Medicaid MLR Pressures and Risk Corridors
Q: How are you managing Medicaid MLR pressures?
A: We've seen higher medical costs in our Medicaid business, with our Medical Care Ratio averaging 90.2% in the first half and tracking toward 89.3% for the full year, slightly higher than our previous guidance of 89%. To address this, we're using our risk corridors, which have historically provided about 200 basis points of cushion. This year, we're utilizing about half of that cushion, and known rate adjustments in the second half will offset another 1% of the cost trend, keeping us well-insulated.

Marketplace MLR and Growth Strategy
Q: How is your Marketplace MLR performing, and what's your growth plan?
A: Our Marketplace business is performing well, with a 72% MLR in the first half and an expected 78% in the second half. We might end up favorable to our full-year target but could choose to invest margins to drive growth next year, as we did this year when we grew revenue from $1 billion to $1.2 billion. Our goal is to maintain mid-single-digit margins while managing the business's inherent volatility.

Operating Cash Flow Expectations
Q: What are your expectations for operating cash flow in the second half?
A: We expect operating cash flow to normalize in the second half, running at about 1.1 to 1.3 times net income. The first-half fluctuations were due to timing issues with risk corridor payments, CMS payments, and tax payments, but over time, cash flow will align closely with net income.

Impact of Potential Expiration of Enhanced Subsidies
Q: How will expiring subsidies affect Marketplace enrollment?
A: If the enhanced subsidies expire at the end of 2025, we estimate that 10% to 20% of our Marketplace members might be priced out of silver products. However, some may shift to our lower-priced bronze offerings, which could lessen the impact.

2026 Premium Guidance and M&A Strategy
Q: Are you still on track with your 2026 premium guidance and M&A plans?
A: We're reaffirming our 2026 premium guidance, though the mix might lean more on M&A given the reprocurement cycle. Previously, we projected $4.5 billion from M&A and $2.5 billion from strategic initiatives. Our M&A pipeline is active, especially in Medicaid, and we expect transactions in the next 12 to 18 months.

Prior Year Development Impact on MLRs
Q: How is prior year development affecting your MLRs?
A: We've seen a larger prior year development benefit this year due to our payment integrity efforts addressing past fraud, waste, and abuse. Most of this benefit was in Medicaid and Medicare, but much of it was offset by prior year risk corridors, so it doesn't significantly impact our current margins.

Confidence in Rate Adjustments
Q: How confident are you in receiving appropriate rate adjustments?
A: We have secured known rate increases for the second half, both on-cycle and off-cycle, which will help offset higher medical costs. Our relationships with state regulators are constructive and data-driven, leading to reasonable rate actions, such as the high single-digit increase in Texas and mid-cycle adjustments in Kentucky.

Medicaid Redeterminations Impact
Q: How have redeterminations affected your Medicaid membership?
A: We lost around 50,000 members due to redeterminations in Q1 and about 100,000 in Q2, totaling 650,000 cumulatively. We anticipate reconnecting with 50,000 members by year's end. This membership decline has contributed to some higher costs, but we're managing the impact.

Utilization Before Coverage Loss
Q: Are members increasing utilization before losing coverage?
A: We haven't observed members overutilizing before losing coverage. Since 70% of those losing eligibility do so for procedural reasons and may not realize they're losing coverage, they aren't likely to increase usage preemptively. When they re-enroll, there's a brief uptick in utilization, but it normalizes quickly.

ConnectiCare Acquisition Benefits
Q: What benefits does the ConnectiCare acquisition bring?
A: ConnectiCare performs adequately but below our target margins. By improving Medical Care Ratios and streamlining G&A expenses, we aim to align it with our targets. We acquired it at 25% of revenue, with half in hard capital, expecting it to be significantly accretive to earnings.

First Half Operating Cash Flow
Q: Why was operating cash flow low in the first half?
A: Operating cash flow was lower due to paying down last year's risk corridor balances (over $0.5 billion), the timing of CMS payments (about $400 million), and tax payments (~$200 million). These are timing issues, and we expect cash flow to normalize in the second half.