What changed in this filing

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Item 2. Management’s Discussion and Analysis

2023-10-18 compared with 2023-07-19 · 170 added, 151 removed, 315 unchanged (50% of the section changed)

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

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.

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, as well as our consolidated financial statements and notes as of and for the year ended December 31, 2022 and the MD&A included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

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.

Results of operations, cost of care trends, investment yields and other measures for the three and six months ended June 30, 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.

We are filing Exhibit 99.1 to this Quarterly Report on Form 10-Q to recast certain prior years’ financial information and related disclosures included in Part I, Item 1, “Business,” Part II, Item 7, “Management's Discussion and Analysis of Financial Condition and Results of Operations” and Part II, Item 8, “Financial Statements and Supplementary Data” of our 2022 Annual Report on Form 10-K to reflect changes to our reportable segments beginning in the first quarter of 2023, as well as the impact of the adoption of a new accounting standard related to the accounting for long-duration insurance contracts, which we adopted on January 1, 2023, using a modified retrospective transition method as of January 1, 2021.

The recast financial information and related disclosures set forth in Exhibit 99.1 to this Quarterly Report on Form 10-Q present such financial information and related disclosures in these items as they would have appeared had we changed our reportable segments and adopted the new accounting standard prior to January 1, 2023 and do not reflect events or developments that may have occurred subsequent to the filing of our 2022 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, 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 one of the largest health insurers in the United States in terms of medical membership, serving approximately 48 million medical members through our affiliated health plans as of June 30, 2023.

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

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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:

We now report our results of operations 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).

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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.

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 2022 Annual Report on Form 10-K.

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

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

Business Trends

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.

We made the decision to expand our participation in the Individual state- or federally-facilitated marketplaces (the “Public Exchange”) for 2023.

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.

As described in “ Regulatory Trends and Uncertainties ” below, we expect growth in our Public Exchange membership as Medicaid members who are no longer eligible for Medicaid coverage continue to exit the Medicaid program and seek coverage elsewhere.

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.

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

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.

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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, labor costs and healthcare provider or member fraud.

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

For additional discussion regarding business trends, see Part I, Item 1, “Business” included in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

Regulatory Trends and Uncertainties

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As redeterminations have resumed, we have experienced a decline in our Medicaid membership.

Over time, we expect growth in our commercial plans, including through the Public Exchanges, as members who do not qualify for redetermination exit the Medicaid program in our 14 commercial states and seek coverage elsewhere.

Over time, we expect growth in our commercial plans, including through the Public Exchanges, as members who are no longer eligible for Medicaid coverage in our 14 commercial states seek coverage elsewhere.

On May 11, 2023, the PHE ended in accordance with the Biden Administration’s January 30, 2023 announcement.

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

The extension of the enhanced PTC has allowed for growth in Individual exchange market enrollment as Medicaid eligibility redeterminations have resumed, supporting continuity of coverage for more people.

The extension of the enhanced PTC has allowed for growth in Individual Public Exchange enrollment as Medicaid eligibility redeterminations have resumed, 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 requirements of the Appropriations Act applicable to us have varying effective dates, some of which were effective in December 2021 and others that were extended into 2023 since the enactment of the Appropriations Act.

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

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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.

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 2022 Annual Report on Form 10-K.

For additional discussion regarding regulatory trends and uncertainties and risk factors, see Part I, Item 1, “Business – Regulation” 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 Exhibit 99.1 to this Quarterly Report on Form 10-Q, and Part I, Item 1A, “Risk Factors” of our 2022 Annual Report on Form 10-K.

Other Significant Items

Business and Operational Matters

During the third quarter of 2023, based on a strategic review of our operations, assets and investments, management implemented the “2023-2024 Business Efficiency Program” to refine the focus of our investments, and optimize our physical footprint.

The 2023-2024 Business Efficiency Program includes the write-off of certain information technology assets and contract exit costs, a reduction in staff including the relocation of certain job functions, and the impairment of assets associated with the closure or partial closure of data centers and offices.

The 2023-2024 Business Efficiency Program is expected to be substantially complete by the end of the third quarter of 2024.

For additional information, see Note 4, “Business Optimization Initiatives” and Note 16, “Leases,” of the Notes to Consolidated Financial Statements included in Part 1, Item 1 of this Quarterly Report on Form 10-Q.

Pursuant to CMS’s Medicare Advantage Star ratings system, CMS annually awards between 1.0 and 5.0 Stars to Medicare Advantage plans based on performance in several categories.

Plans must have a Star rating of 4.0 or higher to qualify for bonus payments.

CMS released the Company’s 2024 Star ratings in October 2023.

The Company’s 2024 Star ratings will be used to determine the Company’s Medicare Advantage plans' Star quality bonus payments in 2025.

Based on membership at September 1, 2023, 34% of our Medicare Advantage members were in plans with 2024 Star ratings of at least 4.0 Stars, compared to 64% of our Medicare Advantage members being in plans with 2023 Star ratings of at least 4.0 Stars based on the Company’s membership at September 1, 2022.

The change in our 2024 Star ratings is not projected to impact our Star quality bonus payments and plan level rebates until 2025.

We expect a reduction to our 2025 operating revenue of approximately $500, net of offsets from contracting provisions.

Further, we expect to mitigate the financial impact to our 2025 operating gain and net income per share through various strategies such as contract diversification, operating expense efficiencies, capital deployment alternatives and network enhancements.

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

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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.

The divestiture is expected to close in the first half 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.

The acquisition is expected to close in the first half of 2024 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.

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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.

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.

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.

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 Quarterly Report on 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.

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.

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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, which has scheduled oral argument on the appeals for September 2023.

Those appeals were heard by a panel of the United States Court of Appeals for the Eleventh Circuit in September 2023.

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.

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

Selected Operating Performance

For the twelve months ended June 30, 2023, total medical membership increased by 0.9 million, or 2.0%.

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

Operating revenue for the three months ended June 30, 2023 was $43,377, an increase of $4,895, or 12.7%, from the three months ended June 30, 2022.

Operating revenue for the six months ended June 30, 2023 was $85,275, an increase of $8,907, or 11.7%, from the six months ended June 30, 2022.

This increase in operating revenue for both periods was primarily driven by higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect cost of care and membership growth in our Medicaid and Medicare Advantage businesses.

The increase in operating revenue was further attributable to growth in CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Net income for the three months ended June 30, 2023 was $1,856, an increase of $222, or 13.6%, from the three months ended June 30, 2022.

Net income for the six months ended June 30, 2023 was $3,860, an increase of $447, or 13.1%, from the six months ended June 30, 2022.

The increase in net income for both periods was primarily due to operating gain increases in our Health Benefits, CarelonRx and Carelon Services business segments, lower net losses on financial instruments and higher net investment income.

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

Our fully-diluted shareholders’ earnings per share (“EPS”) was $7.79 for the three months ended June 30, 2023, which represented a 15.8% increase from EPS of $6.73 for the three months ended June 30, 2022.

Our fully-diluted EPS was $16.10 for the six months ended June 30, 2023, which represented a 14.6% increase from fully-diluted EPS of $14.05 for the six months ended June 30, 2022.

The increase in EPS for both periods resulted primarily from higher net income.

Operating cash flow for the six months ended June 30, 2023 and 2022 was $8,419 and $4,993, respectively.

The increase was primarily due to the timing of CMS payments received in the current year and higher net income for the six months ended June 30, 2023, partially offset by the timing of working capital changes.

For the twelve months ended September 30, 2023, total medical membership increased slightly.

This was primarily driven by increases in our BlueCard business, as well as growth in our Individual Public Exchange and Medicare Advantage products.

These increases were partially offset by attrition in our Medicaid business due to the resumption of eligibility redeterminations and reduced membership due to a new entrant into one of our state Medicaid programs, as well as lapses exceeding sales in our Employer Group risk-based business.

Operating revenue for the three months ended September 30, 2023 was $42,480, an increase of $2,855, or 7.2%, from the three months ended September 30, 2022.

The increase was primarily a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Operating revenue for the nine months ended September 30, 2023 was $127,755, an increase of $11,762, or 10.1%, from the nine months ended September 30, 2022.

This increase in operating revenue was primarily a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Net income for the three months ended September 30, 2023 was $1,300, a decrease of $298, or 18.6%, from the three months ended September 30, 2022.

This decline was primarily due to business optimization charges recorded during the third quarter of 2023 and increased net losses on financial instruments, partially offset by operating gain increases in our Health Benefits and Carelon Services segments, higher net investment income and lower income taxes.

Net income for the nine months ended September 30, 2023 was $5,160, an increase of $149, or 3.0%, from the nine months ended September 30, 2022.

This increase in net income was primarily due to operating gain increases in our Health Benefits, CarelonRx and Carelon Services segments and increased net investment income.

These increases were offset by business optimization charges recorded in the third quarter of 2023 and higher interest expense and amortization of other intangible assets.

Our fully-diluted shareholders’ earnings per share (“EPS”) was $5.45 for the three months ended September 30, 2023, which represented a 17.7% decrease from EPS of $6.62 for the three months ended September 30, 2022.

This decrease in EPS for the three months ending September 30, 2023 resulted primarily from lower shareholders' net income, partially offset by the impact of fewer diluted shares outstanding.

Our fully-diluted EPS was $21.56 for the nine months ended September 30, 2023, which represented a 4.3% increase from fully-diluted EPS of $20.67 for the nine months ended September 30, 2022.

This increase in EPS for the nine months ending September 30, 2023 resulted primarily from fewer diluted shares outstanding, as well as increased shareholders' net income.

Operating cash flow for the nine months ended September 30, 2023 and 2022 was $11,032 and $9,917, respectively.

The increase was primarily due to higher net income in 2023, when excluding the non-cash impact of business optimization charges recognized in the third quarter of 2023, as well as the non-recurrence of the Subscriber Settlement Agreement payment made in September 2022.

Membership and Other Metrics

The following table presents our medical membership by customer type as of June 30, 2023 and 2022.

The following table presents our medical membership by customer type as of September 30, 2023 and 2022.

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

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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.

2023 2022 Change % Change

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Medical Membership

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

Medical membership increased slightly during the twelve months ended September 30, 2023.

This was primarily driven by increases in our BlueCard business, as well as growth in our Individual Public Exchange and Medicare Advantage products.

Other Membership

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Life and disability membership decreased primarily due to lapses associated with our Employer Group risk-based accounts.

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

Dental membership increased primarily due to 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 standalone pharmacy customers.

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

Consolidated Results of Operations

Our consolidated summarized results of operations and other financial information for the three and six months ended June 30, 2023 and 2022 are as follows:

Our consolidated summarized results of operations and other financial information for the three and nine months ended September 30, 2023 and 2022 are as follows:

Three Months Ended

June 30 Six Months Ended

June 30 Change

September 30 Nine Months Ended

September 30 Change

Three Months Ended

June 30 Six Months Ended

September 30 Nine Months Ended

2022 2023 vs.

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

Premiums for the three months ended June 30, 2023 and 2022 were $36,589 and $33,076, respectively.

Premiums for the six months ended June 30, 2023 and 2022 were $72,457 and $65,861, respectively.

Premiums for the three months ended September 30, 2023 and 2022 were $35,259 and $33,722, respectively.

Premiums for the nine months ended September 30, 2023 and 2022 were $107,716 and $99,583, respectively.

3 bp = basis point;

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

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

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

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

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 medical cost trends as well as healthcare costs associated with membership growth.

Our benefit expense ratio decreased, driven by premium rate increases to more accurately reflect cost of care.

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Total operating revenue increased primarily as a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care.

The increase was further attributable to growth in our CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

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

Net losses on financial instruments increased primarily due to increased losses on the sale of fixed maturity securities and other invested assets.

Benefit expense increased primarily due to medical cost trends.

Our benefit expense ratio decreased, driven by premium rate increases to more accurately reflect cost of care, partially offset by the impact of the realignment of certain year-to-date quality improvement costs from benefit expense to operating expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

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.

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

Our operating expense ratio remained unchanged primarily due to continued expense leverage associated with our growth in operating revenue, offset by increased spend to support growth.

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 remained constant in 2023 as compared to 2022 as a result of all factors discussed above.

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

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

Operating expense increased primarily due to the business optimization charges recorded in the third quarter of 2023, including internally developed software impairment and severance costs.

There were no business optimization charges recorded in the third quarter of 2022.

These increases were partially offset by the realignment of certain year-to-date quality improvement costs from benefit expense to operating expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

Our operating expense ratio increased primarily due to the business optimization charges recognized in the third quarter of 2023, partially offset by the favorable impact of operating revenue growth and the impact of the realignment of certain year-to-date quality improvement costs from benefit expense that occurred in the third quarter of 2022 and did not recur in the third quarter of 2023.

Other expense increased primarily due to an increase in interest expense, partially offset by a decline in amortization of other intangible assets.

Our effective income tax rate decreased in 2023 primarily due to the tax impact of expected geographic changes in our mix of 2023 earnings.

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

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Total operating revenue increased primarily as a result of higher premium revenues due to premium rate increases in our Health Benefits business to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

The increase was further attributable to growth in our

CarelonRx pharmacy product revenue driven by growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

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

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

Benefit expense increased primarily due to medical cost trends as well as healthcare costs associated with membership growth.

Our benefit expense ratio decreased, driven by premium rate increases to more accurately reflect cost of care.

Our benefit expense ratio decreased, primarily driven by premium rate increases in our Health Benefits segment to more accurately reflect the cost of care.

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.

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

Our operating expense ratio remained unchanged primarily due to continued expense leverage associated with our growth in operating revenue, offset by increased spend to support growth.

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.

Operating expense increased primarily due to the business optimization charges recorded in the third quarter of 2023 and increased costs to support growth.

There were no business optimization charges recorded in 2022.

Our operating expense ratio increased primarily due to the business optimization charges recorded in the third quarter of 2023 and increased costs to support growth, partially offset by the favorable impact of operating revenue growth.

Other expense increased primarily due to an increase in interest expense and additional amortization of other intangible assets.

Our effective income tax rate decreased in 2023 primarily due to the tax impact of expected geographic changes in our mix of 2023 earnings.

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

Reportable Segments Results of Operations

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This information is not intended to be considered in isolation or as a substitute for income before income tax expense, shareholders’ net income or EPS prepared in accordance with GAAP, and may not be comparable to similarly titled measures reported by other companies.

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 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:

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 15, “Segment Information,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

As discussed in Note 1 “Organization,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q, we changed our reportable segment presentation and its composition to reflect how we began managing our operations and monitoring performance, aligning strategies and allocating resources beginning on January 1, 2023.

We now report our results of operations 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.

The following table presents a summary of the reportable segment financial information for the three and six months ended June 30, 2023 and 2022:

Six Months Ended

June 30 Change

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

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

The following table presents a summary of the reportable segment financial information for the three and nine months ended September 30, 2023 and 2022:

Nine Months Ended

September 30 Change

Three Months Ended

June 30 Three Months Ended

June 30 Six Months Ended

September 30 Three Months Ended

September 30 Nine Months Ended

2022 2023 vs.

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Carelon Services 173 125 518 438 48 38.4 % 80 18.3 %

Corporate & Other (152) (27) (201) (49) (125) 463 % (152) 310 %

Corporate & Other (741) (24) (942) (73) (717) NM (869) NM

Operating Margin

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one hundred basis points = 1%.

Three Months Ended June 30, 2023 Compared to the Three Months Ended June 30, 2022

Three Months Ended September 30, 2023 Compared to the Three Months Ended September 30, 2022

Health Benefits

Operating revenue increased primarily due to higher premium revenues due to premium rate increases to more accurately reflect cost of care and membership growth in our Medicaid and Medicare Advantage businesses.

Operating gain increased primarily due to higher premium revenues due to premium rate increases to more accurately reflect cost of care and membership growth in our Medicaid business, partially offset by a charge associated with a court ruling impacting health plans in a certain state related to prior years’ COVID-19 costs.

Operating revenue and operating gain increased primarily as a result of growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023, partially offset by the impact of a favorable out-of-period adjustment in the second quarter of 2022 that did not recur in the second quarter of 2023.

Operating revenue and operating gain increased primarily as a result of higher premium revenues due to premium rate increases to more accurately reflect the cost of care.

Operating revenue increased primarily as a result of growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023, partially offset by the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023.

Operating gain decreased primarily due to the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023, partially offset by the acquisition of BioPlus in the first quarter of 2023 and growth in external pharmacy members.

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 medical management businesses and the expansion of our post-acute care services, partially offset by medical cost trends.

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

The increase in operating gain was primarily driven by the continued expansion of our post-acute care services business and improved performance in our behavioral health business.

Corporate & Other

Operating revenue decreased primarily due to an unfavorable out-of-period adjustment in our international operations.

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

Six Months Ended June 30, 2023 Compared to the Six Months Ended June 30, 2022

Operating revenue increased primarily due to higher affiliated revenue in our international operations.

Operating loss increased primarily due to the business optimization charges recorded in the third quarter of 2023.

Nine Months Ended September 30, 2023 Compared to the Nine Months Ended September 30, 2022

Health Benefits

Operating revenue increased primarily due to premium rate increases to more accurately reflect cost of care and membership growth in our Medicaid and Medicare Advantage businesses.

Operating gain increased primarily due to premium rate increases to more accurately reflect cost of care and membership growth in our Medicaid businesses, partially offset by a charge associated with a court ruling impacting health plans in a certain state related to prior years’ COVID-19 costs.

Operating revenue increased primarily due to higher premium revenues due to premium rate increases to more accurately reflect the cost of care and membership growth in our Medicaid business in the first half of 2023, as well as in our Medicare Advantage business.

Operating gain increased primarily due to premium rate increases to more accurately reflect the cost of care and membership growth in our Medicaid business, partially offset by a charge associated with a court ruling impacting health plans in a certain state related to prior years’ COVID-19 costs.

Operating revenue increased primarily as a result of growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023.

Operating gain increased primarily due to growth in external pharmacy members and the acquisition of BioPlus in the first quarter of 2023, partially offset by the impact of a favorable out-of-period adjustment in the third quarter of 2022 that did not recur in the third quarter of 2023.

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 the expansion of our post-acute care services and improved performance in our medical management businesses, partially offset by medical cost trends.

The increase in operating gain was primarily driven by the continued expansion of our post-acute care services and improved performance in our medical management businesses, partially offset by medical cost trends.

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.

Operating loss increased primarily due to an increase in corporate expenses, including primarily for the business optimization charges recorded in the third quarter of 2023.

Critical Accounting Policies and Estimates

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

Our accounting policies related to these items are discussed in our 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 June 30, 2023, our critical accounting policies and estimates have not changed from those described in our 2022 Annual Report on Form 10-K.

Our accounting policies related to these items are discussed in Exhibit 99.1 to this Quarterly Report on Form 10-Q 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 September 30, 2023, our critical accounting policies and estimates have not changed from those described in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

Medical Claims Payable

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

As of June 30, 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 six months ended June 30, 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 six months ended June 30, 2023 and 2022, which are the trend and completion factors.

As of September 30, 2023, our critical accounting policies and estimates related to medical claims payable have not changed from those described in Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For a reconciliation of the beginning and ending balance for medical claims payable for the nine months ended September 30, 2023 and 2022, see Note 9, “Medical Claims Payable,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on 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, 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.

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Changes in Key Assumptions

Six Months Ended

Nine Months Ended

Assumed trend factors $ 789 $ 850

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Total $ 1,342 $ 901

The favorable development recognized in the six months ended June 30, 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 six months ended June 30, 2023.

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 78.7% and 76.9% for the six months ended June 30, 2023 and 2022, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly higher during the six months ended June 30, 2023 as compared to the six months ended June 30, 2022.

The favorable development recognized in the nine months ended September 30, 2023 resulted from trend factors in late 2022 developing more favorably than originally expected and completion factors in the latter parts of 2022 developing faster than expected.

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

The ratio of current year medical claims paid as a percent of current year net medical claims incurred was 84.6% and 83.7% for the nine months ended September 30, 2023 and 2022, respectively.

This ratio serves as an indicator of claims processing speed whereby speed for claims payments was slightly higher during the nine months ended September 30, 2023 as compared to the nine months ended September 30, 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 six months ended June 30, 2023, this metric was 7.8%, largely driven by favorable trend factor development at the end of 2022 as well as favorable completion factor development from 2022.

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

For the nine months ended September 30, 2023, this metric was 9.6%, largely driven by favorable trend factor development at the end of 2022 as well as favorable completion factor development from 2022.

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.

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

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

For the six months ended June 30, 2023, this metric was 1.0%, which was calculated using the redundancy of $1,112.

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

For the nine months ended September 30, 2023, this metric was 1.2%, which was calculated using the redundancy of $1,342.

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

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

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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.

While the adoption did not have an overall material impact, our prior period financial statements presented in this Quarterly Report on 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 and new accounting pronouncements that were issued during the nine months ended September 30, 2023, 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 Quarterly Report on Form 10-Q.

Liquidity and Capital Resources

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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 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.

Any future decline in our profitability would likely have an unfavorable impact on our liquidity.

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 six months ended June 30, 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 six months ended June 30, 2023 and 2022 is as follows:

Six Months Ended

For additional information regarding our sources and uses of capital during the three and nine months ended September 30, 2023, 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, 2023 and 2022 is as follows:

Nine Months Ended

2023 2022 Change

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Issuances of short- and long-term debt, net of repayments 401 669 (268)

Changes in securities lending payable 145 — 145

Proceeds from issuance of common stock under employee stock plans 112 152 (40)

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Cash dividends (1,049) (924) (125)

Changes in securities lending payable (145) — (145)

Changes in bank overdrafts (523) — (523)

Other uses of cash, net (175) — (175)

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Net increase in cash and cash equivalents $ 3,532 $ 3,992 $ (460)

The increase in net cash provided by operating activities was primarily due to the timing of CMS payments received in the current year and higher net income for the six months ended June 30, 2023, partially offset by the timing of working capital changes.

Other significant changes in sources or uses of cash year-over-year included a decline in bank overdrafts outstanding (included in Other uses and sources of cash, net), higher amounts for purchases of subsidiaries, net of cash acquired and an increase in the purchase of property and equipment.

These additional uses of cash were partially offset by increased issuances of short- and long-term debt, net of repayments, and reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $39,059 at June 30, 2023.

Since December 31, 2022, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $4,015, primarily due to cash generated from operations and an increase in the 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.

The increase in net cash provided by operating activities was primarily due to higher net income in 2023, when excluding the non-cash impact of business optimization charges recognized in the third quarter of 2023, as well as the non-recurrence of the Subscriber Settlement Agreement payment made in September 2022.

Other significant changes in sources or uses of cash year-over-year included higher amounts for purchases of subsidiaries, net of cash acquired, a decrease in the issuance of short- and long term debt, net of repayments, a decline in bank overdrafts outstanding, an increase in the purchase of property and equipment and an increase in cash dividends.

These additional uses of cash were partially offset by reduced purchases of investments, net of proceeds from sales, maturities, calls and redemptions.

We maintained a strong financial condition and liquidity position, with consolidated cash, cash equivalents and investments in fixed maturity and equity securities of $39,711 at September 30, 2023.

Since December 31, 2022, total cash, cash equivalents and investments in fixed maturity and equity securities increased by $4,667, primarily due to cash generated from operations, partially offset by cash used for the purchase of subsidiaries, cash used for the repurchase and retirement of common stock, the purchase of property and equipment and dividends paid to shareholders.

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

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

At June 30, 2023, we held $1,043 of cash, cash equivalents and investments at the parent company, which are available for general corporate use, including investment in our businesses, acquisitions, potential future common stock repurchases and dividends to shareholders, repurchases of debt securities and debt and interest payments.

At September 30, 2023, we held $1,659 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.

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.

We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our consolidated balance sheets included in Part I, Item 1 of this Form 10-Q.

Our debt-to-capital ratio is calculated as total debt divided by total debt plus total shareholders’ equity.

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

We calculate our consolidated debt-to-capital ratio, a non-GAAP measure, from the amounts presented on our consolidated balance sheets included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Our debt-to-capital ratio is calculated as total debt divided by total debt plus total equity.

Total debt is the sum of short-term borrowings, current portion of long-term debt and long-term debt, less current portion.

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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 39.6% and 39.9% as of June 30, 2023 and December 31, 2022, respectively.

Our consolidated debt-to-capital ratio was 39.2% and 39.9% as of September 30, 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 do not believe the restrictions contained in our 5-Year Facility covenants materially affect our financial or operating flexibility.

We had no amounts outstanding under the 5-Year Facility as of June 30, 2023 or December 31, 2022.

As of June 30, 2023, we were in compliance with all of the debt covenants under the 5-Year Facility.

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

The Subsidiary Credit Facilities provided combined credit up to $200.

As of June 30, 2023, the Subsidiary Credit Facilities have been terminated.

We had no amounts outstanding under the 5-Year Facility as of September 30, 2023 or December 31, 2022.

As of September 30, 2023, we were in compliance with all of the debt covenants under the 5-Year Facility.

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

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 June 30, 2023 and December 31, 2022, we had $90 and $0, respectively, outstanding under our commercial paper program.

Beginning June 30, 2023, we have reclassified our commercial paper balances from long-term debt to short-term debt as our intent is to not replace short-term commercial paper outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year.

At September 30, 2023 and December 31, 2022, we had no commercial paper outstanding under our commercial paper program.

Beginning June 30, 2023, we have reclassified our commercial paper balances, if any, from long-term debt to short-term debt as our intent is to not replace short-term commercial paper outstanding at expiration with additional short-term commercial paper for an uninterrupted period extending for more than one year.

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

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

We had $175 and $265 of outstanding short-term borrowings from the FHLBs at June 30, 2023 and December 31, 2022, respectively.

We had $0 and $265 of outstanding short-term borrowings from the FHLBs at September 30, 2023 and December 31, 2022, respectively.

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

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

For additional information regarding our sources and uses of capital at June 30, 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.

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, 2023, 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 Quarterly Report on 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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In addition to exceeding these RBC requirements, we are in compliance with the liquidity and capital requirements for a licensee of the BCBSA and with the tangible net worth requirements applicable to certain of our California subsidiaries.

For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2022 included in our 2022 Annual Report on Form 10-K.

For additional information, see Note 22, “Statutory Information,” in our audited consolidated financial statements as of and for the year ended December 31, 2022 included in Part II, Item 8 of Exhibit 99.1 to this Quarterly Report on Form 10-Q.

Future Sources and Uses of Liquidity

We believe that cash on hand, future operating cash receipts, investments and funds available under our commercial paper program, our 5-Year Facility 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.

For additional updates regarding our estimated long-term liquidity requirements, see Note 5, “Derivative Financial Instruments,” Note 9, “Debt,” and the “ Other Contingencies ” and “ Contractual Obligations and Commitments ” sections of Note 10 “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.

We believe that funds from future operating cash flows, cash and investments and funds available

under our 5-Year Facility and/or from public or private financing sources will be sufficient for future operations and commitments, and for capital acquisitions and other strategic transactions.

There have been no material changes to our long-term liquidity requirements as disclosed in Part II, Item 7 of Exhibit 99.1 to this Quarterly Report on Form 10-Q.

For additional updates regarding our estimated long-term liquidity requirements, see Note 6, “Derivative Financial Instruments,” Note 10, “Debt,” and the “ Other Contingencies ” and “ Contractual Obligations and Commitments ” sections of Note 11 “Commitments and Contingencies,” of the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We believe that funds from future operating cash flows, cash and investments and funds available under our 5-Year Facility and/or from public or private financing sources will be sufficient for future operations and commitments, and for capital acquisitions and other strategic transactions.

FORWARD-LOOKING STATEMENTS

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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