What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-04-19 compared with 2022-10-19 · 227 added, 299 removed, 213 unchanged (71% of the section changed)

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(In Millions, Except Per Share Data or as Otherwise Stated Herein)

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.

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

We began operating as Elevance Health, Inc.

and trading under our new ticker symbol “ELV” on June 28, 2022.

References to the terms “we,” “our,” “us,” or “Elevance Health” used throughout this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) refer to Elevance Health, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations (“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, 2022 and the MD&A included in our 2022 Annual Report on Form 10-K.

References to the terms “we,” “our,” “us,” or “Elevance Health” used throughout this MD&A refer to Elevance Health, Inc., an Indiana corporation, and unless the context otherwise requires, its direct and indirect subsidiaries.

References to the “states” include the District of Columbia and Puerto Rico, unless the context otherwise requires.

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 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.

Results of operations, cost of care trends, investment yields and other measures for the three months ended March 31, 2023 are not necessarily indicative of the results and trends that may be expected for the full year ending December 31, 2023, 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 September 30, 2022.

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

We serve our members as the Blue Cross licensee for California and as the Blue Cross and Blue Shield (“BCBS”) licensee for Colorado, Connecticut, Georgia, Indiana, Kentucky, Maine, Missouri (excluding 30 counties in the Kansas City area), Nevada, New Hampshire, New York (in the New York City metropolitan area and upstate New York), Ohio, Virginia (excluding the Northern Virginia suburbs of Washington, D.C.) and Wisconsin.

In a majority of these service areas, we do business as Anthem Blue Cross, Anthem Blue Cross and Blue Shield, and Empire Blue Cross Blue Shield or Empire Blue Cross.

In addition, we conduct business through arrangements with other BCBS licensees as well as other strategic partners.

Through our subsidiaries, we also serve customers in numerous states as AIM Specialty Health, Amerigroup, Aspire Health, Beacon, CareMore, Freedom Health, HealthLink, HealthSun, Integra Managed Care, MMM, Optimum HealthCare, Simply Healthcare, and/or UniCare.

We offer pharmacy benefits management (“PBM”) services through our IngenioRx, Inc.

(“IngenioRx”) subsidiary.

We are one of the largest health insurers in the United States in terms of medical membership, serving greater than 48 million medical members through our affiliated health plans as of March 31, 2023.

We are an independent licensee of the Blue Cross and Blue Shield Association (“BCBSA”), an association of independent health benefit plans, and serve members as the Blue Cross or Blue Cross and Blue Shield licensee in 14 states.

We are licensed to conduct insurance operations in all 50 states, the District of Columbia and Puerto Rico through our subsidiaries.

As part of our name change to Elevance Health, on June 15, 2022 we announced that over the next several years we will organize our brand portfolio into the following core go-to-market brands:

Through various subsidiaries, we also offer pharmacy services and other healthcare-related services.

As we announced in 2022, over the next several years we are organizing our brand portfolio into the following core go-to-market brands:

• Anthem Blue Cross/Anthem Blue Cross and Blue Shield — represents our existing Anthem-branded and affiliated Blue Cross and/or Blue Shield licensed plans;

• Wellpoint — we intend to unite select non-BCBSA licensed Medicare, Medicaid and commercial plans under the Wellpoint name;

• Carelon — this brand will bring together our healthcare brands and capabilities, including our Diversified Business Group and IngenioRx business under a single brand name.

We now refer to our Diversified Business Group as Carelon.

In January 2023, IngenioRx will become CarelonRx.

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

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.

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-

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 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.

For additional discussion regarding our risks related to the COVID-19 pandemic and our other risk factors, see Part I, Item 1A, “Risk Factors” included in our 2021 Annual Report on Form 10-K.

• Carelon — this brand brings together our healthcare-related brands and capabilities, including our CarelonRx and Carelon Services businesses, under a single brand name.

Our branding strategy reflects the evolution of our business from a traditional health insurance company to a lifetime, trusted health partner.

Given this evolution, we reviewed and modified how we manage our business, monitor our performance and allocate our resources, and made changes to our reportable segments beginning in the first quarter of 2023.

The results of our operations are now reported in the following four reportable segments:

Health Benefits (aggregates our previously reported Commercial & Specialty Business and Government Business segments), CarelonRx, Carelon Services (previously included in our Other segment) and Corporate & Other (our businesses that do not individually meet the quantitative thresholds for an operating segment, as well as corporate expenses not allocated to our other reportable segments).

In 2022, we managed and presented our operations through the following four reportable segments:

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

Previously reported information in this Form 10-Q has been reclassified to conform to the new presentation.

For additional information, see Note 14, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

Business Trends

We made the decision to modestly expand our participation in the Individual on-exchange products through state- or federally-facilitated marketplaces (the “Public Exchange”) for 2022 after also expanding in 2021.

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 sustainable, given consideration to factors including, but not limited to, expected financial performance, regulatory environment and underlying market characteristics.

In 2022, we made the decision to modestly expand our participation in the Individual state- or federally-facilitated marketplaces (the “Public Exchange”) for 2023, after also modestly expanding in 2022.

As a result, for 2023, we are offering Individual Public Exchange products in 138 of the 143 rating regions in which we operate, in comparison to 122 of 143 rating regions in 2022.

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.

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.

In addition, the continuing growth in our government-sponsored business exposes us to increased regulatory oversight.

Our IngenioRx subsidiary markets and offers PBM services to our affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own.

Our comprehensive PBM services portfolio includes features such as formulary management, pharmacy networks, a prescription drug database, member services and mail order capabilities.

IngenioRx delegates certain PBM administrative functions, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement.

With IngenioRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy.

Our CarelonRx subsidiary markets and offers pharmacy services to our affiliated health plan customers throughout the country, as well as to customers outside of the health plans we own.

Our comprehensive pharmacy services portfolio includes features such as formulary management, pharmacy networks, specialty and home delivery pharmacy services and member services.

CarelonRx delegates certain pharmacy services, such as claims processing and prescription fulfillment, to CaremarkPCS Health, L.L.C., which is a subsidiary of CVS Health Corporation, pursuant to a five-year agreement, which is set to terminate on December 31, 2024.

With CarelonRx, we retain the responsibilities for clinical and formulary strategy and development, member and employer experiences, operations, sales, marketing, account management and retail network strategy.

Pricing Trends:

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 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.

Product pricing in our Commercial & Specialty Business segment, including our Individual and small group lines of business, remains competitive.

Revenues from the Medicare and Medicaid programs are dependent, in whole or in part, upon annual funding from the federal government and/or applicable state governments.

Product pricing remains competitive.

Medical Cost Trends:

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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, 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.

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

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.

We continue to closely monitor the COVID-19 pandemic and its impacts on our business, financial condition, results of operations and medical cost trends.

Drivers of medical cost trend in the first quarter of 2023 include decreases in COVID-19 healthcare related expenses compared to prior year experience.

The Omicron variant increased COVID-19 healthcare related expenses in the beginning of 2022, then quickly declined during the first quarter of 2022.

COVID-19 claim costs for the first quarter of 2023 were lower than the prior year.

The ongoing cost and volume of covered services related to the COVID-19 pandemic and a future shift of government supplied vaccinations and treatments to privatized, full cost price points may have an adverse effect on our future claim costs.

We continue to closely monitor the COVID-19 pandemic and its impacts on our medical cost trends.

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in our 2022 Annual Report on Form 10-K.

Regulatory Trends and Uncertainties

Federal and state governments have enacted, and may continue to enact, legislation and regulations in response to the COVID-19 pandemic that have had, and we expect will continue to have, a significant impact on health benefits, consumer eligibility for public programs and our cash flows for all lines of business and which have introduced increased uncertainty around our cost structure.

With the declaration of COVID-19 as a public health emergency (“PHE”) in January 2020, the federal and state governments enacted, and may continue to enact, legislation and regulations in response to the COVID-19 pandemic that have had, and we expect will continue to have, a significant impact on health benefits, consumer eligibility for public programs and our cash flows for all of our lines of business and which have introduced increased uncertainty around our cost structure.

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

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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.

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;

The Biden administration renewed the PHE on January 11, 2023 and has indicated that they intend for the PHE to expire on May 11, 2023.

Under the Consolidated Appropriations Act of 2023 (the “2023 Appropriations Act”), Congress decoupled Medicaid eligibility recertification from the PHE.

As a result, states were permitted to begin removing ineligible beneficiaries from their Medicaid programs starting April 1, 2023.

As 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 and Medicare, including through the Public Exchanges, as members exiting Medicaid in our 14 commercial states seek coverage elsewhere.

The Inflation Reduction Act of 2022, 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;

imposing a new corporate alternative minimum tax;

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;

allowing 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;

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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.

and delaying the implementation of the Trump Administration Medicare drug rebate rule until 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 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 into 2023 since the enactment of the Appropriations Act.

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.

Additionally, beginning in 2023, we are now 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 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.

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.

We expect the ACA will continue to significantly impact our business and results of operations, including pricing, minimum medical loss ratios and the geographies in which our products are available, and as a result of future modifications of, and guidance by federal regulatory agencies related to, the ACA and our businesses more broadly.

We expect the ACA will continue to significantly impact our business and results of operations, including pricing, minimum medical loss ratios and the geographies in which our products are available.

We also expect further and ongoing regulatory guidance on a number of issues related to Medicare, including evolving methodology for ratings and quality bonus payments.

CMS also frequently proposes changes to its program that audits data submitted under the risk adjustment programs in ways that could increase financial recoveries from plans.

We will continue to evaluate the impact of the ACA as any further developments occur.

For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business – Regulation”, Part I, Item 1A, “Risk Factors”, and the “Regulatory Trends and Uncertainties” 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.

“Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K.

Other Significant Items

Business and Operational Matters

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

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.

On March 28, 2023, we announced our entrance into an agreement to sell our life and disability businesses to StanCorp Financial Group, Inc.

(“The Standard”), a provider of financial protection products and services for employers and individuals.

Upon closing, we and The Standard will enter into a product distribution partnership.

The divestiture is expected to close by the end of the first quarter of 2024 and is subject to standard closing conditions and customary approvals.

On January 23, 2023, we announced our entrance into an agreement to acquire Louisiana Health Service & Indemnity Company, d/b/a Blue Cross and Blue Shield of Louisiana (“BCBSLA”), an independent licensee of the BCBSA that provides healthcare plans to the Individual, Employer Group, Medicaid and Medicare markets, primarily in the State of Louisiana.

This acquisition aligns with our mission to become a lifetime, trusted health partner as we bring our innovative whole-health solutions to BCBSLA’s members.

The acquisition is expected to close by the end of the fourth quarter of 2023 and is subject to standard closing conditions and customary approvals.

On February 15, 2023, we completed our acquisition of BioPlus Parent, LLC and subsidiaries (“BioPlus”) from CarepathRx Aggregator, LLC.

Prior to the acquisition, BioPlus was one of the largest independent specialty pharmacy organizations in the United States.

BioPlus, which operates as part of CarelonRx, seeks to connect payors and providers of specialty pharmaceuticals to meet the medication therapy needs of patients with complex medical conditions.

This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

On May 5, 2022, we completed our acquisition of Integra Managed Care (“Integra”).

Integra is a managed long-term care plan that serves New York state Medicaid members, enabling adults with long-term care needs and disabilities to live safely and independently in their own homes.

On June 29, 2021, we completed our acquisition of MMM Holdings, LLC (“MMM”) and its Medicare Advantage plan, Medicaid plan and other affiliated companies.

MMM is a Puerto Rico-based integrated healthcare organization and seeks to provide its Medicare Advantage and Medicaid members with a whole health experience through its network of specialized clinics and wholly owned independent physician associations.

This acquisition aligns with our vision to be an innovative, valuable and inclusive healthcare partner by providing care management programs that improve the lives of the people we serve.

On April 28, 2021, we completed our acquisition of myNEXUS, Inc.

myNEXUS is a comprehensive home-based nursing management company for payors and, at the time of acquisition, delivered integrated clinical support services for Medicare Advantage members across twenty states.

This acquisition aligns with our strategy to manage integrated, whole person multi-site care and support by providing national, large-scale expertise to manage nursing services in the home and facilitate transitions of care.

For additional information, see Note 3, “Business Acquisitions,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

In 2020, we introduced enterprise-wide initiatives to optimize our business and as a result, recorded a charge of $653 in selling, general and administrative expenses.

We believe these initiatives largely represent the next step forward in our progression towards becoming a more agile organization, including process automation and a reduction in our office space footprint.

In the fourth quarter of 2021, we identified additional office space reductions and related fixed asset impairments due to the continuing COVID-19 pandemic and recorded a charge of $202 in selling, general and administrative expenses.

For additional information, see Note 4, “Business Optimization Initiatives,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

For additional information, see Note 3, “Business Acquisitions and Divestitures,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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”) 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.

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.

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.

The Subscriber Settlement Agreement applies only to the subscriber class.

The defendants continue to contest the consolidated cases brought by the provider plaintiffs.

In August 2022, the Court issued a final order approving the Subscriber Settlement Agreement (the “Final Approval Order”).

In compliance with the Subscriber Settlement Agreement, the Company paid $506 into an escrow account in September 2022, for an aggregate and full settlement payment by the Company of $596, which amount was accrued in 2020.

Four notices of appeal of the Final Approval Order were filed prior to the September 2022 appeal deadline.

Those appeals are proceeding in the United States Court of Appeals for the Eleventh Circuit.

In the event all appellate rights are exhausted in a manner that affirms the Court’s Final Approval Order, the defendants’ payment and non-monetary obligations under the Subscriber Settlement Agreement will become effective and the funds held in escrow will be distributed in accordance with the Subscriber Settlement Agreement.

For additional information regarding the BCBSA Litigation, see Note 10, “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 Form 10-Q.

Selected Operating Performance

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.

The medical membership and other membership data presented are unaudited and in certain instances include estimates of the number of members represented by each contract at the end of the period.

For the twelve months ended March 31, 2023, total medical membership increased by 1.3 million, or 2.9%.

Our membership increase was primarily driven by growth in our Medicaid business, increased sales to our commercial fee-based employers and growth in both our Medicare Advantage and Individual Public Exchange products, partially offset by attrition in our Group risk-based business.

Operating revenue for the three months ended March 31, 2023 was $41,898, an increase of $4,012, or 10.6%, from the three months ended March 31, 2022.

Operating revenue increased primarily as a result of higher premiums due to membership growth in our Medicaid business, membership growth in our Medicare Advantage business, premium rate increases in our Health Benefits business to more accurately reflect current cost of care and growth in CarelonRx pharmacy product revenue driven by growth in integrated medical and standalone pharmacy customers.

Net income for the three months ended March 31, 2023 was $2,004, an increase of $225, or 12.6%, from the three months ended March 31, 2022.

The increase in net income was primarily due to operating gain increases in our business segments, increases in net investment income and lower net losses on financial instruments.

These increases were partially offset by increased amortization of other intangible assets, higher income taxes and increased interest expense.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $8.30 for the three months ended March 31, 2023, which represented a 13.4% increase from EPS of $7.32 for the three months ended March 31, 2022.

The increase in EPS for the three months ended March 31, 2023 resulted primarily from increased net income.

Operating cash flow for the three months ended March 31, 2023 and 2022 was $6,469 and $2,541, respectively.

The increase was primarily due to early receipt of April 2023’s premium payments from CMS, timing of working capital changes and higher net income for the three months ended March 31, 2023.

Membership and Other Metrics

The following table presents our medical membership by customer type as of March 31, 2023 and 2022.

Also included below are other membership by product and other metrics.

The membership data and other metrics presented are unaudited and in certain instances include estimates of the number of members represented by each contract at the end of the period.

CarelonRx Quarterly Adjusted Scripts metric represents adjusted script volume based on the number of days a prescription covers.

On an adjusted basis, one 90-day script counts the same as three 30-day scripts.

The Carelon Services Consumers Served metric represents the number of consumers receiving one or more healthcare-related services from Carelon Services who are members of our affiliated health plans as well as those who are members of non-affiliated health plans.

For a more detailed description of our medical membership, see the “Membership” section of Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our 2022 Annual Report on Form 10-K.

(In thousands) 2022 2021 Change % Change

Medical Membership

Commercial & Specialty Business:

2023 2022 Change % Change

Medical Membership (in thousands)

Individual 942 818 124 15.2 %

Group Risk-Based 3,988 3,946 42 1.1 %

Employer Group Risk-Based 3,798 4,028 (230) (5.7) %

Commercial Risk-Based 4,740 4,846 (106) (2.2) %

6,607 6,370 237 3.7 %

Group Fee-Based 20,184 19,370 814 4.2 %

Employer Group Fee-Based 20,278 20,148 130 0.6 %

Commercial Fee-Based 26,885 26,518 367 1.4 %

Total Commercial & Specialty Business 31,425 30,251 1,174 3.9 %

Government Business:

Medicare Advantage 2,053 1,921 132 6.9 %

2 unchanged sentences

Medicaid 11,889 10,919 970 8.9 %

Federal Employees Health Benefits 1,625 1,629 (4) (0.2) %

Total Government Business 15,858 14,820 1,038 7.0 %

Federal Employees Health Benefits (“FEHB”) 1,632 1,632 — — %

Total Medical Membership 48,124 46,775 1,349 2.9 %

Other Membership

Other Membership (in thousands)

Life and Disability Members 4,771 4,679 92 2.0 %

3 unchanged sentences

Medicare Part D Standalone Members 264 279 (15) (5.4) %

Other Metrics (in millions)

CarelonRx Quarterly Adjusted Scripts 75.7 73.0 2.7 3.7 %

Carelon Services Consumers Served 104.0 104.0 — — %

Medical Membership

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.

Medical membership increased primarily due to growth in our Medicaid business, increased sales to our commercial fee-based employers and growth in both our Medicare Advantage and Individual Public Exchange products, partially offset by attrition in our Employer Group risk-based business.

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.

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.

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

Life and disability membership increased primarily due to new sales of disability products.

Dental membership increased primarily due to new sales in our Employer Group risk-based accounts and increases in our FEHB program.

Dental administration membership increased primarily due to favorable in-

group change with other BCBSA plans associated with the FEHB program.

Vision membership increased due to sales exceeding lapses in our Employer Group risk-based accounts and increases associated with Medicare Advantage plans.

Other Metrics

CarelonRx quarterly adjusted scripts increased due to growth in our integrated medical and standalone pharmacy customers.

Consolidated Results of Operations

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

September 30 Nine Months Ended

September 30 Change

Our consolidated summarized results of operations and other financial information for the three months ended March 31, 2023 and 2022 are as follows:

Three Months Ended

September 30 Nine Months Ended

2021 2022 vs.

2022 2021 2022 2021 $ % $ %

2023 2022 Change % Change

Total operating revenue $ 41,898 $ 37,886 $ 4,012 10.6 %

Net investment income 387 360 27 7.5 %

Net (losses) gains on financial instruments (57) (61) (439) 107 4 NM (546) NM

Net losses on financial instruments (113) (151) 38 (25.2) %

Total revenues 42,172 38,095 4,077 10.7 %

1 unchanged sentence

Cost of products sold 3,481 2,883 598 20.7 %

Selling, general and administrative expense 4,514 3,946 13,124 11,692 568 14.4 % 1,432 12.2 %

Operating expense

4,800 4,345 455 10.5 %

Other expense 1

4 unchanged sentences

Net income $ 2,004 $ 1,779 $ 225 12.6 %

Net loss (income) attributable to noncontrolling interests 5 7 18 (3) (2) NM 21 NM

Net (income) loss attributable to noncontrolling interests (15) 10 (25) NM

Shareholders’ net income $ 1,989 $ 1,789 $ 200 11.2 %

4 unchanged sentences

85.8 % 86.1 % (30) bp 3

Selling, general and administrative expense ratio 4

Operating expense ratio 4

11.5 % 11.5 % 0 bp 3

3 unchanged sentences

NM Not meaningful.

1 Includes interest expense, amortization of other intangible assets and loss on extinguishment of debt.

1 Includes interest expense and amortization of other intangible assets.

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

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.

Premiums for the three months ended March 31, 2023 and 2022 were $35,868 and $32,785, respectively.

3 bp = basis point;

one hundred basis points = 1%.

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

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.

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 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 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.

For additional information regarding intangible asset amortization, see Note 17, “Goodwill and Other Intangible Assets,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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.

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.

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.

4 Operating expense ratio represents operating expense as a percentage of total operating revenue.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Total operating revenue increased primarily as a result of higher premiums due to membership growth in our Medicaid business, membership growth in our Medicare Advantage business and premium rate adjustments in our Health Benefits business to more accurately reflect current cost of care.

The increase in operating revenue was further attributable to growth in CarelonRx pharmacy product revenue driven by growth in members served and script volume.

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 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 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.

Net losses on financial instruments decreased primarily due to lower mark-to-market losses on equity securities still held at the period end date and reduced net losses on the sale of fixed maturity securities, partially offset by lower net gains on other invested assets.

Benefit expense increased primarily due to healthcare costs associated with membership growth in our Medicaid and Medicare businesses.

Our benefit expense ratio decreased, driven by our commercial risk-based health plans, inclusive of the realignment of certain quality improvement costs from benefit expense to operating expense following regulatory clarification in 2022.

Cost of products sold reflects the cost of pharmaceuticals dispensed by CarelonRx for our unaffiliated 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 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 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.

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.

Operating expense increased primarily due to increased costs to support membership growth.

Our operating expense ratio remained unchanged from the first quarter of 2022.

Our operating expense ratio increased due to the realignment of certain quality improvement expenses discussed above.

This increase was offset by a decline in our operating expense ratio driven by expense leverage associated with strong growth in our operating revenue.

Other expense increased primarily due to additional amortization of other intangible assets as well as increased interest expense.

Our effective income tax rate increased in 2023 primarily due to the tax impact of expected geographic changes in our mix of 2023 earnings and reduced investment tax credits.

Our shareholders’ net income as a percentage of total revenues increased in 2023 as compared to 2022 as a result of all factors discussed above.

Reportable Segments Results of Operations

2 unchanged sentences

We also calculate operating gain and operating margin to further aid investors in understanding and analyzing our core operating results and comparing them among periods.

We define operating revenue as premium income, product revenue and administrative fees and other revenue.

Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and selling, general and administrative expense.

It does not include net investment income, net (losses) gains on financial instruments, interest expense, amortization of other intangible assets, loss on extinguishment of debt or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management.

We define operating revenue as premium income, product revenue and service fees.

Operating gain is calculated as total operating revenue less benefit expense, cost of products sold and operating expense.

It does not include net investment income, net (losses) gains on financial instruments, interest expense, amortization of other intangible assets or income taxes, as these items are managed in our corporate shared service environment and are not the responsibility of operating segment management.

Operating margin is calculated as operating gain divided by operating revenue.

2 unchanged sentences

For a reconciliation of reportable segments’ operating revenue to the amounts of total revenue included in the consolidated statements of income and a reconciliation of income before income tax expense to reportable segments’ operating gain, see Note 14, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

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.

As discussed in Note 1 “Organization”, of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q, we are reorganizing our brand portfolio into three core go-to-market brands over the next several years.

Our branding strategy reflects the evolution of our business from a traditional health insurance company to a lifetime, trusted health partner, and our reportable segment presentation and its composition as of January 1, 2023 reflects changes associated with this evolution and new branding strategy.

The results of our operations are now reported in the following four reportable segments:

that do not individually meet the quantitative thresholds for an operating segment, as well as corporate expenses not allocated to our other reportable segments).

In 2022, we managed and presented our operations through the following four reportable segments:

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

Previously reported information in this Form 10-Q has been reclassified to conform to the new presentation.

For additional information, see Note 14, “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 nine months ended September 30, 2022 and 2021:

Three Months Ended

September 30 Nine Months Ended

September 30 Change

The following table presents a summary of the reportable segment financial information for the three months ended March 31, 2023 and 2022:

Three Months Ended

September 30 Nine Months Ended

2021 2022 vs.

2022 2021 2022 2021 $ % $ %

2023 2022 Change % Change

Operating Revenue

Commercial & Specialty Business $ 10,494 $ 9,863 $ 31,324 $ 28,904 $ 631 6.4 % $ 2,420 8.4 %

Government Business 24,571 21,658 72,164 61,007 2,913 13.4 % 11,157 18.3 %

IngenioRx 7,249 6,549 21,003 18,630 700 10.7 % 2,373 12.7 %

Other 3,365 2,670 9,884 7,557 695 26.0 % 2,327 30.8 %

Eliminations (6,054) (5,192) (18,382) (15,173) (862) NM (3,209) NM

Health Benefits $ 37,280 $ 34,027 $ 3,253 9.6 %

CarelonRx 8,024 6,683 1,341 20.1 %

Carelon Services 3,312 2,948 364 12.3 %

Corporate & Other 251 273 (22) (8.1) %

Eliminations (6,969) (6,045) (924) 15.3 %

Total operating revenue $ 41,898 $ 37,886 $ 4,012 10.6 %

Operating Gain

Commercial & Specialty Business $ 785 $ 620 $ 2,673 $ 2,679 $ 165 26.6 % $ (6) (0.2) %

Government Business 868 967 2,653 2,313 (99) (10.2) % 340 14.7 %

IngenioRx 516 445 1,393 1,257 71 16.0 % 136 10.8 %

Other 101 27 365 52 74 NM 313 NM

Operating Gain (Loss) (Restated)

Health Benefits $ 2,159 $ 1,851 $ 308 16.6 %

CarelonRx 512 398 114 28.6 %

Carelon Services 209 200 9 4.5 %

Corporate & Other (49) (22) (27) NM

Operating Margin

Commercial & Specialty Business 7.5 % 6.3 % 8.5 % 9.3 % 120 bp (80) bp

Government Business 3.5 % 4.5 % 3.7 % 3.8 % (100) bp (10) bp

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

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

Commercial & Specialty Business

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 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.

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 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 in our Medicaid business, including due to membership growth from the continued temporary suspension of Medicaid eligibility recertification during the COVID-19 pandemic 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 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 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 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.

Operating gain increased primarily due to improved performance in Carelon and the acquisition of myNEXUS in 2021.

Health Benefits 5.8 % 5.4 % 40 bp

CarelonRx 6.4 % 6.0 % 40 bp

Carelon Services 6.3 % 6.8 % (50) bp

NM Not meaningful.

bp = basis point;

one hundred basis points = 1%.

Three Months Ended March 31, 2023 Compared to the Three Months Ended March 31, 2022

Health Benefits

Operating revenue increased primarily due to higher premiums from membership growth in our Medicaid business, membership growth in our Medicare Advantage business and premium rate increases to more accurately reflect our post-pandemic cost structure.

Operating gain increased primarily due to premium rate adjustments to more accurately reflect our post-pandemic cost structure and membership growth in our Medicaid business.

Operating revenue and operating gain increased primarily as a result of growth in CarelonRx pharmacy product revenue driven by growth in integrated medical and standalone pharmacy customers.

Carelon Services

Operating revenue increased primarily due to higher revenue for post-acute care services performed for our Medicare business and behavioral health services performed for our Medicaid business.

The increase in operating gain was primarily driven by improved performance in our care delivery risk business and the expansion of our post-acute care services, partially offset by higher medical cost trends in our behavioral health business.

Corporate & Other

Operating revenue decreased primarily due to lower affiliated revenues in our international operations.

Operating loss increased primarily due to an increase in unallocated corporate expenses.

Critical Accounting Policies and Estimates

2 unchanged sentences

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 September 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 2022 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, 2022, 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 March 31, 2023, our critical accounting policies and estimates have not changed from those described in our 2022 Annual Report on Form 10-K.

Medical Claims Payable

1 unchanged sentence

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

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.

As of March 31, 2023, our critical accounting policies and estimates related to medical claims payable have not changed from those described in our 2022 Annual Report on Form 10-K.

For a reconciliation of the beginning and ending balance for medical claims payable for the three months ended March 31, 2023 and 2022, see Note 8, “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 three months ended March 31, 2023 and 2022, 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 September 30, 2022.

Favorable Developments by

Changes in Key Assumptions

Nine Months Ended

Three Months Ended

Assumed trend factors $ 772 $ 880

1 unchanged sentence

Total $ 1,068 $ 933

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.

The favorable development recognized in the three months ended March 31, 2023 and 2022 resulted primarily from trend factors in late 2022 and late 2021, respectively, developing more favorably than originally expected.

Favorable development in the completion factors resulting from the latter part of 2022 developing faster than expected also contributed to the favorable development for the three months ended March 31, 2023.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 64.9% and 61.0% for the three months ended March 31, 2023 and 2022, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly higher during the three months ended March 31, 2023 as compared to the three months ended March 31, 2022.

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 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.

For the three months ended March 31, 2023, this metric was 7.5%, largely driven by favorable trend factor development at the

end of 2022 as well as favorable completion factor development factor from 2021.

For the three months ended March 31, 2022, this metric was 7.6%, largely driven by favorable trend factor development at the end of 2021.

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 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.

For the three months ended March 31, 2023, this metric was 0.9%, which was calculated using the redundancy of $1,068.

For the three months ended March 31, 2022, the comparable metric was 0.9%, which was calculated using the redundancy of $933.

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 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.

We adopted accounting standard amendments on long-duration insurance accounting which became effective for us on January 1, 2023, using the modified retrospective transition method for changes to the liability for future policy benefits and deferred acquisition costs as of the transition date, January 1, 2021.

While the adoption did not have an overall material impact, our prior period financial statements presented in this Form 10-Q have been restated to reflect the impacts of our adoption as required by the new standard.

For more information regarding this new accounting pronouncement that was adopted, see the “ Recently Adopted Accounting Guidance ” 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

Sources and Uses of Capital

Our cash receipts result primarily from premiums, product revenue, administrative fees and other revenue, investment income, proceeds from the sale or maturity of our investment securities, proceeds from borrowings, and proceeds from the issuance of common stock under our employee stock plans.

Cash disbursements result mainly from claims payments, administrative expenses, taxes, purchases of investment securities, interest expense, payments on borrowings, acquisitions, capital expenditures, repurchases of our debt securities and common stock and the payment of cash dividends.

Our cash receipts result primarily from premiums, product revenue, service fees, investment income, proceeds from the sale or maturity of our investment securities, proceeds from borrowings and proceeds from the issuance of common stock under our employee stock plans.

Cash disbursements result mainly from claims payments, operating expenses, taxes, purchases of investment securities, interest expense, payments on borrowings, acquisitions, capital expenditures, repurchases of our debt securities and common stock and the payment of cash dividends.

Cash outflows fluctuate with the amount and timing of settlement of these transactions.

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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 2022 Annual Report on Form 10-K.

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.

For additional information regarding our sources and uses of capital during the three months ended March 31, 2023, see Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “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 three months ended March 31, 2023 and 2022 is as follows:

Three Months Ended

2023 2022 Change

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Cash dividends (351) (309) (42)

Other uses of cash, net (416) — (416)

Total uses of cash (4,749) (1,963) (2,786)

Effect of foreign exchange rates on cash and cash equivalents 1 (4) 5

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 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 $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 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.

Net increase in cash and cash equivalents $ 2,755 $ 1,281 $ 1,474

The increase in net cash provided by operating activities was primarily due to the early receipt of April 2023’s premium payments from CMS, timing of working capital changes and higher net income for the three months ended March 31, 2023.

Other significant changes in sources or uses of cash year-over-year included higher amounts for purchases of subsidiaries, net of cash acquired and purchase of investments, net of proceeds from sales, maturities, calls and redemptions.

These additional uses of cash were partially offset by increased issuances of commercial paper and short- and long-term debt, net of repayments.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $38,953 at March 31, 2023.

Since December 31, 2022, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $3,909, primarily due to cash generated from operations and an increase in market value of our fixed maturity securities.

These increases were partially offset by cash used for the purchase of subsidiaries, cash used for common stock repurchases, dividends paid to shareholders and the purchase of property and equipment.

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 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.

At March 31, 2023, we held $1,062 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 9, “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 September 30, 2022 and December 31, 2021, respectively.

Our consolidated debt-to-capital ratio was 40.5% and 39.9% as of March 31, 2023 and December 31, 2022, 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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We have a senior revolving credit facility (the “5-Year Facility”) with a group of lenders for general corporate purposes.

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 5-Year Facility provides for a credit of up to $4,000 and matures in April 2027.

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

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

We had no amounts outstanding as of March 31, 2023 or December 31, 2022.

As of March 31, 2023, 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 September 30, 2022 and December 31, 2021, we had no outstanding borrowings under the Subsidiary Credit Facilities.

At March 31, 2023 and December 31, 2022, 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.

In July 2022, we increased the amount available under the commercial paper program from $3,500 to $4,000.

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.

Should commercial paper issuance become unavailable, we have the ability to use a combination of cash on hand and/or our 5-Year Facility to redeem any outstanding commercial paper upon maturity.

At March 31, 2023 and December 31, 2022, we had $325 and $0, respectively, outstanding under our commercial paper program.

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

We had $265 of outstanding short-term borrowings from the FHLBs at each of March 31, 2023 and December 31, 2022.

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 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.

For additional information regarding our sources and uses of capital at March 31, 2023, see Note 4, “Investments,” Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and Note 11, “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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Future Sources and Uses of Liquidity

We believe that funds from cash on hand, future operating cash receipts, investments and funds available under our commercial paper program, our 5-Year Facility, our Subsidiary Credit Facilities and the FHLBs will be adequate to fund our expected cash disbursements over the next twelve months.

We believe that cash on hand, future operating cash receipts, investments and funds available under our commercial paper program, our 5-Year Facility and our Subsidiary Credit Facilities and borrowings available from the FHLBs will be adequate to fund our expected cash disbursements over the next twelve months.

There have been no material changes to our long-term liquidity requirements as disclosed in our 2022 Annual Report on Form 10-K.

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Securities and Exchange Commission from time to time, which attempt to advise interested parties of the factors that affect our business.

Except to the extent otherwise required by federal securities laws, we do not undertake any obligation to republish revised forward-looking statements to reflect events or circumstances after the date hereof.

Except to the extent required by law, we do not update or revise any forward-looking statements to reflect events or circumstances occurring after the date hereof.

These risks and uncertainties include, but are not limited to:

the impact of large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19, and catastrophes;

trends in healthcare costs and utilization rates;

our ability to secure sufficient premium rates, including regulatory approval for and implementation of such rates;

the impact of federal, state and international law and regulation, including changes in the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, as amended;

reduced enrollment;

our ability to secure and implement sufficient premium rates;

the impact of large scale medical emergencies, such as public health epidemics and pandemics, including COVID-19, and other catastrophes;

the impact of new or changes in existing federal, state and international laws or regulations, including healthcare laws and regulations, or their enforcement or application;

the impact of cyber-attacks or other privacy or data security incidents or breaches or our failure to comply with any privacy or security laws or regulations, including any investigations, claims or litigation related thereto;

information technology disruptions;

changes in economic and market conditions, as well as regulations that may negatively affect our liquidity and investment portfolios;

our ability to contract with providers on cost-effective and competitive terms;

competitive pressures and our ability to adapt to changes in the industry and develop and implement strategic growth opportunities;

reduced enrollment;

the impact of a cyber-attack or other cyber security breach resulting in unauthorized disclosure of member or employee sensitive or confidential information, including the impact and outcome of any investigations, inquiries, claims and litigation related thereto;

risks and uncertainties regarding Medicare and Medicaid programs, including those related to non-compliance with the complex regulations imposed thereon;

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costs and other liabilities associated with litigation, government investigations, audits or reviews;

risks and uncertainties related to our pharmacy benefit management (“PBM”) business, including non-compliance by any party with the PBM services agreement between us and CaremarkPCS Health, L.L.C.;

medical malpractice or professional liability claims or other risks related to healthcare and PBM services provided by our subsidiaries;

general risks associated with mergers, acquisitions, joint ventures and strategic alliances;

changes in tax laws;

our ability to contract with providers on cost-effective and competitive terms;

failure to effectively maintain and modernize our information systems;

risks associated with providing pharmacy, healthcare and other diversified products and services, including medical malpractice or professional liability claims and non-compliance by any party with the pharmacy services agreement between us and CaremarkPCS Health, L.L.C.;

risks associated with mergers, acquisitions, joint ventures and strategic alliances;

possible impairment of the value of our intangible assets if future results do not adequately support goodwill and other intangible assets;

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our ability to repurchase shares of our common stock and pay dividends on our common stock due to the adequacy of our cash flow and earnings and other considerations;

the potential negative effect from our substantial amount of outstanding indebtedness;

the potential negative effect from our substantial amount of outstanding indebtedness and the risk that increased interest rates or market volatility could impact our access to or further increase the cost of financing;

a downgrade in our financial strength ratings;

the effects of any negative publicity related to the health benefits industry in general or us in particular;

failure to effectively maintain and modernize our information systems;

events that may negatively affect our licenses with the Blue Cross and Blue Shield Association;

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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