Andrew Asher: Yes, so you’re right. We need to take out, I said, at least 200 basis points of SG&A over the next few years to get to sort of where we want to get to in Medicare Advantage. And the plans are on track to do that. Think about, WellCare had well below a million members, well below a million members when WellCare came into the Centene combination. And WellCare was at scale and operating effectively and efficiently. So the scale, we’re not really concerned about scale issues with Medicare even as we expect a little bit more attrition, as we prioritize the strategic goals of being in Medicare and the tie-in to Medicaid to your point, the footprint matching up, as well as prioritizing margin recovery over the next few years, driven predominantly by STAR’s, but other levers like SG&A that we’re talking about here and clinical initiatives.
So it’s certainly a much higher SG&A ratio than Medicaid, because you’ve got distribution costs and open enrollment costs and things like that. And Marketplace is actually a little bit higher than Medicare itself. So that does mechanically work its way into our SG&A rates. So we’re not concerned about being subscale in Medicare Advantage. We want that business to sit side by side with our Medicaid business to seize the opportunities of the future later on in the decade. And we’ll power through 2025, even if that means some attrition.
Operator: Thank you. And our next question today comes from Gary Taylor at TD Cowen. Please go ahead.
Gary Taylor: Hi. Actually, I just kind of wanted to follow-up, I guess, on that last comment, Drew, just a second. We’re just looking at total employees down 12% sequentially, 8,000 sequentially. And we’re just trying to think through what the implications are sequentially into 2Q, 3Q in terms of G&A or even some of those employees might be medical support in the [MedEx] (ph) line. And then just my second question would be just to clarify on the — when we see the $50 million additional PDR for Medicare in the 10-Q, is that an additional $50 million that ran through the P&L this quarter and impacted the reported EPS and weighed on the reported Medicare MLR this quarter?
Andrew Asher: Yes, good questions. Most of the change in the employee base is the divestiture circle that was pretty employee intensive in Great Britain, so that was the result of divestiture, although we are constantly managing the right amount of resources it’s our job to on behalf of taxpayers, on behalf of the federal and state governments, managing efficiently, matching resources with the business that we have and trying to do that efficiently and effectively. But that big move was due to divestiture. And you’re right, the $50 million, while we expected it, as we mapped out the seasonality of Medicare during the year, and that has the PDR sort of pushing up a little bit in Q2, maybe a little bit more in Q3, and then being relieved completely, relative to the 2024 policy year in Q4. That $50 million did hit the P&L. It did make its way into the loss ratio for the Medicare segment, but it was exactly as planned, so it wasn’t a surprise to us.
Operator: Thank you. And our next question today comes from Cal Sternick with JP Morgan. Please go ahead.
Cal Sternick: Thanks. I had a couple of clarifications. First, on Medicaid, did you see fewer dis-enrolled members than you anticipated in the quarter, or was there a higher reconnect rate? Just curious if you could give a little more color on what the drivers of the higher membership were in the quarter, and how do you see those developing over the rest of the year relative to that 13.6 million membership number you previously guided to? And then second, on the Medicare — on the Medicaid composite rate, the 2.5%. Just want to clarify, is that the core is running a little bit better than you expected, or is that 2.5% inclusive of the accelerated state payments? Thanks.
Andrew Asher: Yes, on membership, we still expect to be in that mid-13s by year end. And so, I think 100,000 member difference on 13.2 million, 13.3 million, some may call rounding. But luckily, it’s rounding in the right direction. But it’s probably more timing of precision around redeterminations. And some of that will carry into Q2. And there’s even a few states that will tail off into Q3 as they’ve stretched out the redetermination process. But all of that is in the mid-13s estimate of membership by year end, which includes a couple of nice growth opportunities too that we seized. Oklahoma, which commenced 4.1, and as you heard in Sarah’s remarks, that went really well operationally. And then subject to protest, the Arizona LTSS went low membership, but high revenue.
And then your question on composite rate, the 2.5%. Yes, we’re a little bit above that. And that’s sort of an all in view of a composite rate, whether the rate relates to acuity, whether the rate relates to redeterminations, or just general trend.
Operator: Thank you. And our next question today comes from Scott Fidel with Stephens. Please go ahead.
Scott Fidel: Hi. Thanks. Just had a couple of modeling questions that would be helpful. One, just on investment income, if you can sort of walk us towards what you view as sort of the run rate for the second quarter and for the balance of the year? I know there were a few gains included in the first quarter investment income. And then, also, on operating cash flow, obviously, that was noisy in the first quarter for the reasons you mentioned. If you wouldn’t mind just giving us an update on the full year CFFO expectation, and then how you’re thinking maybe about the second quarter, given that you did get that state payment came in, in April. Thanks.
Andrew Asher: Yes. Investment income, if you peel away gains, we disclosed those throughout the Q, which we just filed. So, understandably, you haven’t ripped through that yet. You get a little bit over $400 million in the quarter, but you can’t just multiply that by four. We expect the full-year to be above — a little bit above the $1.4 billion that we guided to at Investor Day. But the difference between that and just annualizing is we’ve got multiple rate cut scenarios built into our forecast, maybe those play-out to be conservative, but the Federal Reserve will decide that. You also saw that we had a lot of payables. Look in our balance sheet, we relieved a lot of payables in the quarter, we accelerated state-directed payments on behalf of our providers.
So, obviously, when you relieve payables and you’re building up pharmacy rebate receivables, that has an impact on investment income as well. But pleased that we’re going to come in — we expect to come in a little bit above that $1.4 billion. On the operating cash flow, as you know, in this business, that bounces around quite a bit. A large state decides to pay us on 4/2 versus 3/31, and you have a big flip between quarters. Just mentioned some things that impact cash flow as well, the timing of pharmacy rebate receivables or payable invoices. So, it’s sort of a — maybe a fool’s errand to try to predict that quarter-to-quarter in terms of how that will play-out. What really matters in this business is the dividends from subs, the cash flow, not only GAAP cash flow statement, but the cash that comes from subsidiaries to parent, such that we can deploy capital.
And we expect that to pick-up as you’ll see in the Q over the next few quarters, and that will drive our capital deployment later in the year for share buyback and some debt — little bit of debt reduction as well. So, that’s what we’re looking forward to.
Operator: Thank you. And our next question today comes from A.J. Rice at UBS. Please go ahead.
A.J. Rice: Hi, everybody. A couple of quick things here. I appreciate the reiteration of the long-term target of the high-89s for your Medicaid HBR. I wondered if you’re — if you think you’re finishing up on redeterminations, largely in the second quarter, the disenrollments and maybe a little spills in the third quarter, when do you think you get visibility once and for all on how that whole process has impacted the risk pool? And are you still thinking — I think at Investor Day you said that you could get 30 basis points of margin improvement 2024 to 2025 in Medicaid. Is that still your thought at this point?
Sarah London: Yeah. Thanks, A.J. You’re right. So, we’re roughly 90% of the way through redeterminations from a membership standpoint. Obviously, the cumulative member months impact sort of trails that a little bit. And we do think that the tail of membership will run through Q2 and Q3 and sort of largely be complete by that point. I would say, the nice thing is that, I don’t think that we have seen — we’ve not had to wait to see sort of the shifting risk pool. We’ve been watching that really closely and that’s part of the preparation the team did leading into this process over a year ago, which allowed us to have those proactive modeling conversations with our state partners through the rate cycles in the last year, and we’re mirroring that same process as we move through the rate updates that Drew talked about between 7/1 and 10/1.
And so, really, sort of trying to address the bolus of any dislocation between rate and acuity in that cycle. But obviously, leaving open, as we said before, the idea that some of that tailwind of margin will get picked back up in 2025 and possibly trailing a little bit into 2026, and that’s where we see the recovery in terms of that basis point on the margin.
Operator: Thank you. And our next question today comes from Dave Windley with Jefferies. Please go ahead.
Dave Windley: Hi. So, just maybe a brief one on that last comment — last point. On the rate visibility, I think, you called out 75%. You talked about matching acuity, which Sarah, you just commented on. Is the matching of acuity and getting those payments squared up, is — should we think about that being in the remaining 25% that you don’t have rate visibility on yet? Or are you expecting some amount of kind of retro catch-up from states where you actually have already had rate discussions? And just kind of understanding the mix of that is what I’m hoping to do.
Sarah London: Yes.
Andrew Asher: Yes.
Sarah London: Okay.
Andrew Asher: Okay. Sorry. The 75% is a member month view of what we know for the 2024 calendar year member months. And the 25% would be — there’s 7/1 rates. We don’t know. We certainly don’t know 9/1 or 10/1 rates but they have a limited impact on the 2024 calendar year. To the macro point, we need — ultimately we’re going to need to have rates match acuity and we expect that to shake out. It may not be perfect in this rate cycle, which means sort of that 2025, 2026 time period is when we would expect to get back into the high 89s based upon today’s mix of business. So there might be a couple of retros. It seems like different companies have different definitions of retro. We’re only waiting on a couple of retros. There might be adjustments going forward where the state realizes and their actuaries.
Hey, we missed the mark last time. Let me fix this going forward. But we are still expecting a couple of retros as we talked about at Investor Day and on the Q1 call. But it’s largely getting the rates correct and matching acuity going forward. And that’s why we’re not expecting to move into the — back into the high 89s immediately. It may take a rate cycle or so, but that does remain a margin expansion opportunity on a company that’s performing well on a consolidated basis. Actually, that creates some capacity for margin expansion in Medicaid as we look at 2025, 2026.
Sarah London: And the only thing I would add, which is, just that as we’ve watched the team sort of work through the complexity of this process, where we have encountered those targeted dislocations, I’ve just been really impressed with how our teams have stepped up to that dialogue. There is clarity on the drivers. It’s a very data driven approach. They’ve clearly built really solid collaborative dialogue with our state partners and are really solutions oriented in how they step into those conversations. And so, I think building credibility with our state partners as we work through this process has been consistent throughout. And I think, again, sort of creates the framework to get back to a matching state and get that tailwind opportunity.
Operator: Thank you. And our next question today comes from George Hill with Deutsche Bank. Please go ahead.
George Hill: Hi, good morning, guys. Thanks for taking the question. Just two quick ones for me, I guess as you talked about the progress and the STAR’s goals for 2025, would just love at a high level if you can talk about kind of the strategy and the progress towards achieving that goal. And Drew, as you were talking about kind of all the changes to Part-D for 2025, I didn’t hear you talk about the new Part-D risk model. Would just be interested if you could make quick comments on how you think the new risk model in Part-D kind of impacts the ability to drive revenue in that part of the business. Thanks.
Sarah London: Sure. Thanks, George. So quality, obviously, a top priority for the organization regardless of line-of-business, but we remain very focused on STAR’s because of the impact it has to the Medicare trajectory. Very pleased with the work underway, engagement across the organization. We’re leveraging a comprehensive governance process and that has given us great visibility in terms of progress on initiatives at a detailed level. Based on what we know today, we believe that we have maintained last year’s progress and made additional advancements on admin and ops programs and metrics, which you’ll remember was sort of the focus in the first cycle. And then, in this past cycle, HEDIS and CAPS were most in focus for us.
We’re in the middle of those processes. Those will wrap-up in the next 30 days to 60 days. We also have TTY that’s still in flight. So, those are the last pieces that will land here towards the end of Q2, and then allow us to sort of re-run projections with a high degree of confidence — higher degree of confidence, as we look to October. And so, expect more detail in terms of what we’re looking for in October on the Q2 call. But overall, just really pleased with how the team continues to show up and, again, alignment across the organization that this is a critical priority.
Andrew Asher: Yes, and you’re absolutely right. The risk model bifurcation between PDP and MAPD, that’s a factor as well that needs to be worked into the bid cycle. And I think I did mention that we were able to run risk scores by member and the mechanics and how that rips through the — not just the risk scores, but also the timing of members with cost share, and getting to the maximum out of pocket, or the MOOP. Those are all important things to think about. And really the message is, that’s why there’s a reason for cautiousness for the industry in bidding PDP for 2025.
