What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-10-19 compared with 2022-07-20 · 162 added, 160 removed, 350 unchanged (48% of the section changed)

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On May 18, 2022, our shareholders approved a proposal to amend our amended and restated articles of incorporation to change our name from Anthem, Inc.

to Elevance Health, Inc., which amendment and name change went into effect on June 27, 2022.

to Elevance Health, Inc.

This amendment and name change went into effect on June 27, 2022.

We began operating as Elevance Health, Inc.

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This MD&A should be read in conjunction with the accompanying consolidated financial statements and notes, our consolidated financial statements and notes as of and for the year ended December 31, 2021 and the MD&A included in our 2021 Annual Report on Form 10-K.

Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, 2022 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2022, or any other period.

Results of operations, cost of care trends, investment yields and other measures for the three and nine months ended September 30, 2022 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2022, or any other period.

Elevance Health is a health company with the purpose of improving the health of humanity.

We are the largest health insurer in the United States in terms of medical membership, serving over 47 million medical members through our affiliated health plans as of June 30, 2022.

We are the largest health insurer in the United States in terms of medical membership, serving over 47 million medical members through our affiliated health plans as of September 30, 2022.

We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans.

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There are currently no segment changes associated with this branding strategy.

For additional information about our organization, see Part I, Item 1, “Business” and Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” included in our 2021 Annual Report on Form 10-K.

Our branding strategy reflects the evolution of our business from a traditional health insurance company to a lifetime, trusted health partner, and given this evolution we are in the process of reviewing and modifying how we will manage our businesses in the future.

Additional information on our segments can be found in this MD&A and in Note 15, “Segment Information” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The COVID-19 pandemic continues to impact the global economy, cause market instability and uncertainty in the labor market and put pressure on the healthcare system, and it has impacted, and will likely continue to impact, our membership, benefit expense and members behavior, including how members access healthcare services.

See “Business Trends” below for a discussion of the impact of COVID-19 on our pricing and medical costs.

The COVID-19 pandemic continues to evolve and the full extent of its impact will depend on future developments, which are highly uncertain and cannot be predicted at this time.

The COVID-19 pandemic continues to evolve, impacting the global economy, causing market instability and uncertainty in the labor market and putting pressure on the healthcare system, and it has impacted, and will likely continue to impact, our membership, benefit expense and member behavior, including how members access healthcare services.

The full extent of the impact of the COVID-19 pandemic will depend on future developments, which are highly uncertain and cannot be predicted at this time.

We will continue to monitor the COVID-19 pandemic as well as resulting legislative and regulatory changes to manage our response and assess and mitigate potential adverse impacts to our business.

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As a result, for 2022 we are offering Public Exchange products in 122 of the 143 rating regions in which we operate, in comparison to 103 of 143 rating regions in 2021.

Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are on a path toward sustainability, including, but not limited to, factors such as expected financial performance, regulatory environment and underlying market characteristics.

Our strategy has been, and will continue to be, to only participate in rating regions where we have an appropriate level of confidence that these markets are sustainable, given consideration to factors including, but not limited to, expected financial performance, regulatory environment and underlying market characteristics.

Changes to our business environment are likely to continue as elected officials at the national and state levels continue to enact, and both elected officials and candidates for election continue to propose, significant modifications to existing laws and regulations, including changes to taxes and fees.

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We strive to price our health benefit products consistent with anticipated underlying medical cost trends.

We continue to closely monitor the COVID-19 pandemic (including new COVID-19 variants, which may be more contagious or severe, or less responsive to treatment or vaccines) and the impacts it may have on our pricing, such as surges in COVID-19 related hospitalizations, infection rates, the cost of COVID-19 vaccines, testing and treatment and the return of non-COVID-19 healthcare utilization to our estimate of normal levels, based on historical utilization patterns.

We frequently make adjustments to respond to legislative and regulatory changes as well as pricing and other actions taken by existing competitors and new market entrants.

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We work to mitigate these trends through various medical management programs such as care and condition management, program integrity and specialty pharmacy management and utilization management, as well as benefit design changes.

There are many drivers of medical cost trends that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high-cost prescription drugs, contracting inflation and healthcare provider or member fraud.

There are many drivers of medical cost trends that can cause variance from our estimates, such as changes in the level and mix of services utilized, regulatory changes, aging of the population, health status and other demographic characteristics of our members, epidemics, pandemics, advances in medical technology, new high-cost prescription drugs, provider contracting inflation and healthcare provider or member fraud.

At its onset, the COVID-19 pandemic caused a decrease in utilization of non-COVID-19 health services, which decreased our claim costs in 2020.

As the pandemic continued through 2021, our non-COVID-19 healthcare utilization experience gradually increased and largely normalized.

As the pandemic continued through 2021, our non-COVID-19 healthcare utilization

experience gradually increased and largely normalized.

Our COVID-19 related healthcare expenses increased during 2021 as new variants (Delta and Omicron) emerged and vaccinations and boosters became available.

The Omicron surge quickly declined during the first quarter of 2022, with COVID-19 inpatient authorizations, provider-based tests, visits and vaccinations all decreasing to lower levels by the end of the first quarter of 2022;

concurrently, non-COVID-19 healthcare utilization throughout the second quarter of 2022 recovered from lower levels earlier in the year.

For the remainder of 2022, we anticipate additional claim costs for new pharmaceutical treatments for COVID-19 and compliance with governmental regulations on COVID-19 testing reimbursement.

We expect claims costs related to COVID-19 testing, treatment and hospitalizations will continue throughout 2022 even during periods with lower COVID-19 infection and confirmed case activity.

The COVID-19 surge quickly declined during the first quarter of 2022, with COVID-19 inpatient authorizations, provider-based tests, visits and vaccinations all decreasing to lower levels by the end of the first nine months of 2022;

concurrently, non-COVID-19 healthcare utilization throughout the first nine months of 2022 recovered from lower levels earlier in the year.

We expect the fourth quarter of 2022 will have higher claim costs related to a more normal flu season as well as incremental COVID-19 related healthcare expenses compared to the second and third quarters of 2022.

The ongoing cost and volume of covered services related to the COVID-19 pandemic may have a material adverse effect on our future claim costs.

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These actions, which are or have been in effect for various durations, provide, among other things:

• mandates to waive cost-sharing for COVID-19 testing (including over-the-counter testing in accordance with state and federal requirements), vaccines and related services;

• reforms, including waiving Medicare originating site restrictions for qualified providers of telehealth services;

• financial support to healthcare providers, including expansion of the Medicare accelerated payment program to all providers receiving Medicare payments;

• mandated expansion of premium payment terms, including the time period for which claims can be denied for lack of payment;

• mandates related to prior authorizations and payment levels to providers, additional consumer enrollment windows and an increased ability to provide telehealth services.

At the end of the currently enacted public health emergency, which has been extended until October 2022, Medicaid eligibility recertification will resume.

Recertifications could begin as early as November 2022, but may not occur until 2023 in certain states, and we expect a decline in our Medicaid membership once recertification resumes.

mandates to waive cost-sharing for COVID-19 testing, vaccines and related services;

financial support to healthcare providers;

and mandates related to prior authorizations, payment levels to providers, consumer enrollment windows and telehealth services.

The current public health emergency (“PHE”) has been extended to January 2023.

Medicaid eligibility recertification will resume when the PHE ends, meaning that if the PHE ends in January 2023, recertifications could begin as early as February 2023, but may not occur until later in certain states.

When recertifications resume, we expect a decline in our Medicaid membership.

At the same time, we expect growth in our Commercial risk-based and fee-based plans, including through the Public Exchange, as members exiting Medicaid in our fourteen Commercial states seek coverage elsewhere.

Beginning in July 2022, the health plan price transparency regulations issued in October 2020 by the U.S.

Departments of Health and Human Services, Labor and Treasury (the “Health Plan Transparency Rule”) require us to disclose, on a monthly basis, detailed pricing information regarding negotiated rates for all covered items and services between the plan or issuer and in-network providers and historical payments to, and billed charges from, out-of-network providers.

The Inflation Reduction Act of 2022 (the “Inflation Reduction Act”), which was signed into law in August 2022, contains a variety of provisions that impact our business including an extension of the American Rescue Plan Act of 2021’s enhanced Premium Tax Credits (“PTC”) through 2025;

providing a one percent excise tax on repurchases of stock made after December 31, 2022;

allowing the Centers for Medicare and Medicaid Services (“CMS”) to negotiate prices on a limited set of prescription drugs in Medicare Parts B and D beginning in 2026;

instituting caps on insulin cost sharing in Medicare Parts B and D;

redesigning of the Medicare Part D benefit;

adding a requirement that drug manufacturers pay rebates if prices increase beyond inflation;

and delaying implementation of the Trump Administration Medicare drug rebate rule to 2032.

The extension of the enhanced PTC will likely allow for growth in Individual exchange market enrollment, as Medicaid eligibility recertifications resume, supporting continuity of coverage for more people.

The health plan price transparency regulations issued in October 2020 by the U.S.

Departments of Health and Human Services, Labor and Treasury required us to begin disclosing in July 2022, on a monthly basis, detailed pricing information regarding negotiated rates for all covered items and services between the plan or issuer and in-network providers and historical payments to, and billed charges from, out-of-network providers.

Additionally, beginning in 2023, we will be required to make available to members personalized out-of-pocket cost information and the underlying negotiated rates for 500 covered healthcare items and services, including prescription drugs.

In 2024, this requirement will expand to all items and services.

The Consolidated Appropriations Act of 2021, which was enacted in December 2020 (the “Appropriations Act”), has impacted and in the future may have a material effect upon our business, including procedures and coverage requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker compensation, mental health parity reporting, and reporting on pharmacy benefits and drug costs.

The Consolidated Appropriations Act of 2021 (the “Appropriations Act”) has impacted and in the future may have a material effect upon our business, including procedures and coverage requirements related to surprise medical bills and new mandates for continuity of care for certain patients, price comparison tools, disclosure of broker compensation, mental health parity reporting, and reporting on pharmacy benefits and drug costs.

The requirements of the Appropriations Act applicable to us have varying effective dates, some of which were effective in December 2021 and others that have been extended since the enactment of the Appropriations Act.

The American Rescue Plan Act of 2021, (the “Rescue Plan”), which was enacted in March 2021, contains several health-related provisions that have impacted our business, including expansion of premium tax credits for our Public Exchange business and full subsidization of the Consolidated Omnibus Budget Reconciliation Act (“COBRA”) continuation coverage for those who were involuntarily terminated or had their work hours reduced.

The Rescue Plan’s premium tax credit

provisions became effective in January 2021, while the COBRA premium subsidization was effective from April 2021 through September 2021.

Expiration of the premium tax credit provisions on December 31, 2022, unless extended by Congress, may have an adverse effect upon our business.

Since its enactment in 2010, the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended (collectively, the “ACA”), has introduced new risks, regulatory challenges and uncertainties, has impacted our business model and strategy and has required changes in the way our products are designed, underwritten, priced, distributed and administered.

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As mentioned above, we began operating as Elevance Health on June 28, 2022.

This change is intended to better reflect our business and our journey from a traditional health benefits organization to a lifetime, trusted health partner.

This name change is intended to better reflect our business and our journey from a traditional health benefits organization to a lifetime, trusted health partner.

Elevance Health supports health at every stage, offering health plans and clinical, behavioral, pharmacy and complex-care solutions that promote whole health.

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Litigation Matters

In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”) have approved a settlement agreement and release (the “Subscriber Settlement Agreement”) with the plaintiffs representing a putative nationwide class of health plan subscribers.

In the consolidated multi-district proceeding in the United States District Court for the Northern District of Alabama (the “Court”) captioned In re Blue Cross Blue Shield Antitrust Litigation (“BCBSA Litigation”), the BCBSA and Blue Cross and/or Blue Shield licensees, including us (the “Blue plans”) previously approved a settlement agreement and release with the plaintiffs representing a putative nationwide class of health plan subscribers (the “Subscriber Settlement Agreement”), which

agreement required the Court’s approval to become effective.

Generally, the lawsuits in the BCBSA Litigation challenge elements of the licensing agreements between the BCBSA and the independently owned and operated Blue plans.

The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers, and the Subscriber Settlement Agreement applies only to the putative subscriber class.

The cases were brought by two putative nationwide classes of plaintiffs, health plan subscribers and providers.

The Subscriber Settlement Agreement applies only to the putative subscriber class.

No settlement agreement has been reached with the provider plaintiffs at this time, and the defendants continue to contest the consolidated cases brought by the provider plaintiffs.

If approved by the Court, the Subscriber Settlement Agreement will require the defendants to make a monetary settlement payment, our portion of which is estimated to be $594, and will include certain terms imposing non-monetary obligations on the defendants.

As of June 30, 2022, the liability balance accrued for our estimated remaining payment obligation was $507, net of payments made.

All terms of the Subscriber Settlement Agreement are subject to approval by the Court before they become effective.

In August 2022, the Court approved the Subscriber Settlement Agreement.

In compliance with the Subscriber Settlement Agreement, in September 2022 the Company paid its remaining $506 portion of the settlement fund into an escrow account, for an aggregate settlement payment by the Company of $596.

Four notices of appeal of the final approval order were filed by the September 2022 deadline.

After all appellate rights have been exhausted in a manner that affirms the Court’s final order and judgment, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective.

For additional information regarding the BCBSA Litigation, see Note 11, “Commitments and Contingencies – Litigation and Regulatory Proceedings – Blue Cross Blue Shield Antitrust Litigation,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Selected Operating Performance

For the twelve months ended June 30, 2022, total medical membership increased by 2.7 million, or 6.1%.

The Government Business segment increase was driven primarily by the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic.

In addition, Medicaid membership growth was impacted by the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022 and the acquisition of Integra in the second quarter of 2022, as well as organic growth in our Medicare Advantage business.

Our Commercial & Specialty Business segment experienced organic growth in both our Group fee-based and Group risk-based membership as sales exceeded lapses.

BlueCard membership increased due to favorable membership activity at other BCBSA plans whose members reside in or travel to our licensed areas.

Individual membership increased due to our Public Exchange expansion in 2022.

Operating revenue for the three months ended June 30, 2022 was $38,482, an increase of $5,203, or 15.6%, from the three months ended June 30, 2021.

Operating revenue increased primarily as a result of higher premium revenue in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022, as well as from premium rate increases to cover medical cost trends and membership growth in our Medicare Advantage and Commercial & Specialty Business risk-based businesses.

The increase in operating revenue was further attributable to increased pharmacy product revenue in our IngenioRx segment, the acquisition of Integra in the second quarter of 2022 and the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021.

Operating revenue for the six months ended June 30, 2022 was $76,368, an increase of $10,991, or 16.8%, from the six months ended June 30, 2021.

This increase in operating revenue was primarily driven by higher premium revenue in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM in the second quarter of 2021 and the retroactive reinstatement of a Medicare directed payment program.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage and Commercial & Specialty Business risk-based businesses also contributed to higher premium revenue.

The increase in operating revenue was further attributable to increased pharmacy product revenue in our IngenioRx segment, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022, the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021 and the acquisition of Integra in the second quarter of 2022.

Net income for the three months ended June 30, 2022 was $1,650, a decrease of $151, or 8.4%, from the three months ended June 30, 2021.

The decrease in net income was primarily due to losses on financial instruments in 2022, as compared

to gains on financial instruments in 2021, as well as increased intangible amortization in 2022 related to recent acquisitions and the rebranding of our products, as we expect to retire certain trade names in the future.

These decreases were partially offset by operating gain increases in each of our business units.

Net income for the six months ended June 30, 2022 was $3,445, a decrease of $23, or 0.7%, from the six months ended June 30, 2021.

The decrease in net income was primarily due to losses on financial instruments in 2022, as compared to gains on financial instruments in 2021, as well as increased intangible amortization in 2022 related to recent acquisitions and the rebranding of our products, as we expect to retire certain trade names in the future.

These decreases were partially offset by a net operating gain increase from our business units.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $6.79 for the three months ended June 30, 2022, which represented a 6.3% decrease from EPS of $7.25 for the three months ended June 30, 2021.

Our diluted shares for the three months ended June 30, 2022 were 243.4, a decrease of 4.0, or 1.6%, compared to the three months ended June 30, 2021.

The decrease in EPS for the three months ended June 30, 2022 resulted primarily from reduced shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Our fully-diluted shareholders’ EPS was $14.18 for the six months ended June 30, 2022, which represented a 1.6% increase from fully-diluted EPS of $13.95 for the six months ended June 30, 2021.

Our diluted shares for the six months ended June 30, 2022 were 243.9, a decrease of 3.9, or 1.6%, compared to the six months ended June 30, 2021.

The increase in EPS for the six months ended June 30, 2022 resulted primarily from the impact of fewer diluted shares outstanding.

Operating cash flow for the six months ended June 30, 2022 and 2021 was $4,993 and $4,188, respectively.

The increase was primarily due to higher net income in 2022, excluding the non-cash impact of losses/gains on investments, as we recognized realized losses during the first six months of 2022 compared to realized gains in the first six months of 2021.

The increase was further attributable to the timing of working capital changes.

The following table presents our medical membership by reportable segment and customer type as of June 30, 2022 and 2021.

For the twelve months ended September 30, 2022, total medical membership increased by 2.2 million, or 4.9%.

Our membership increase was primarily driven by organic growth in our Commercial & Specialty Business segment, and in particular in our Group fee-based membership, and organic growth in our Government Business segment primarily driven by the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic.

Operating revenue for the three months ended September 30, 2022 was $39,625, an increase of $4,077, or 11.5%, from the three months ended September 30, 2021.

Operating revenue increased primarily as a result of higher premium revenue in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of Integra in the second quarter of 2022 and the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022.

Premium rate increases to cover medical cost trends and membership growth in our Medicare Advantage and Commercial & Specialty Business risk-based businesses also generated higher premium revenue.

Finally, the increase in operating revenue was further attributable to increased pharmacy product revenue in our IngenioRx segment, resulting from growth in membership and higher script volume.

Operating revenue for the nine months ended September 30, 2022 was $115,993, an increase of $15,068, or 14.9%, from the nine months ended September 30, 2021.

This increase in operating revenue was primarily driven by higher premium revenue in our Medicaid business, as noted above, the acquisition of MMM in the second quarter of 2021 and the retroactive reinstatement of a Medicaid directed payment program.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage and Commercial & Specialty Business risk-based businesses also generated higher premium revenue.

Finally, the increase in operating revenue was further attributable to increased pharmacy product revenue in our IngenioRx segment resulting from higher script volume, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022 and the acquisition of Integra in the second quarter of 2022.

Net income for the three months ended September 30, 2022 was $1,613, an increase of $111, or 7.4%, from the three months ended September 30, 2021.

The increase in net income was primarily due to operating gain increases in our Commercial & Specialty Business, Other and IngenioRx segments, partially offset by increased intangible amortization in 2022 related to recent acquisitions and the rebranding of our products, as we expect to retire certain trade names in the future, and a decline in our Government Business segment operating results.

Net income for the nine months ended September 30, 2022 was $5,058, an increase of $88, or 1.8%, from the nine months ended September 30, 2021.

The increase in net income was primarily due to operating gain increases in our Government Business, Other and IngenioRx segments, partially offset by losses on financial instruments in 2022 as compared to gains in 2021 and increased intangible amortization in 2022 related to recent acquisitions and the rebranding of our products, as we expect to retire certain trade names in the future.

Our Commercial & Specialty Business segment had a slight decline year over year.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $6.68 for the three months ended September 30, 2022, which represented a 9.0% increase from EPS of $6.13 for the three months ended September 30, 2021.

Our diluted shares for the three months ended September 30, 2022 were 242.2, a decrease of 3.8, or 1.5%, compared to the three months ended September 30, 2021.

The increase in EPS for the three months ended September 30, 2022 resulted primarily from increased shareholders’ income, as well as from the impact of fewer diluted shares outstanding.

Our fully-diluted shareholders’ EPS was $20.86 for the nine months ended September 30, 2022, which represented a 3.8% increase from fully-diluted EPS of $20.09 for the nine months ended September 30, 2021.

Our diluted shares for the nine months ended September 30, 2022 were 243.3, a decrease of 3.9, or 1.6%, compared to the nine months ended September 30, 2021.

The increase in EPS for the nine months ended September 30, 2022 resulted primarily from increased shareholders’ income, as well as from the impact of fewer diluted shares outstanding.

Operating cash flow for the nine months ended September 30, 2022 and 2021 was $9,917 and $6,692, respectively.

The increase was primarily due to the timing of CMS payments received in the current year, partially offset by the Subscriber Settlement Agreement payment made in September 2022.

The following table presents our medical membership by reportable segment and customer type as of September 30, 2022 and 2021.

Also included below is other membership by product.

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Medical Membership

Medical membership increased in both our Government Business and Commercial & Specialty Business segments primarily due to organic growth.

The Government Business segment organic growth was primarily driven by the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic.

Our Commercial & Specialty Business segment experienced organic growth in both our Group fee-based and Group risk-based membership as sales exceeded lapses.

Medical membership increased in both our Commercial & Specialty Business and Government Business segments primarily due to organic growth.

Our Commercial & Specialty Business segment experienced organic growth in our Group fee-based and risk-based membership as sales exceeded lapses.

BlueCard ® membership increased due to favorable membership activity at other BCBSA plans whose members reside in or travel to our licensed areas.

Individual membership increased due to our Public Exchange expansion in 2022.

Our Government Business segment organic growth was primarily driven by the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic.

In addition, Medicaid membership was positively impacted by the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022 and the acquisition of Integra in the second quarter of 2022.

Medicare Advantage organic growth due to sales exceeding lapses also contributed to the overall Government Business segment growth.

Other Membership

Our other membership can be impacted by changes in our medical membership, as our medical members often purchase our other products that are ancillary to our health business.

Life and disability membership increased primarily due to new

sales of disability products, partially offset by lapses and negative in-group change of life membership.

Life and disability membership increased primarily due to new sales of disability products, partially offset by lapses and negative in-group change of life membership.

Dental membership increased primarily due to sales exceeding lapses in our Group risk-based accounts and penetration increases in our Federal Employees Health Benefits (“FEHB”) program, partially offset by the loss of a significant Group fee-based account.

Dental administration membership increased primarily due to increased sales to other BCBS plans associated with the FEHB program.

Vision membership increased primarily due to the launch of a new entry level vision product in our Group markets, as well as the growth in our Medicare Advantage business.

Vision membership increased primarily due to the launch of a new entry level vision product in our Group markets.

Medicare Part D Standalone membership declined as we discontinued certain legacy products.

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three and six months ended June 30, 2022 and 2021 are as follows:

Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2022 and 2021 are as follows:

Three Months Ended

June 30 Six Months Ended

June 30 Change

September 30 Nine Months Ended

September 30 Change

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2022 vs.

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2 Benefit expense ratio represents benefit expense as a percentage of premium revenue.

Premiums for the three months ended June 30, 2022 and 2021 were $33,076 and $28,533, respectively.

Premiums for the six months ended June 30, 2022 and 2021 were $65,861 and $56,209, respectively.

Premiums for the three months ended September 30, 2022 and 2021 were $33,722 and $30,395, respectively.

Premiums for the nine months ended September 30, 2022 and 2021 were $99,583 and $86,604, respectively.

3 bp = basis point;

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4 Selling, general and administrative expense ratio represents selling, general and administrative expense as a percentage of total operating revenue.

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Total operating revenue increased primarily as a result of higher premium revenue in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM in the second quarter of 2021, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022, as well as from premium rate increases to cover medical cost trends and membership growth in our Medicare Advantage and Commercial & Specialty Business risk-based businesses.

We had net losses on financial instruments in the second quarter of 2022 as compared to net gains in the second quarter of 2021, as a result of increased losses on fixed maturity securities, mark-to-market losses on equity securities still held and reduced gains on sales of equity securities.

Benefit expense increased primarily due to healthcare costs associated with organic membership growth in our Medicaid and Medicare businesses, the acquisition of MMM in the second quarter of 2021 and the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract.

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Total operating revenue increased primarily as a result of higher premium revenue in our Medicaid business due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of Integra in the second quarter of 2022 and the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022.

Membership growth in our Medicare Advantage and Commercial & Specialty Business risk-based businesses, as well as premium rate increases to cover medical cost trends also generated higher premium revenue.

Finally, the increase in operating revenue was further attributable to increased pharmacy product revenue in our IngenioRx segment, resulting from growth in membership and higher script volume.

Net investment income increased primarily due to higher income from fixed maturity securities, partially offset by reduced investment income from alternative investments.

Benefit expense increased primarily due to healthcare costs associated with organic membership growth in our Medicaid and Medicare businesses, the acquisition of Integra in the second quarter of 2022 and the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract.

Membership growth in our Commercial risk-based business also contributed to the increased benefit expense.

The increase in benefit expense was also attributable to the acquisition of Integra in the second quarter of 2022 and the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021.

Our benefit expense ratio increased primarily due to the impact of continued membership increases in our Government Business segment, which has a higher benefit expense ratio than our Commercial & Specialty Business segment.

Our benefit expense ratio decreased and was driven by the realignment of certain quality improvement costs from benefit expense to administrative expense.

Excluding the realignment, our benefit expense ratio would have been approximately flat year-over-year.

Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx for our unaffiliated PBM customers.

Cost of products sold increased as the corresponding pharmacy product revenues increased.

Selling, general and administrative expense increased primarily due to increased costs to support membership growth and related to our acquisitions.

Our selling, general and administrative expense ratio decreased primarily due to the operating revenue growth in 2022, partially offset by increased costs to support membership growth.

Selling, general and administrative expense increased primarily due to increased costs to support growth and the prior period realignment of certain quality improvement costs from benefit expense to administrative expense described above.

Our selling, general and administrative expense ratio increased primarily due to increased costs to support membership growth and the prior period realignment of certain quality improvement costs from benefit expense to administrative expense, partially offset by the impact of operating revenue growth in 2022.

Other expense increased primarily due to additional amortization of intangible assets related to recent acquisitions and the rebranding of our products.

The amortization period of certain intangible assets is being shortened to align with anticipated dates the new branding will take place.

The amortization period of certain intangible assets was shortened to align with anticipated dates the new branding will take place.

In addition, certain indefinite-lived intangible assets have been reclassified as definite-lived, and therefore, are now being amortized.

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Our shareholders’ net income as a percentage of total revenues decreased in 2022 as compared to 2021 as a result of all factors discussed above.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Total operating revenue increased primarily as a result of higher premium revenue in our Medicaid business due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM in the second quarter of 2021 and the retroactive reinstatement of a Medicaid directed payment program.

Net investment income increased primarily due to higher income from fixed maturity securities, partially offset by reduced investment income from alternative investments.

We had net losses on financial instruments in the first six months of 2022 as compared to net gains in the first six months of 2021, as a result of increased losses on fixed maturity securities, mark-to-market losses on equity securities still held and reduced gains on sales of equity securities.

We had net losses on financial instruments in the first nine months of 2022, as compared to net gains in the first nine months of 2021, as a result of increased net losses on fixed maturity securities, reduced gains on sales of equity securities and increased mark-to-market losses on equity securities still held, partially offset by increased net gains in other investments.

Benefit expense increased primarily due to healthcare costs associated with organic membership growth in our Medicaid and Medicare businesses, the acquisition of MMM in the second quarter of 2021 and the retroactive reinstatement of a Medicaid directed payment program.

Membership growth and higher healthcare costs in our Commercial risk-based business also contributed to the higher benefit expense.

The increase in benefit expense was also attributable to the acquisition of Ohio Medicaid members in the first quarter of 2022 through the purchase of a Medicaid contract, the launch of our Healthy Blue managed care alliance in North Carolina in the first quarter of 2021 and the acquisition of Integra in the second quarter of 2022.

Higher healthcare costs in our Commercial risk-based businesses also contributed to the benefit expense ratio increase.

The increase in benefit expense was also attributable to the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022 and the acquisition of Integra in the second quarter of 2022.

Our benefit expense ratio increased slightly primarily due to the impact of continued membership increases in our Government Business segment, which has a higher benefit expense ratio than our Commercial & Specialty Business segment.

Cost of products sold reflects the cost of pharmaceuticals dispensed by IngenioRx for our unaffiliated PBM customers.

Cost of products sold increased as the corresponding pharmacy product revenues increased.

Selling, general and administrative expense increased primarily due to increased costs to support membership growth and related to our acquisitions.

Selling, general and administrative expense increased primarily due to increased costs to support membership growth and from our acquisitions.

Our selling, general and administrative expense ratio decreased primarily due to operating revenue growth in 2022, partially offset by increased costs to support membership growth.

Other expense increased primarily due to additional amortization of intangible assets related to recent acquisitions and the rebranding of our products.

The amortization period of certain intangible assets is being shortened to align with anticipated dates the new branding will take place.

The amortization period of certain intangible assets was shortened to align with anticipated dates the new branding will take place.

In addition, certain indefinite-lived intangible assets have been reclassified as definite-lived, and therefore, are now being amortized.

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As previously discussed, we will be organizing our brand portfolio into three core go-to-market brands over the next several years.

There are currently no changes to our segments associated with this branding strategy.

The results of our operations continue to be described through four reportable segments:

Commercial & Specialty Business, Government Business, IngenioRx and Other.

Commercial & Specialty Business,

Government Business, IngenioRx and Other.

For additional information, see Note 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The following table presents a summary of the reportable segment financial information for the three and six months ended June 30, 2022 and 2021:

The following table presents a summary of the reportable segment financial information for the three and nine months ended September 30, 2022 and 2021:

Three Months Ended

June 30 Six Months Ended

June 30 Change

September 30 Nine Months Ended

September 30 Change

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2021 2022 vs.

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IngenioRx 7.1 % 6.8 % 6.6 % 6.7 % 30 bp (10) bp

Three Months Ended June 30, 2022 Compared to the Three Months Ended June 30, 2021

Three Months Ended September 30, 2022 Compared to the Three Months Ended September 30, 2021

Commercial & Specialty Business

Operating revenue increased primarily due to higher premiums in our Commercial risk-based business due to membership growth, premium rate increases in our Commercial risk-based business designed to cover medical cost trends and increased administrative fees in our Commercial fee-based businesses.

Operating gain increased primarily due to the positive contribution from increased risk-based and fee-based membership, partially offset by the net unfavorable effect of COVID-19.

Operating revenue increased primarily due to premium rate increases in our Commercial risk-based business designed to cover medical cost trends, higher premiums in our Commercial risk-based business due to membership growth and increased administrative fees in our Commercial fee-based business due to increased membership.

Operating gain increased primarily due to improved medical underwriting performance in our Commercial risk-based business, partially offset by increased costs to support membership growth.

Government Business

Operating revenue increased primarily as a result of higher premium revenue associated with organic Medicaid membership growth resulting from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM at the end of the second quarter of 2021 and the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage business also increased premium revenue, as did the acquisition of Integra during the second quarter of 2022 and the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021.

The increase in operating gain was primarily driven by premium rates in Medicare that better reflect the acuity of our members and organic membership growth in our Medicaid membership resulting from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic.

Operating revenue increased primarily due to higher prescription volume driven by growth in integrated medical and pharmacy members in 2022 and to a lesser extent, a favorable out of period adjustment related to the first quarter of 2022.

The increase in operating gain was primarily driven by a favorable out of period adjustment related to the first quarter of 2022, as well as the impact of higher prescription volume associated with growth in integrated medical and pharmacy members in 2022.

Operating revenue increased primarily due to higher revenue for expanded services performed by Carelon, formerly known as our Diversified Business Group, for our Commercial & Specialty Business segment in 2022.

In addition, results in 2022 include revenue from myNEXUS, which was acquired in the second quarter of 2021.

Operating revenue increased primarily as a result of higher premium revenue in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of Integra during the second quarter of 2022 and the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage business also increased premium revenue.

The decrease in operating gain was primarily driven by increased administrative costs to support growth in our Government Business, partially offset by increased gross profit in the period.

Operating revenue increased primarily due to higher prescription volume, driven by growth in integrated medical and pharmacy members in 2022.

Operating revenue also increased due to a favorable out of period adjustment to fee-based revenue in the third quarter of 2022.

The increase in operating gain was primarily driven by a favorable out of period adjustment to fee-based revenue in the third quarter of 2022 as well as the impact of higher prescription volume associated with growth in integrated medical and pharmacy members in 2022.

Operating revenue increased primarily due to higher revenue for expanded services performed by Carelon for our Commercial & Specialty Business segment in 2022.

These increases were partially offset by the reduction of external revenue due to the loss of a behavioral health contract.

Operating gain increased primarily due to improved performance in Carelon.

Six Months Ended June 30, 2022 Compared to the Six Months Ended June 30, 2021

Nine Months Ended September 30, 2022 Compared to the Nine Months Ended September 30, 2021

Commercial & Specialty Business

Operating revenue increased primarily due to higher premiums in our Commercial risk-based business due to membership growth, premium rate increases in our Commercial risk-based business to cover medical cost trends and increased administrative fees in our Commercial fee-based businesses.

Operating gain decreased primarily due to the net unfavorable effect of COVID-19 and increased spend to support growth.

These impacts were partially offset by positive contribution from the growth in our risk-based and fee-based membership.

Operating revenue increased primarily due to higher premiums in our Commercial risk-based business due to membership growth, premium rate increases in our Commercial risk-based business to cover medical cost trends and increased administrative fees in our Commercial fee-based business.

Operating gain decreased primarily due to the net unfavorable effect of COVID-19 in the first nine months of 2022 and increased spend to support growth.

These impacts were partially offset by improved medical underwriting performance in our Commercial risk-based membership.

Government Business

Operating revenue increased primarily as a result of higher premium revenue associated with organic Medicaid membership growth resulting from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic, the acquisition of MMM at the end of the second quarter of 2021 and the retroactive reinstatement of a Medicaid directed payment program.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage business also increased premium revenue, as did the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022, the launch of our Healthy Blue managed care alliance in North Carolina in the third quarter of 2021 and the acquisition of Integra during the second quarter of 2022.

The increase in operating gain was primarily driven by premium rates in Medicare that better reflect the acuity of our members, organic membership growth in our Medicaid membership resulting from the continued temporary suspension of eligibility recertification during the COVID-19 pandemic and the acquisition of MMM in the second quarter of 2022.

These increases were partially offset by additional spend to support growth.

Membership growth and premium rate increases to cover medical cost trends in our Medicare Advantage business also contributed to premium revenue, as did the acquisition of MMM at the end of the second quarter of 2021, the acquisition of Ohio Medicaid members through the purchase of a Medicaid contract in the first quarter of 2022 and the acquisition of Integra during the second quarter of 2022.

The increase in operating gain was primarily driven by premium rate increases to cover medical cost trends in our Medicare business, the acquisition of MMM in the second quarter of 2021 and organic membership growth in our Medicaid membership from the continued suspension of eligibility recertifications during the COVID-19 pandemic.

These increases were partially offset by additional administrative spend to support the growth in our Government Business.

Operating revenue increased as a result of higher prescription volume, driven by growth in integrated medical and pharmacy members in 2022.

The increase in operating gain was primarily a result of higher prescription volume, driven by growth in integrated medical and pharmacy members in 2022, partially offset by the non-recurrence of a favorable out of period adjustment recorded in the first quarter of 2021 related to 2020.

The increase in operating gain was primarily a result of higher prescription volume, driven by growth in integrated medical and pharmacy members in 2022 and a favorable out of period adjustment to fee-based revenue in the third quarter of 2022.

These increases were partially offset by the non-recurrence of a favorable out of period adjustment recorded in the first quarter of 2021 related to 2020.

Operating revenue increased primarily due to higher revenue for expanded services performed by Carelon for our Commercial & Specialty Business segment in 2022.

In addition, results in 2022 included revenue from myNEXUS, which was acquired in the second quarter of 2021.

In addition, results in 2022 included revenue from myNEXUS for the full nine months of 2022, which was acquired in the second quarter of 2021.

These increases were partially offset by the reduction of external revenue due to the loss of a behavioral health contract.

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We consider our most important accounting policies that require significant estimates and management judgment to be those policies with respect to liabilities for medical claims payable, income taxes, goodwill and other intangible assets, investments and retirement benefits.

Our accounting policies related to these items are discussed in our 2021 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2021, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of June 30, 2022, our critical accounting policies and estimates have not changed from those described in our 2021 Annual Report on Form 10-K.

Our accounting policies related to these items are discussed in our 2021 Annual Report on Form 10-K in Note 2, “Basis of Presentation and Significant Accounting Policies,” to our audited consolidated financial statements as of and for the year ended December 31, 2021, as well as in the “Critical Accounting Policies and Estimates” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” As of September 30, 2022, our critical accounting policies and estimates have not changed from those described in our 2021 Annual Report on Form 10-K.

Medical Claims Payable

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Our accounting policies related to medical claims payable are discussed in the references cited above.

As of June 30, 2022, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2021 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the six months ended June 30, 2022 and 2021, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the six months ended June 30, 2022 and 2021, which are the trend and completion factors.

As of September 30, 2022, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2021 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the nine months ended September 30, 2022 and 2021, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

The following table provides a summary of the two key assumptions having the most significant impact on our incurred but not paid liability estimates for the nine months ended September 30, 2022 and 2021, which are the trend and completion factors.

These two key assumptions can be influenced by utilization levels, unit costs, mix of business, benefit plan designs, provider reimbursement levels, processing system conversions and changes, claim inventory levels, claim processing patterns, claim submission patterns and operational changes resulting from business combinations.

The impact from COVID-19 on healthcare utilization and medical claims submission patterns continues to provide increased estimation uncertainty on our incurred but not reported liability at June 30, 2022.

Favorable Developments by

Changes in Key Assumptions

Six Months Ended

Nine Months Ended

Assumed trend factors $ 850 $ 1,443

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Total $ 901 $ 1,822

The favorable development recognized in the six months ended June 30, 2022 and 2021 resulted primarily from trend factors in late 2021 and late 2020, respectively, developing more favorably than originally expected.

Favorable development in the completion factors resulting from the latter part of 2020 developing faster than expected also contributed to the favorable development for the six months ended June 30, 2021.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 76.9% and 77.6% for the six months ended June 30, 2022 and 2021, respectively.

This ratio serves as an indicator of claims processing

speed whereby claims payments slowed down slightly during the six months ended June 30, 2022 as compared to the six months ended June 30, 2021.

This was driven by the strengthening of incurred but not reported claims, within our medical claims payable, to account for an increase in overall payment cycle time.

The favorable development recognized in the nine months ended September 30, 2022 and 2021 resulted primarily from trend factors in late 2021 and late 2020, respectively, developing more favorably than originally expected.

Favorable development in the completion factors resulting from the latter part of 2020 developing faster than expected also contributed to the favorable development for the nine months ended September 30, 2021.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 83.7% and 83.8% for the nine months ended September 30, 2022 and 2021, respectively.

This ratio serves as an indicator of claims

processing speed whereby speed for claims payments was similar during the nine months ended September 30, 2022 as compared to the nine months ended September 30, 2021.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net medical claims payable less prior year redundancies in the current period in order to demonstrate the development of prior year reserves.

For the six months ended June 30, 2022, this metric was 7.9%, largely driven by favorable trend factor development at the end of 2021.

For the six months ended June 30, 2021, this metric was 19.0%, largely driven by favorable trend factor development at the end of 2020 as well as favorable completion factor development from 2020.

For the nine months ended September 30, 2022, this metric was 7.3%, largely driven by favorable trend factor development at the end of 2021.

For the nine months ended September 30, 2021, this metric was 19.7%, largely driven by favorable trend factor development at the end of 2020 as well as favorable completion factor development from 2020.

We calculate the percentage of prior year redundancies in the current period as a percent of prior year net incurred medical claims to indicate the percentage of redundancy included in the preceding year calculation of current year net incurred medical claims.

We believe this calculation supports the reasonableness of our prior year estimate of incurred medical claims and the consistency in our methodology.

For the six months ended June 30, 2022, this metric was 1.0%, which was calculated using the redundancy of $972.

For the six months ended June 30, 2021, the comparable metric was 2.1%, which was calculated using the redundancy of $1,772.

For the nine months ended September 30, 2022, this metric was 0.9%, which was calculated using the redundancy of $901.

For the nine months ended September 30, 2021, the comparable metric was 2.2%, which was calculated using the redundancy of $1,822.

We believe these metrics demonstrate an appropriate level of reserve conservatism.

New Accounting Pronouncements

For information regarding new accounting pronouncements that were adopted and new accounting pronouncements that were issued during the six months ended June 30, 2022, see the “ Recently Adopted Accounting Guidance ” and “ Recent Accounting Guidance Not Yet Adopted ” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

For information regarding new accounting pronouncements that were adopted and new accounting pronouncements that were issued during the nine months ended September 30, 2022, see the “ Recently Adopted Accounting Guidance ” and “ Recent Accounting Guidance Not Yet Adopted ” sections of Note 2, “Basis of Presentation and Significant Accounting Policies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Liquidity and Capital Resources

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For a more detailed overview of our liquidity and capital resources management, see the “ Introduction ” section included in the “Liquidity and Capital Resources” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2021 Annual Report on Form 10-K.

For additional information regarding our sources and uses of capital during the three and six months ended June 30, 2022, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the six months ended June 30, 2022 and 2021 is as follows:

Six Months Ended

June 30 2022 vs.

For additional information regarding our sources and uses of capital during the three and nine months ended September 30, 2022, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

A summary of our major sources and uses of cash and cash equivalents for the nine months ended September 30, 2022 and 2021 is as follows:

Nine Months Ended

September 30 2022 vs.

2022 2021 Change

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Net increase (decrease) in cash and cash equivalents $ 3,992 $ (251) $ 4,243

The increase in net cash provided by operating activities was primarily due to higher net income in 2022, excluding the non-cash impact of losses/gains on investments, as we recognized realized losses during the first six months of 2022 compared to realized gains in the first six months of 2021.

The increase was further attributable to the timing of working capital changes.

Other significant changes in sources or uses of cash year-over-year included lower amounts for purchases of subsidiaries, net of cash acquired and reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions and increased other sources of cash, net, partially offset by reduced proceeds from commercial paper and short- and long-term debt, net of repayments.

The increase in net cash provided by operating activities was primarily due to the timing of CMS payments received in the current year, partially offset by the Subscriber Settlement Agreement payment made in September 2022.

Other significant changes in sources or uses of cash year-over-year included lower amounts for purchases of subsidiaries, net of cash acquired and reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions, partially offset by reduced proceeds from commercial paper and short- and long-term debt, net of repayments.

Financial Condition

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $34,396 at June 30, 2022.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $36,523 at September 30, 2022.

Since December 31, 2021, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $2,863, primarily due to cash generated from operations.

This increase was partially offset by cash used for common stock repurchases, dividends paid to shareholders, acquisitions and purchases of property and equipment.

This increase was partially offset by a decline in market value of our fixed maturity securities as well as cash used for common stock repurchases, dividends paid to shareholders, the purchase of property and equipment and acquisitions.

Many of our subsidiaries are subject to various government regulations that restrict the timing and amount of dividends and other distributions that may be paid to their respective parent companies.

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In addition, we have agreed to certain undertakings to regulatory authorities, including the requirement to maintain certain capital levels in certain of our subsidiaries.

At June 30, 2022, we held $948 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

At September 30, 2022, we held $1,045 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

Periodically, we access capital markets and issue debt (“Notes”) for long-term borrowing purposes, for example, to refinance debt, to finance acquisitions or for share repurchases.

Certain of these Notes may have a call feature that allows us to redeem the Notes at any time at our option and/or a put feature that allows a Note holder to redeem the Notes upon the occurrence of both a change in control event and a downgrade of the Notes below an investment grade rating.

Certain of these Notes may have a call feature that allows us to redeem the Notes at any time at our option and/or a put feature that allows a Note holder to redeem the Notes upon the

occurrence of both a change in control event and a downgrade of the Notes below an investment grade rating.

For more information on our debt, including redemptions and issuances, see Note 10, “Debt,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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Our debt-to-capital ratio may not be comparable to similarly titled measures reported by other companies.

Our consolidated debt-to-capital ratio was 39.7% and 38.9% as of June 30, 2022 and December 31, 2021, respectively.

Our consolidated debt-to-capital ratio was 39.7% and 38.9% as of September 30, 2022 and December 31, 2021, respectively.

Our senior debt is rated “A” by S&P Global Ratings, “BBB” by Fitch Ratings, Inc., “Baa2” by Moody’s Investor Service, Inc.

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In April 2022, we amended and restated the credit agreement for the 5-Year Facility to, among other things, extend the maturity date of the 5-Year Facility from June 2024 to April 2027 and increase the amount of credit available under the 5-Year Facility from $2,500 to $4,000.

Also in April 2022, concurrently with the amendment and restatement of the 5-Year Facility, we terminated our 364-day senior revolving credit facility that provided for credit in the amount of $1,000, which was scheduled to mature in June 2022 (the “2021 364-Day Facility” and together with the 5-Year Facility, the “Credit Facilities”).

Our ability to borrow under the 5-Year Facility is subject to compliance with certain covenants, including covenants requiring us to maintain a defined debt-to-capital ratio of not more than 60%, subject to increase in certain circumstances set forth in the credit agreement for the 5-Year Facility.

We do not believe the restrictions contained in our 5-Year Credit Facility covenants materially affect our financial or operating flexibility.

As of June 30, 2022, we were in compliance with all of the debt covenants under the Credit Facilities.

As of September 30, 2022, we were in compliance with all of the debt covenants under the 5-Year Facility.

Through certain subsidiaries, we have entered into multiple 364-day lines of credit (the “Subsidiary Credit Facilities”) with separate lenders for general corporate purposes.

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Our ability to borrow under the Subsidiary Credit Facilities is subject to compliance with certain covenants.

At June 30, 2022 and December 31, 2021, we had no outstanding borrowings under the Subsidiary Credit Facilities.

At September 30, 2022 and December 31, 2021, we had no outstanding borrowings under the Subsidiary Credit Facilities.

We have an authorized commercial paper program of up to $4,000, the proceeds of which may be used for general corporate purposes.

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Should commercial paper issuance become unavailable, we have the ability to use a combination of cash on hand and/or our 5-Year Facility, which provides for credit in the amount of $4,000, to redeem any outstanding commercial paper upon maturity.

At September 30, 2022, we had $675 outstanding under our commercial paper program.

We are a member, through certain subsidiaries, of the Federal Home Loan Bank of Indianapolis, the Federal Home Loan Bank of Cincinnati, the Federal Home Loan Bank of Atlanta and the Federal Home Loan Bank of New York, collectively (the “FHLBs”).

As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral

requirements.

We had $175 and $275 of outstanding short-term borrowings from the FHLBs at June 30, 2022 and December 31, 2021, respectively.

While there is no assurance in the current economic environment, we believe the lenders participating in our credit facilities, if market conditions allow, would be willing to provide financing in accordance with their legal obligations.

At June 30, 2022, we had $550 outstanding under our commercial paper program.

As a member, we have the ability to obtain short-term cash advances, subject to certain minimum collateral requirements.

We had $265 and $275 of outstanding short-term borrowings from the FHLBs at September 30, 2022 and December 31, 2021, respectively.

While there is no assurance in the current economic environment, we believe the lenders participating in our 5-Year Facility and Subsidiary Credit Facilities, if market conditions allow, would be willing to provide financing in accordance with their legal obligations.

We regularly review the appropriate use of capital, including acquisitions, common stock and debt security repurchases and dividends to shareholders.

The declaration and payment of any dividends or repurchases of our common stock or debt is at the discretion of our Board of Directors and depends upon our financial condition, results of operations, future liquidity needs, regulatory and capital requirements and other factors deemed relevant by our Board of Directors.

For additional information regarding our sources and uses of capital at June 30, 2022, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

For additional information regarding our sources and uses of capital at September 30, 2022, see Note 5, “Investments,” Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and Note 12, “Capital Stock – Use of Capital – Dividends and Stock Repurchase Program, ” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

In addition to regulations regarding the timing and amount of dividends, our regulated subsidiaries’ states of domicile have statutory risk-based capital (“RBC”) requirements for health and other insurance companies and health maintenance organizations largely based on the National Association of Insurance Commissioners (“NAIC”) Risk-Based Capital (RBC) for Health Organizations Model Act (the “RBC Model Act”).

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis