Medicaid MLR and Utilization Trends
Q: Why is your Medicaid MLR higher than expected?
A: Medicaid MLR is higher due to increased trends; initial guidance expected 3%, now trending at 6%. This is split between redetermination impact and higher utilization among existing members, including increased costs in GLP-1s, Rx, LTSS, and behavioral health services.

Rate Updates to Normalize Medicaid MLR
Q: What rate increases are needed to normalize Medicaid MLR?
A: We need rate updates around 6% to offset higher trends. States recognize the acuity shift from redeterminations and are providing meaningful rate increases. Recent on-cycle adjustments averaged 4.5% in Q3 and nearly 9% in Q4, giving us confidence that rates will catch up to costs.

2025 Earnings Growth Outlook
Q: Can you affirm 13–15% earnings growth in 2025?
A: While we have visibility into $5.75 of embedded earnings, with less than half emerging next year, uncertainties in medical cost trends make us cautious to provide point estimates. We are optimistic but need to see how trends and rates evolve in Q4 before confirming the 13–15% growth target.

Marketplace Strength and Rebates
Q: How does Marketplace strength affect rebates in 2025?
A: Marketplace is outperforming for the second straight year. We target mid-single-digit pretax margins but continue to see excess margins, which we invest in our bids to grow the business. Regarding rebates, an 80% minimum MLR is equivalent to about 75–76% GAAP MLR; we are tracking to 74% this year and can adjust pricing to manage rebates.

Utilization Trends in Medicaid and Medicare
Q: Are higher utilization trends market-wide or specific?
A: Increased trends in Medicaid, around 6%, are due to factors like GLP-1s, Rx, LTSS, and behavioral health, which are national phenomena. In Medicare, while there is some impact, we continue to manage medical costs effectively, operating comfortably at 90% MLR.

Bridge to Fourth Quarter MLR
Q: What's the outlook for Medicaid MLR in Q4?
A: We reported a 90.5% MLR in Q3, adjusted to 90% after excluding a 50 basis point one-time item. For Q4, we target an 89% MLR. We expect 80 bps improvement from rate increases, 50 bps from trends stabilizing, and gains from new stores progressing toward targets.

Redetermination Dynamics
Q: Is acuity pressure from redeterminations subsiding?
A: The higher acuity due to redeterminations impacted Q3 more than expected, but we don't expect these pressures to sustain into Q4. We foresee net trend increasing only about 50 bps in Q4 over Q3, returning to a new normal.

Marketplace (Exchange) Performance
Q: What drove the outperformance in exchanges?
A: The SEP membership was extraordinary, with increases of 90,000 in Q2 and 50,000–60,000 each of the last three quarters, compared to a normal gain of 20,000–25,000. This younger, healthier demographic didn't pressure MLR as much as historically, contributing to strong performance.

D-SNP Redeterminations
Q: Any concerns about D-SNP redeterminations?
A: We are not concerned about D-SNP redeterminations. Our D-SNP business is performing well, with expansion in our accounting footprint by 23% and a strong focus on this population. We are bullish on D-SNPs and experienced in managing high-acuity lives effectively.

Off-Cycle Rate Adjustments Recognition
Q: How do you recognize revenue for off-cycle rate adjustments?
A: We recognize revenue for off-cycle rate adjustments only when we have documented evidence, not just suggestions or conversations. This ensures revenue is booked appropriately.

Favorable Prior Year Development Impact
Q: Will favorable PYD normalize in 2025?
A: Favorable PYD is a consistent part of our business, tied to our effectiveness in medical cost management. While PYD is larger this year due to our growing business, we don't expect a headwind next year and consider it a continuing part of operations.

Risk Corridor Usage and Outlook
Q: How much of your risk corridors have you used?
A: We started the year with about 200 bps of corridor protection and have used about half, expecting to have 100 bps remaining at year-end. As rates adjust, we expect some replenishment of the corridors, though it's an imperfect hedge depending on where medical costs arise.

States' Rate-Setting Processes
Q: Do states adjust rates annually or multi-year?
A: All our states reprice on an annual basis, with some committing to twice-yearly reviews. This is important given current trends, and we don't have states on multi-year rate cycles.

Service Lines with Better Utilization
Q: Did any service lines perform better than expected?
A: While we noted challenges in areas like behavioral health, we wouldn't cite specific service lines outperforming trend on a national basis. Every state has unique items, but no significant areas to highlight.

Core Trend vs. Acuity Mismatch
Q: What's driving the higher trend: core or acuity mismatch?
A: On a full-year basis, our trend is 3% higher than expected, with rates 1.5% better than expected. The difference is due to the imbalance of joiners and leavers and existing members utilizing more services than anticipated. The combination of trend, rates, and corridors explains the MLR variance.