 9.1%, while the Q4 trend is projected at 5.2% off a high prior-year base. He elaborated that based on historical seasonality, Q4 is expected to be the highest cost quarter, with PMPM costs roughly 3% higher than Q3. Schwaneke noted he did not have the specific CMS ACO trend number available at the moment.