Lance Wilkes

Lance Wilkes followed up on value-based care, asking about any impact to MLR in 2026 from changes to financial terms or carve-outs, the capacity to absorb the magnitude of risk, and what portion of the 2025 incremental investments were in medical costs or attributed medical costs.

Answer

President of Medicare and Medicaid George Renaudin stated that nothing has changed regarding the proportional financial performance of value-based providers to Humana's margins. He highlighted significant support provided to partners in 2025, including taking back Part D risk and mitigating Stars impacts. CFO Celeste Mellett confirmed that approximately 90% of the incremental investments made in 2025 were in medical costs.

Lance Wilkes followed up on value-based care, asking about the impact to MLR in 2026 from any changes to financial terms or carve-outs, the capacity to absorb the magnitude of risk, and a cleanup question on what portion of 2025 incremental investments were in medical costs.

Answer

George Renaudin (President of Medicare and Medicaid) stated that nothing has significantly changed regarding the proportional financial performance contribution of value-based providers to margins, and that Humana continues to support them, including taking back Part D risk and mitigating Stars impacts. Celeste Mellett (CFO) clarified that approximately 90% of the incremental investments made in 2025 were in medical costs.

Lance Wilkes asked about margin characteristics and long-term targets for Medicaid (traditional vs. duals, year one margins), the J-curve for new group MA business, and clarification on the direct-to-employer opportunity in CenterWell Pharmacy.

Answer

George Renaudin, President of Insurance, explained that Medicaid business is prioritized for duals linkage, which offers outsized margins and delivers margins in the first year. He highlighted growth opportunities in Michigan, Illinois, and South Carolina for 2026. Jim Rechtin, President and CEO, clarified that direct-to-employer in CenterWell Pharmacy involves exploring similar programs to direct-to-consumer, leveraging pharmacy capabilities.

Lance Wilkes inquired about the performance of individual businesses within CenterWell relative to targets, the drivers of external revenue growth in primary care, and the dynamics of internal versus external patient growth.

Answer

CFO Celeste Mellet reported that CenterWell's Home business was in line with expectations, while PCO and Pharmacy performed ahead of plan. She noted that durable factors like specialty mix and patient growth could lead to stronger full-year results. Revenue growth was driven by higher patient volumes and some favorable PPD, though the PPD benefit is not expected to recur.

Lance Wilkes sought clarification on Medicaid trends for 2025 versus 2026, specifically regarding risk shift impacts, state benefit design changes, core trend categories (inpatient, outpatient, units, cost inflation), and competitive dynamics among smaller plans.

Answer

CEO Sarah London noted continued low-level membership attrition in 2025 due to states tightening eligibility, which pressured trend. Core trend drivers remained behavioral health (50% of excess trend, with ABA underpinning), home health/HCBS, and high-cost drugs. She highlighted interventions in H2 2025 that moderated trend, leading to a 93.0% HBR. London also observed that rate pressure impacts smaller nonprofit plans, influencing states to ensure sufficient program funding. CFO Drew Asher added that inpatient trends in Medicaid look good, and the continuous TANF population's trend (excluding behavioral health) appears normal.

Lance Wilkes asked for a detailed comparison of Medicaid trends between 2025 and 2026, including risk shift impacts, benefit design changes, core trend components (inpatient, outpatient, units, cost inflation), and competitive dynamics in states.

Answer

CEO Sarah London noted low-level membership attrition in 2025 impacting trend, with core drivers consistent (behavioral health, home health, high-cost drugs, ABA). She mentioned interventions in H2 2025 moderating trend and discussed competitive dynamics where rate pressure impacts smaller nonprofit plans. CFO Drew Asher added that inpatient trend looked good, and continuous TANF population (excluding behavioral health) trend looked normal.

Lance Wilkes inquired about the variability in state Medicaid rates, the impact of the 2026-2027 budget outlook on future rate increases, and whether smaller competitors are exiting or not rebidding in any states where Centene participates.

Answer

Sarah London, Chief Executive Officer, noted variability in absolute state Medicaid rates but consistent constructive dialogue and integration of more recent data in rate setting. She acknowledged anticipated budget pressures in 2026 but framed them as an opportunity for Centene to partner with states to optimize programs and manage care, citing examples like carving in fee-for-service populations and new program adds in the RFP pipeline. She did not specifically address competitor exits.

Lance Wilkes requested additional color on the state rate-setting environment, including variability across states and the impact of 2025-2026 and 2026-2027 fiscal year budget outlooks on future rate increases. He also asked if Centene is observing any smaller competitors exiting contracts or not rebidding in participating states.

Answer

CEO Sarah London noted variability in absolute rates across states but consistent constructive dialogue and integration of more recent data for over 18 months, including acuity impacts from redeterminations. She confirmed that states are now leveraging more recent data for baseline and prospective trend anticipation. While budget concerns exist for 2026, London sees this as an opportunity for Centene to partner with states to optimize programs, manage care, and taxpayer dollars. She mentioned states considering carving in fee-for-service populations (e.g., ABA) into core procurements and some opportunities for net new program adds in the 2026 RFP pipeline. She did not explicitly address competitor exits.

Lance Wilkes of Bernstein inquired about Centene's long-term strategy regarding its Marketplace risk adjustment payable, asking whether the company plans to alter its product structure to reduce the payable or if it is comfortable maintaining a high-payable position.

Answer

CEO Sarah London explained that for 2026, the immediate focus is on repricing for 'margin over membership,' which may involve adjusting product tiers and networks. Longer-term, she noted Centene is advocating for greater market transparency and for policy changes to be finalized before pricing deadlines to create a more stable environment, rather than fundamentally changing its position on payables.

Lance Wilkes of Bernstein inquired about Centene's long-term strategy for its Marketplace risk adjustment payable, asking if the company plans to alter its product structure to reduce the payable or if it is comfortable maintaining its current position.

Answer

CEO Sarah London explained that for 2026, the immediate focus is on repricing to prioritize margin over membership, which could involve adjusting product tiers and networks. Looking ahead to 2027 and beyond, the strategy is to optimize the entire portfolio for sustainable profitability. She also mentioned leveraging Centene's scale to advocate for greater market transparency and policy stability, such as locking in rule changes before pricing is finalized.

Lance Wilkes asked for more detail on specialty pharmacy trends, specifically the trend level and how it differs across PDP, MAPD, and Medicaid. He also asked if the Part D trend was from new prescriptions or higher costs, and requested a proportional breakdown of the drivers for the consolidated HBR guidance lift.

Answer

CEO Sarah London noted that in Medicaid, high-cost specialty drugs are a timing issue that will eventually be baked into state rates. EVP and CFO Andrew Asher specified the PDP trend is most prevalent in non-low-income members and is driven by higher utilization of drugs like Dupixent, as patients shift from assistance programs to PDP. He did not provide a specific breakdown of the HBR lift.

Lance Wilkes asked about the Medicaid RFP pipeline, the status of appeals in Texas and Georgia, and the company's strategic priorities for investments, capability enhancements, and M&A.

Answer

CEO Sarah London stated that the 2025 RFP pipeline is returning to a more normal pre-COVID cadence and provided updates on the Texas and Georgia protests, which are ongoing. On strategy, she highlighted continued evaluation of M&A opportunities and a particular interest in investing in capabilities for the ICRA market, while always weighing capital allocation against the value of share repurchases.

Lance Wilkes asked for more detail on Medicaid rates, specifically if they are set at a program or composite level, and whether the company sees utilization patterns normalizing for rejoiner cohorts.

Answer

CEO Sarah London clarified that while the final rate is a composite, it is built up from the underlying sub-programs. She also confirmed that run-out data shows rejoiners have high initial utilization that then normalizes, supporting the view that they create a temporary, artificial pressure on the MLR.

Lance Wilkes inquired about the Medicaid rate outlook for 2026, how to think about go-forward rate expectations, state program changes, and the opportunities and achievable objectives for medical management.

Answer

Felicia Norwood, President of Government Health Benefits, Elevance Health, indicated a composite rate increase in 2026 in the mid-single-digit percentage range, net of known risk corridor impacts. January rates were in line with expectations but will still lag trend due to ongoing membership attrition and shifting risk pools. Rate discussions are increasingly tied to broader program changes and benefit designs. Elevance is engaged in cost management, focusing on high trend drivers like behavioral health and ABA, and program integrity activities.

Lance Wilkes inquired about the Medicaid rate outlook for 2026, including go-forward expectations for rates, state program changes, and achievable objectives for medical management.

Answer

Felicia Norwood, President of Government Health Benefits, indicated a composite rate increase in 2026 in the mid-single-digit percentage range, net of Risk Corridor impacts. January rates were in line with expectations but will still lag trend. She noted that rate discussions are increasingly tied to broader program changes and benefit designs, and Elevance Health is actively engaged in cost management, focusing on high-trend drivers like behavioral health and ABA, and program integrity activities. Gail Boudreaux, President and CEO, added a brief closing remark.

Lance Wilkes asked about the Medicaid book, specifically opportunities to exit contracts given significant negative margins, and inquired about progress in CarelonRx's specialty pharmacy acquisition and its contribution to margin stability.

Answer

Felicia Norwood (President of Government Health Benefits, Elevance Health) stated that while there's variability in state performance, Elevance Health is committed to Medicaid but will consider exiting contracts if financial expectations aren't met sustainably. Exits would align with normal contract extensions or RFPs, minimizing disruption. Pete Haytaian (President of Carelon, Elevance Health) discussed the specialty pharmacy strategy, highlighting progress with BioPlus and Kroger Specialty Pharmacy script migration, aiming for diversification and external growth.

Lance Wilkes asked about the variability of Medicaid margins across states and the potential for Elevance Health to exit underperforming contracts. He also inquired about CarelonRx's progress in specialty pharmacy acquisitions and their impact on margin stability.

Answer

Felicia Norwood, President of Government Health Benefits, acknowledged state-to-state variability, stating Elevance would consider exiting contracts if financial expectations aren't met, aligning with normal contract changes. Pete Haytaian, President of Carelon, highlighted the specialty pharmacy diversification strategy, progress in migrating scripts to BioPlus and Kroger Specialty Pharmacy platforms, and plans to garner external scripts.

Lance Wilkes asked for details on utilization trends by service category and business segment, and also inquired about prior period development and reserve levels.

Answer

CFO Mark Kaye focused his response on the ACA market, attributing pressure to a market-wide morbidity shift rather than company-specific issues. He identified emergency room and behavioral health services as primary utilization drivers, noting the new ACA cohort uses the ER at nearly twice the rate of commercial members. He stated prior period development was not significant, at approximately $40 million.

Lance Wilkes asked for details on the strong growth in Carelon Services, seeking specifics on cross-sales into the Anthem book of business, sales to external health plans like the Blues, and the progress of migrating specialty pharmacy services into CarelonRx.

Answer

Peter Haytaian, President of Carelon, attributed the strong performance to balanced internal and external growth. Internally, he highlighted the expansion of total cost of care for oncology and behavioral health offerings. Externally, he noted that 2025 is expected to see the most significant external growth across the portfolio. Regarding CarelonRx, he confirmed the company is thoughtfully migrating specialty pharmacy scripts from acquisitions like BioPlus and Kroger, with the process expected to continue over the next year.

Lance Wilkes from Bernstein asked for details on utilization trends across different product lines, such as Medicare Advantage and Commercial, and how these trends inform the company's assumptions for 2025. He also requested commentary on specific medical cost trend categories like inpatient and outpatient services.

Answer

CFO Mark Kaye reported that Q4 cost trends developed as anticipated. He noted that Medicaid trends remained elevated but stable, particularly in behavioral health and inpatient services. Medicare trends were also elevated but manageable, while Commercial performance was strong. Kaye stated that these elevated trends are expected to persist into the first half of 2025 and are factored into the company's guidance. CEO Gail Boudreaux reiterated the company's prudent approach to forecasting.

Lance Wilkes of Bernstein asked for color on recent Medicaid rate increases compared to historical levels and questioned if the current pressures might prompt strategic changes, such as altering the PBM in-sourcing plan.

Answer

CEO Gail Boudreaux affirmed the company is staying its strategic course, citing the recent CareBridge acquisition as proof of executing its long-term plan for Carelon. Felicia Norwood, President of Government Health Benefits, added that rate negotiations are ongoing and that while states use lagging data, they are receptive to current trend information, with some providing midyear rate adjustments.

Lance Wilkes asked about medical cost trends in the employer market for 2025 and 2026, strategies employers are considering for 2026 and 2027 selling seasons, and interest in value-based care adoption or products like Surest.

Answer

Dan Schumacher (Chief Strategy and Growth Officer, UnitedHealth Group) stated that trends for 2025 and the 2026 outlook remain at approximately 11%, consistent with prior guidance and reflected in 2026 pricing. He noted that 50% of January insured business is resolved, showing encouraging yield on persistency and rate for margin expansion. He highlighted healthcare affordability as a top employer concern. Surest continues to be a leading product with robust pipeline. Employers are also looking at integrated advanced advocacy solutions, including value-based care, and tighter coordination between medical and Rx benefits, with increasing adoption of combined benefits through Optum Rx.

Lance Wilkes inquired about medical cost trends in the employer market for 2025 and 2026, employer strategies for the 2026 and 2027 selling seasons, and the adoption of value-based care and products like Surest.

Answer

Dan Schumacher, Chief Strategy and Growth Officer, UnitedHealth Group, stated that employer market trends for 2025 and 2026 remain around 11%, consistent with previous guidance and 2026 pricing. He noted strong progress in the January insured business for margin expansion. Employers are focused on affordability, with Surest continuing to capture share and integrated advocacy solutions gaining attention, including value-based care and combined medical/Rx benefits.

Inquired about the management and strategic review process, asking for insight into what the process was previously, what changes have been made, and whether the strategic review is considered complete or is ongoing.

Answer

Stephen Hemsley described a return to 'very basic, fundamental, discipline' with much greater intensity in business reviews, focusing on core economic levers, operating metrics, and remediation progress. The process involves a more concentrated agenda, faster decision-making, and significant leadership changes. He characterized it as an ongoing process of drilling down on the businesses, particularly as they complete the 2026 planning process.

Lance Wilkes asked for a breakdown of Q1 Medical Loss Ratio (MLR) impacts, including effects from premium changes, prior authorization shifts, and follow-up care from house calls, and whether any one-time positive factors were present.

Answer

John Rex, an executive, confirmed there were no one-time positive factors. He noted no impact from prior authorization changes but highlighted that a higher level of wellness visits drove follow-on specialty care. He also quantified impacts from IRA-driven Part D seasonality (approx. 90 bps) and the second year of V28 (approx. 60 bps), but stressed that increased utilization and member profile issues were by far the largest drivers of the quarterly performance.

Lance Wilkes from Sanford C. Bernstein & Co. inquired about customer satisfaction levels, the primary sources of dissatisfaction, and the company's strategies to improve the member experience.

Answer

Executive Andrew Witty acknowledged the need to reduce complexity, highlighting claims processing as a key focus for improvement via technology and standardization. He emphasized strong progress in digital adoption, citing a 66% YoY increase in UHC mobile app visits and a one-third annual increase in overall digital engagement, which improves the consumer experience.

Lance Wilkes of Bernstein asked about customer satisfaction levels, the primary sources of dissatisfaction, and the company's strategies for improvement, including any impact on long-term financial algorithms.

Answer

CEO Andrew Witty acknowledged the need to reduce system complexity, highlighting claim processing as a key focus and advocating for industry-wide standardization. He pointed to major progress in digital consumer experience, noting UHC mobile app visits were up 66% year-over-year, overall digital engagement is up by a third, and call volumes are down 10% annually as consumers shift to more convenient digital channels.

Lance Wilkes inquired about the drivers of OptumHealth's margin improvement, the 2025 outlook for risk contracting adoption in various segments like employer, and other employer responses to high premium inflation.

Answer

John Rex, President and CFO, attributed OptumHealth's performance to portfolio refinement and strong execution in its care delivery model. Dr. Amar Desai, CEO of OptumHealth, noted increased outreach from payers for capitated arrangements and strong growth in services. CEO Andrew Witty and Heather Cianfrocco, President of Optum, both observed rising interest from commercial employers in exploring value-based care as an alternative to traditional models, driven by a need for predictability and better member experiences.

Lance Wilkes asked about Molina's Medicare MCR miss in the quarter, the variable consumption observed in the Medicare business, and what specifically is driving the marginal cost of care, especially given the high duals and sick book of business.

Answer

CFO Mark Keim attributed the Medicare MCR miss to LTSS (a significant component of high-acuity/dual products) and high-cost drugs (e.g., cancer treatments, other therapies). CEO Joseph Zubretsky reiterated that even in highly chronic populations like ABD and duals, utilization is up, with LTSS hours, SNF admits, and high-cost drugs (Rx trends at 16% overall, 36% in top 10 categories) driving the pressure.

Lance Wilkes asked for clarifications on Medicaid and Marketplace, specifically regarding 2026 assumptions on trend and rate (whether rates will improve to trend or trend will normalize), variability in state-to-state margin performance and potential for exiting contracts, and any quantifiable pull-forward activity or uncertainty in Marketplace membership.

Answer

CEO Joseph Zubretsky and CFO Mark Keim stated that the Medicaid industry is 3-4% underfunded, and while states face budget pressures, they are recognizing the need to catch up. They anticipate that extremely high trends will moderate, and states will become more responsive with trailing data. Molina, performing 2-2.5% better than the industry, needs less of a rate catch-up to reach target margins. They actively manage their portfolio, with all state properties performing above their cost of capital, and have no plans to reduce the portfolio size. The Marketplace discussion focused on reduced volume and pricing strategy for 2026, rather than pull-forward activity.

Lance Wilkes asked about network contracting, the impact of supplemental payments on hospitals, and the company's progress with value-based care (VBC) arrangements.

Answer

CEO Joseph Zubretsky explained that VBC is being adopted more slowly in Medicaid than in Medicare, but Molina is compliant with all state requirements and is actively working to increase penetration. CFO Mark Keim clarified that supplemental (directed) payments are typically pass-throughs that do not impact Molina's P&L, though Zubretsky noted potential cuts to them are a significant policy debate.

Lance Wilkes from Bernstein inquired about agilon's strategies for maintaining stability with its physician partners, the variance in 'other medical expense,' and the management process for these crucial relationships.

Answer

Executive Chairman Ron Williams described the partnership model, which is built on long-term arrangements with large, established local PCP groups, supported by in-market presidents and medical directors. CFO Jeff Schwaneke added that the variance in 'other medical expense' is a direct function of the individual partner share calculations.

Lance Wilkes of Bernstein asked about HCA's compensation ratio and labor supply, how the company is managing these factors, and the outlook for wage inflation for the remainder of the year.

Answer

CFO Mike Marks described the labor environment as 'pretty stable,' with wage inflation meeting expectations. He noted that contract labor has decreased to 4.3% of salaries, wages, and benefits, approaching pre-pandemic levels. The primary area of continued cost pressure is physician professional fees, which increased about 10% year-over-year, in line with projections.

Lance Wilkes asked about the downstream effects of financial pressures on managed care organizations, such as changes in value-based care adoption or patient cost-sharing, and also inquired about the impact of the flu season.

Answer

CFO Mike Marks noted that Q1 respiratory volumes were in line with the prior year. On patient receivables, he stated that while average patient balances have increased slightly, collectability remains stable. CEO Sam Hazen added that from a broad perspective, HCA is not seeing evidence that value-based care models or changes in copays and deductibles are disrupting the overall demand for healthcare services.

Lance Wilkes asked about the progress on labor, including the pace of hiring, wage inflation trends, and for background on the total exposure to supplemental payment programs and what Medicaid margins would be without them.

Answer

CFO Mike Marks reported that contract labor as a percentage of SWD was down to around 4.5% in the quarter, reflecting improved retention and workforce development. Wage inflation was stable and is expected to remain so in 2025. Regarding Medicaid, he stated that even with supplemental programs, total Medicaid reimbursement still falls short of covering the cost of care.

Lance Wilkes of Bernstein asked about the drivers of improvement in the wage expense ratio, current wage inflation trends, and the impact of Medicaid redeterminations on bad debt.

Answer

CFO Mike Marks reported that wage rate inflation is stable in the 2.5% to 3.5% range and that this stability is factored into the 2025 outlook. Regarding bad debt, he noted that while uninsured volumes grew 7%, the overall cost of uninsured care is stable, and he does not anticipate significant changes going into next year.

Lance Wilkes asked about Cigna's strategic M&A criteria, particularly concerning management stability and business model volatility, and also inquired if high premium inflation is causing different behaviors from employers.

Answer

CEO David Cordani reiterated that Cigna's M&A criteria (strategic alignment, financial attractiveness, path to close) have not changed, but noted a more volatile asset would require a higher bar for durable synergies. CFO Brian Evanko observed that employers are adopting more precise affordability strategies, showing increased interest in specialty pharmacy programs like EnCircleRx, mental health capabilities, and precise provider networks.